Q4 GDP Revised Upward, Consumer Confidence Further Firms. What We Learned During the Week of March 27 – 31

The U.S. economy ended 2016 a bit stronger than previously thought, while consumer sentiment continued to brighten for many Americans during March. Here are the 5 things we learned from U.S. economic data released during the week ending March 31.

#1The “final” revision to Q4 2016 GDP indicates a slightly healthier economy that previously believed. The Bureau of Economic Analysis now places the seasonally adjusted annualized growth rate of the Gross Domestic Product (GDP) at a solid, if not particularly great, +2.1 percent. This was an improvement from the 1.9 percent increase previously reported over the past two months, mainly the result of higher estimates for personal spending and private inventory accumulation. What did not change was that the GDP components that positively contributed to economic growth during the quarter were personal consumption expenditures (adding 240-basis points to GDP growth), the change in private inventories (+101-basis points), residential fixed investment (+35-basis points), nonresidential fixed investment (+11-basis points), and government expenditures (+3-basis points). Holding back GDP growth were a rise in imports (costing 127-basis points in GDP growth) and a decline in exports (costing 55-basis points in GDP growth). Meanwhile, corporate profits inched up 0.5 percent during Q4 to a seasonally adjusted annualized rate of $2.150 trillion (+9.3 percent vs. Q4 2015). We will get the first estimate of Q1 2017 GDP on April 28.

#2“Real” personal spending slipped for a second straight month. The Bureau of Economic Analysis reports that personal consumption expenditures (PCE) adjusted for inflation (using 2009 chained dollars) inched down 0.1 percent during February, leaving the measure of consumer spending 2.6 percent above that of a year earlier. Real spending on goods increased 0.1 percent during the month, with expenditures on durable goods off 0.1 percent and that on nondurables up 0.1 percent. Moderate winter weather lowered demand for utilities, which led to a 0.1 percent decline in spending on services. Over the past year, real spending on goods has grown 4.4 percent while that on services was up 1.8 percent. Without price adjustments, personal spending increased 0.1 percent during the month, funded by a 0.4 percent increase in nominal personal income. Disposable personal income grew 0.3 percent, with the gain shrinking to 0.2 percent after adjustments for inflation. Real disposable income was 2.3 percent above that of February 2016. The saving rate grew by 2/10ths of a percentage point to +5.6 percent. Finally, inflation moves ever slowly closer to the Federal Reserve’s two percent target rate. The PCE deflator, a measure of inflation, grew 0.1 percent during February and was up 2.1 percent from a year earlier. Net of energy and food, the PCE deflator increased 0.2 percent during February with a 12-month comparable of +1.8 percent.GDP-Growth-2013-2016-033117

#3Consumers grew more confident during March. The Conference Board’s Consumer Confidence Index surged 9.5 points during the month to a seasonally adjusted reading of 125.6 (1985 = 100). This was measure’s best reading in more than 16 years. Survey respondents’ views of both current and future business conditions improved significantly from February, with the present conditions index adding 9.7 points to 143.1 and the expectations index rising by 9.9 points to 143.1. A closer glance at the data finds 32.2 percent of respondents characterizing current business conditions as “good” (versus 12.9 percent saying they were “bad”) while 31.7 percent claimed that jobs were “plentiful” (versus 19.5 percent saying they were “hard to get”). The press release noted that “consumers feel current economic conditions have improved over the recent period, and their renewed optimism suggests the possibility of some upside to the prospects for economic growth in the coming months.”

While the University of Michigan’s Index of Consumer Sentiment added 6/10ths of a point to a seasonally adjusted reading of 96.9 (1966Q1 = 100), the press release noted a sharp partisan divide in views of economic conditions. “Democrats expect an imminent recession, higher unemployment, lower income gains, and more rapid inflation, while Republicans anticipate a new era of robust growth in incomes, job prospects and lower inflation.” Only a quarter of Democrats expect their personal finances will improve over the next five years, compared to 83 percent of Republicans who are anticipating the same. Two-thirds of Democrats expect “renewed economy-wide downturns” while only 13 percent of Republicans fear of the same. During the month, the current conditions index added 1.7 points to a reading of 113.2 (+7.2 percent versus March 2016) while the expectations index held steady at 86.5 (+6.1 percent versus March 2016).

#4Pending home sales sharply increased in February. The National Association of Realtors’ Pending Home Sales Index jumped 5.5 percent during the month to a reading of 112.3 (2001 = 100). This was up 2.6 percent from a year earlier and the second-highest reading since 2006 (the highest reading having occurred last April). The index, which measures the number of contracts signed to purchase a previously owned home, grew during the month in all four Census regions: Midwest (+11.4 percent), South (+4.3 percent), Northeast (+3.4 percent), and West (+3.1 percent). The press release links the rise in the index to “[t]he stock market’s continued rise and steady hiring in most markets,” along with moderate winter weather bringing homebuyers into the market.

#5Agricultural prices rose in February. The U.S. Department of Agriculture reports that its prices received by farmers index increased 6.1 percent during the month to a reading of 91.7 (2011 = 100). This was 0.9 percent below the February 2016 reading. Crop prices jumped 10.0 percent during the month, led by significant prices increases for vegetables/melons, fruit/tree nuts, and grains/oilseed. The measure has risen 3.5 percent over the past year. Prices for livestock production slipped 0.5 percent during February and was 3.2 percent below their year ago readings. Prices fell for poultry/eggs and dairy but increased for meat animals.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 25, 2017, First-Time Claims, seasonally adjusted): 258,000 (-3,000 vs. previous week; -17,000 vs. the same week a year earlier). 4-week moving average: 254,250 (-5.1% vs. the same week a year earlier).

The opinions expressed here are not necessarily those of Kevin’s current and previous employers. No endorsements are implied.

Consumer Sentiment Improved as 2015 Wrapped Up: What We Learned During the Week of December 28 – January 1

Another consumer sentiment survey rebounding in December was the highlight in an otherwise quiet holiday week of economic data news. Here are the 5 things we learned from U.S. economic data released during the week ending January 1.

#1Another survey finds improving consumer confidence as 2015 wrapped up. Mimicking what we saw last week with a University of Michigan survey, the Conference Board Consumer Confidence Index added 3.9 points during December to a seasonally adjusted 96.5 (1985 = 100). Unlike with the University of Michigan Survey (which hit a 6-month high), this survey’s gain only recaptured some of the 6.5 points that were shed back in November. The present conditions index added 4.3 points to 115.3 (its best since September) while the expectations index added 3.5 points to 83.9 (still below the 88.7 reading from October). 27.3% of survey respondents said that business conditions were “good” versus 19.8% that said that they were “bad.” Looking to the future, 12.9% expected the number of available jobs was going to increase over the next 6 months and 16.3% anticipate their incomes will gain. The press release states that “consumers are expecting little change in both business conditions and the labor market” in 2016. Of more immediate interest, the bump up in both sentiment surveys would seem to suggest that the recently completed holiday sales season was a good one. Some other anecdotal information released in recent days suggest the same, including that from MasterCard, while other sales trackers were less sanguine. We will learn more in the coming days and weeks.

#2Even with an increase in the days before Christmas, jobless claims remained at levels not seen in 15 years. The Department of Labor reports that the count of 1st time claims for unemployment insurance benefits jumped by 20,000 during the week ending December 26 to a seasonally adjusted 287,000. This was the measure’s largest 1-week gain since February, but it is worth noting that the data series can be particularly volatile during the holidays. The 4-week moving average increased by 4,500 to 277,000 claims. 010116graphicEven with its recent increases, the moving average in initial jobless claims remained 3.7% below year ago levels and has stayed under 280,000 every week since early May. The 4-week moving average of continuing jobless claims was at 2.220 million for the week ending December 19, down 7.5% from the same week a year earlier. 

#3Pending sales of previously owned homes slowed for the 3rd time in 4 months in November. The Pending Home Sales Index from the National Association of Realtors dropped a full point to a seasonally adjusted 106.9 (2001 = 100). Even with the recent declines, the index remained 2.7% above year ago levels. The index, which tracks signed contracts to purchase previously owned homes, gained during the month in the South (+1.3%) and Midwest (+1.0%) but contracted in the West (-5.5%) and Northeast (-3.0%). The Pending Home Sales Index was above their year ago readings in all 4 Census regions. NAR’s press release offered a number of reasons for the recent softness in contract signings; including, rising home prices, tight inventories and “mixed signs of an economy losing momentum.”

#4Home prices jumped on a seasonally adjusted basis during October. The 20-city S&P Case-Shiller Home Price Index came in at 182.83, up 0.1% from September on a nominal basis that translates into a 0.8% surge after adjusting for typical seasonal variation. The 20-city index was 5.5% above year ago levels, yet remained 11.5% below the data series’ July 2006 peak. The index gained in 10 of the 20-tracked markets—led by Tampa (+0.7%), San Francisco (+0.6%), Phoenix (+0.5%) and Portland (+0.5%)—and was up in all 20 markets after taking typical seasonal variations into account. 3 markets have seen prices grow by more than 10% over the past year: Denver (+10.9%), Portland (+10.9%) and San Francisco (+10.9%). The press release notes that “generally good economic conditions continue to support gains in home prices.” Further, it says that future home buyers have little reason to “fear runaway mortgage interest rates” even as the Federal Reserve begins to bump up the fed funds target rate.

#5Higher prices for fruit, vegetables and dairy goods in November led to only the 2nd gain in agricultural prices over the 6 months. The Department of Agriculture’s index for prices received by farmers increased by 3 points to 95 (100 = 2011). This was down 5.4% from the same month a year earlier. Crop prices gained 2.5% during the month as a 24.5% surge in commercial vegetable prices and a 5.3% jump in fruit prices outweighed the 3.2% drop in the prices for feed gains & hay. Pushing up vegetable prices were big gains for lettuce while strawberries and grapes led the jump in fruit prices. Prices for livestock and related products increased 1.0% during November with a 3.4% increase in dairy product prices and a 4.6% drop in the prices for meat animals.

The opinions expressed here are not necessarily those of Kevin’s current and previous employers. No endorsements are implied.