The Fed Takes a Pause…So Do Consumers: December 9 – 13

FOMC voting members signal that the rate cuts are over, at least for now. Here are the five things we learned from U.S. economic data released during the week ending December 13.

#1The Fed left alone its short-term interest target and expects not making any changes in 2020 either. The policy statement released after last week’s Federal Open Market Committee (FOMC) meeting contained the exact verbiage from last October in describing the state of the U.S. economy. This included noting a “strong” labor market and an economy expanding at a “moderate rate.” As a result, the FOMC voting members agreed unanimously to keep the fed funds target at a range of 1.50 percent and 1.75 percent. The committee saw their monetary policy as “appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective.”

Economic projections released in conjunction with the policy statement indicated that FOMC members do not expect to change course in 2020. The median forecast found the U.S. economy growing 2.0 percent next year with an unemployment rate of 3.5 percent and inflation slightly below the Fed’s 2.0 percent target. The same forecast has no fed funds rate cuts next year. Thirteen of 17 FOMC members expect the fed funds target rate will hold steady in 2020 while four voting members anticipate a quarter-point rate increase.

#2The start of the holiday season retail sales fails to impress. The Census Bureau estimates retail food services sales grew 0.2 percent during the month to a seasonally adjusted $528.0 billion, off from October’s 0.4 percent increase. Boosting the headline sales figures were advances at both car dealers/parts stores (+0.5 percent) and gas stations (+0.7 percent). Net of sales at both car dealers and gas stations, core retail sales were unchanged in November. Sales slumped at health/personal care stores (-1.1 percent), apparel retailers (-0.6 percent), department stores (-0.6 percent), sporting goods/hobby retailers (-0.5 percent), and restaurant/bars (-0.3 percent). Sales grew at stores focused on electronics/appliances (+0.7 percent), and groceries (+0.3 percent), and furniture (+0.1 percent). Both the headline and core retail sales measures have risen a good, but not great 3.3 percent over the past year.

#3Consumer prices rose in November. The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) grew at a 0.3 percent seasonally adjusted rate, following October’s 0.4 percent rise. Energy CPI rose 0.8 percent, down from October’s 2.7 percent surge (gasoline: +1.1 percent versus October 2019), while food CPI edged up 0.1 percent. Net of both energy and food, core CPI increased 0.2 percent, matching October’s advance. Prices rose for used cars/trucks (+0.6 percent), medical care services (+0.4 percent), shelter services (+0.3 percent), apparel (+0.1 percent), and medical care commodities (+0.1 percent). New vehicle prices slipped 0.1 percent. Over the past year, CPI has risen 2.1 percent while core CPI has risen 2.3 percent.

#4Wholesale prices mellowed in November. The Producer Price Index (PPI) for final demand held steady during the month on a seasonally adjusted basis following a 0.4 percent gain in October. Also holding constant was the Bureau of Labor Statistics’ core measure of wholesale prices (final demand PPI net of foods, energy, and trade services), after inching up 0.1 percent during the prior month. Wholesale prices jumped 1.1 percent for food (boosted by eggs and vegetables) and 0.6 percent for energy (gasoline: +2.3 percent). Core goods PPI climbed 0.2 percent, its biggest single-month gain since July. PPI for final demand services dropped 0.3 percent, pulled down a 0.6 percent slump in PPI for trade services. Over the past year, final demand PPI has grown by a mild 1.1 percent while the core measure had a 12-month comparable of +1.3 percent.

#5Small business owners were more positive in November. The Small Business Owner Optimism Index, from the National Federation of Independent Business, added 2.3 points during the month to a seasonally adjusted reading of 104.7 (1986=100). This was the measure’s best reading since July and left it just 1/10th of a point below that of a year earlier. Seven of ten index components improved in November, led by sizeable gains for those related to earnings trends, whether it is a good time to expand, current inventories, and current job openings. Only two index components slipped: expected real sales and plans to increase inventories. The press release said that small business “[o]wners are aggressively moving forward with their business plans.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 7, 2019, First-Time Claims, seasonally adjusted): 252,000 (+49,000 vs. previous week; +39,000 vs. the same week a year earlier). 4-week moving average: 224,000 (-0.4% vs. the same week a year earlier).
Import Prices (November 2019, All Imports, not seasonally adjusted): +0.2% vs. October 2019, -1.3% vs. November 2018. Nonfuel Imports: -0.1% vs. October 2019, -1.4% vs. November 2018.
Export Prices (November 2019, All Exports, not seasonally adjusted): +0.2% vs. October 2019, -1.3% vs. November 2018. Nonagricultural Exports: Unchanged vs. October 2019, -1.6% vs. November 2018.
Productivity (Nonfarm Labor Productivity, 2019Q3, seasonally adjusted annualized rate): -0.2% vs. 2019Q2, +1.5% vs. 2018Q3.
Business Inventories (October 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): +0.2% vs. September 2019, +3.1% vs. October 2018. 

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

Economic Data Sends Mixed Messages: November 18 – 22

While leading indicators suggest economic weakness, both housing and sentiment gained momentum. Here are the five things we learned from U.S. economic data released during the week ending November 22.

#1Forward-looking economic indicators remained sluggish in October. The Conference Board’s Leading Economic Index (LEI) pulled back for a third consecutive month with a 1/10th of a point decline to 111.7 (2016=100). The LEI has remained within a small range over the past year. Only five of ten LEI components made positive contributions, led by building permits while manufacturing index components dragged down the measure. The coincident index held steady at a reading of 106.5, up 1.4 percent from a year earlier. Three of four coincident index components made positive contributions, led by personal income. The lagging index inched up 1/10th of a point to a reading of 108.1, with three of seven index components making a positive contribution (led by the length of unemployment). The press release says the results suggest “the economy will end the year on a weak note, at just below two percent growth.”

#2Previously home sales bounced back in October. Existing home sales, as measured by the National Association of Realtors, increased 1.9 percent during the month to a seasonally adjusted annualized rate of 5.46 million units. Sales expanded in the South (+4.4 percent) and Midwest (+1.6 percent) but slowed in the Northeast (-1.4 percent) and West (-0.9 percent). Sales have risen 4.6 percent over the past year, with three of four Census regions enjoying positive 12-month comparables. Sales matched that of a year earlier in the Northeast. The supply of homes tightened further, falling 2.7 percent to 1.77 million units, the equivalent to a 3.9 month supply. The median sales price of $270,900 was up 6.2 percent from a year earlier. The press release attributes the improvement in sales to “[h]istorically-low interest rates, continuing job expansion, higher weekly earnings and low mortgage rates.”

#3Housing starts rebounded in October. The Census Bureau reports that housing starts gained 3.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.314 million units. Starts were 8.5 percent ahead of their year-ago mark. Single-family home starts grew 2.0 percent in October while those of multi-family units rose 6.5 percent. Permit activity presents a positive outlook—the number of issues permits increased 5.0 percent during the month to an annualized 1.391 million permits. This was up 14.1 percent from a year earlier. The annualized count of completed homes surged 10.3 percent in October to 1.256 million homes (+12.4 percent versus October 2019).

#4Sentiment among homebuilders remained solid in November. The National Association of Home Builders’ Housing Market Index (HMI) came in at a seasonally adjusted reading of 70. The measure was off a point from October but up ten points from a year earlier. Further, the HMI has been above a reading of 50—indicative of more homebuilders seeing the housing market as “good” as opposed to being “poor”—for 65 straight months. The HMI grew three in four Census regions: Northeast (up three points to 63), West (up two points to 85), and Midwest (up a point to Midwest). The HMI shed two points in the South to a reading of 74. The press release notes that builders report “ongoing positive conditions,” boosted by low interest rates and a robust labor market.

#5Consumer confidence rose to its highest level since the summer. The University of Michigan’s Index of Consumer Sentiment added 1.3 points in November to a seasonally adjusted reading of 96.8 (1966Q1=100). Even with the increase, the measure was off 7/10ths of a point from a year earlier. While the current conditions index shed 1.6 points during the month to 111.6 (November 2018: 111.6), the expectations index improved by 3.1 points to 87.3 (November 2018: 88.1). The press release points out that the headline index has been above a reading of 95.0 in 30 of the past 35 months, a show of strength not seen since a period between 1998 and 2000.

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 16, 2019, First-Time Claims, seasonally adjusted): 227,000 (Unchanged vs. previous week; +3,000 vs. the same week a year earlier). 4-week moving average: 221,000 (+0.1% vs. the same week a year earlier).
State Employment (October 2019, Nonfarm Payrolls, seasonally adjusted): vs. September 2019: up in 4 states, down in 1 state, and essentially unchanged in 45 states and the District of Columbia. Vs. October 2018: Up in 27 states and essentially unchanged in 23 states and the District of Columbia.
Treasury International Capital Flows (September 2019, Net Foreign Purchases of Domestic Securities, not seasonally adjusted): +15.4 billion (vs. August 2019: -$42.0 billion, vs. September 2018: +$8.5 billion.
FOMC Minutes

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

Retail Sales Gain, Manufacturing Does Not: November 11 – 15

Retail sales made a small comeback in October while manufacturing let up again. Here are the five things we learned from U.S. economic data released during the week ending November 15.

#1Retail sales bounced back in October. Retail and food services sales grew 0.3 percent during the month to a seasonally adjusted $526.5 billion. This followed a 0.3 percent drop in September for the Census Bureau measure. Sales rose at both auto dealers & parts stores (+0.5 percent) and gas stations (+1.1 percent). Net of both, core retail sales inched up 0.1 percent after slipping 0.1 percent during the prior month. Sales gained at general merchandisers (+0.4 percent) and grocery stores (+0.4 percent) but stumbled at stores focused on apparel (-1.0 percent), furniture (-0.9 percent), sporting goods/hobbies (-0.8 percent), building materials (-0.5 percent), and electronics/appliances (-0.4 percent). Retail sales have risen 3.1 percent over the past year, while core retail sales have a more robust 12-month comparable of +3.7 percent.

#2A now-ended strike dampened manufacturing output in October. The Federal Reserve estimates that manufacturing output fell 0.6 percent during the month following a 0.5 percent decline in September. Durable goods product slumped 1.2 percent, harmed in part by the now-settled General Motors strike. Net of automobiles, durable goods manufacturing slowed 0.2 percent. Nondurables output held steady during the month. Overall industrial production had its worst month in 17 months with a 0.8 percent decline. Mining output declined 0.7 percent while utilities production plummeted 2.6 percent. Manufacturing production was 1.5 percent below that of a year earlier, while overall industrial production was 1.1 percent behind its October 2018 pace. 

#3Higher gasoline prices heated up not only consumer inflation in October… The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) jumped 0.4 percent on a seasonally adjusted basis during the month, the biggest single-month gain since March. Gasoline prices surged 3.7 percent, pushing up energy CPI 2.7 percent. Food CPI jumped 0.2 percent (its highest one-month gain since May). Net of energy and food, core CPI increased 0.2 percent. Rising in October were prices for used cars/trucks (+1.3 percent), medical care commodities (+1.2 percent), medical care services (+0.9 percent), shelter (+0.1 percent), and transportation services (+0.1 percent). Prices decreased for apparel (-1.8 percent) and new vehicles (-0.2 percent). CPI has risen 1.8 percent over the past year, while the core measure has a 12-month comparable of +2.3 percent.

#4…But also wholesale prices. Final demand Producer Price Index (PPI) also rose a seasonally adjusted 0.4 percent in October, the biggest gain in six months for the Bureau of Labor Statistics gauge. The core measure, which nets out energy, food, and trade services, had a more modest 0.1 percent increase. Goods PPI jumped 0.7 percent, half of which came from a 7.3 percent surge in wholesale gasoline prices. Netting out gains for energy (+2.8 percent) and food (+1.3 percent), core goods PPI held steady in October. Final demand services PPI gained 0.3 percent, pushed up by a 0.8 percent rise in trade services (wholesale and retail margins). Headline PPI has grown a relatively modest 1.1 percent over the past year while the core measure has risen 1.5 percent.

#5Optimism improved slightly among small business owners. The Small Business Owner Optimism Index from the National Federation of Independent Business added 6/10ths of a point during October to a seasonally adjusted reading of 102.4 (1986=100). While this was the first increase in three months, the measure remained five full points below its year-ago mark. Eight of the index’s ten components improved during the month, led by gains for measures tied plans to increase both inventories and capital outlays. Two components dropped during the month: earnings trends and current job openings. The press release noted small business owners “are not experiencing the predicted turmoil” of a recession.

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 9, 2019, First-Time Claims, seasonally adjusted): 225,000 (+14,000 vs. previous week; +2,000 vs. the same week a year earlier). 4-week moving average: 217,000 (-1.0% vs. the same week a year earlier).
Import Prices (October 2019, All Imports, not seasonally adjusted): -0.5% vs. September 2019, -3.0% vs. October 2018. Nonfuel Imports: -0.2% vs. September 2019, -1.4% vs. October 2018.
Export Prices (October 2019, All Exports, not seasonally adjusted): -0.1% vs. September 2019, -2.2% vs. October 2018. Nonagricultural Exports: -0.1% vs. September 2019, -2.7% vs. October 2018.
Monthly Treasury Statement (October 2019, Federal Budget Deficit): -$134.5 billion (vs. October 2018: -$100.5 billion).
Business Inventories (September 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.042 trillion (unchanged vs. August 2019, +3.7% vs. September 2018).

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