Retail Sales and Inflation Both Take a Summer Break: July 10 – 14

The summer has not been sizzling (so far) for retailers while inflation takes June off for vacation. Here are the five things we learned from U.S. economic data released during the week ending July 14. 

#1June was another weak month for retail sales. The Census Bureau estimates retail sales were at $473.5 billion during the month, down 0.2 percent from May and up a moderate 2.8 percent from a year earlier. After removing data at auto dealers/parts stores (which inched up 0.1 percent) from the analysis, core retail sales also fell 0.2 percent for the month and were up an even more tepid 2.4 percent. June’s sales decline follows a 0.1 percent drop in May. Sales improved at building materials retailers (+0.5 percent), general merchandisers (+0.4 percent), health/personal care stores (+0.3 percent), electronics/appliance retailers (+0.1 percent), and furniture stores (+0.1 percent). Sales weakened at gas stations (-1.3 percent, largely due to lower gas prices), department stores (-0.7 percent), sporting goods/hobby retailers (-0.6 percent), restaurants/bars (-0.6 percent), and grocery stores (-0.5 percent). Sales gains were also modest at what has been the hot spot in recent years for retail: nonstore (i.e., web) retailers, where sales grew “only” 0.4 percent during June. Sales at nonstore retailers nevertheless still have grown 9.2 percent over the past year.Retail Sales June 17-071717

#2One reason for the weak retail data may be the lack of inflation. The Bureau of Labor Statistics’ Consumer Price Index (CPI) was unchanged in June, following 0.1 percent slip during May. Energy prices slumped for the fourth time in five months with a 1.6 percent drop as gasoline prices fell 2.7 percent. Food prices held steady during the month. Net of energy and food goods, core CPI inched up 0.1 percent for the third consecutive month. Growing during the month were prices for medical care commodities (+0.7 percent), medical care services (+0.3 percent), shelter (+0.2 percent), and transportation services (+0.2 percent). Prices declined for both new and used vehicles (-0.3 percent and -0.7 percent, respectively) and for apparel (-0.1 percent). Over the past year, CPI has grown 1.6 percent while the 12-month comparable for core CPI was +1.7 percent.

The Producer Price Index (PPI) for final demand eked out a 0.1 percent increase during June after having held steady in May. The core measure—final demand PPI less energy, food, and trade service—gained 0.2 percent. Wholesale prices for energy dropped 0.5 percent as final demand gasoline PPI fell 1.1 percent. Food PPI jumped 0.6 percent (its biggest gain since February), led by a 5.5 percent bump in the wholesale price of meats. Net of energy and food, core final demand core producer prices gained 0.1 percent during June. Prices for final demand services increased 0.2 percent, its smallest increase since February. The 12-month comparables for both headline final demand PPI and core final demand PPI were +2.0 percent.

#3Manufacturing enjoyed a soft rebound in June. The Federal Reserve estimates manufacturing output grew 0.2 percent during the month following a 0.4 percent decline in May. Manufacturing output has increased 1.2 percent over the past year. Production of durable goods gained 0.4 percent while that of nondurables held firm with their May readings. All the key categories of durable goods enjoyed production gains during June while the bright spot for nondurables was rubber/plastic products. Overall industrial production increased 0.4 percent during June following a 0.1 percent increase in May and was 2.0 percent above its June 2016 level. Mining output jumped 1.6 percent during the month (with gains in oil/gas extraction, coal mining, and drilling/support activities) while utilities’ output was unchanged (higher electric utility production counterbalanced a drop at gas utilities).

#4The number of job openings shrank, but the number of people hired blossomed in May. Per the Bureau of Labor Statistics, there were a seasonally adjusted 5.666 million job openings at the end of May. While this was down 301,000 from April, it remained 1.5 percent above the year ago count and was still near its post-recession high. Some of the sharpest month-to-month declines in job openings were professional/business services, financial activities, health care/social assistance, transportation/warehousing, and construction. On the positive side, there were 5.472 million people hired during May, up 429,000 from April and 6.2 percent from the May 2016 pace. Industries reporting the largest year-to-year percentage increases in hiring were manufacturing, construction, financial activities, and transportation/warehousing. Finally, the count of job separations grew by 251,000 during the month to 5.259 million (+3.1 percent versus May 2016). The number of people voluntarily leaving their jobs—3.221 million—was up +7.2 percent from a year earlier, suggesting workers’ success in finding new jobs. The count of layoffs—1.661 million—was 4.6 percent below that of May 2016.

#5Small business owners’ optimism slipped again in June. The Small Business Optimism Index lost 9/10ths of a point during the month to a seasonally adjusted reading of 103.6 (1986=100), its fourth drop in five months. Even with the downward trend, the National Federation of Independent Business measure has maintained much of the surge it experienced following last November’s election and was still 9.1 points above its year ago reading. Pulling down the index were declining readings of index components tracking expectations for the economy (down six points), expected real sales (down five points), current job openings (down four points), plans to increase employment (down three points), and whether it is a good time to expand (down two points). Four of the index’s ten components improved during the month: current inventories (up three points), plans to increase inventories (up three points), plans to make capital outlays (up two points), and expectations for credit conditions (up a point). The press release said the index’s decline was “no doubt in part due to the mess in Washington, D.C.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 8, 2017, First-Time Claims, seasonally adjusted): 247,000 (-3,000 vs. previous week; -7,000 vs. the same week a year earlier). 4-week moving average: 245,750 (-5.7% vs. the same week a year earlier).
Business Inventories (May 2017, Manufacturing and Trade Inventories, seasonally adjusted): $1.860 trillion (+0.3% vs. April 2017, +2.4% vs. May 2016).
Consumer Credit (May 2017, Outstanding Balances of Non-Real Estate Backed Loans, seasonally adjusted): $3.843 trillion (+$18.4 billion vs. April 2017, +5.8% vs. May 2016).
Treasury Budget (June 2017, Surplus/Deficit): -$90.2 billion (vs. May 2017: -$88.4 billion; vs. June 2016: +$6.3 billion). For the first 9 months of FY2017: -$523.1 billion (+31.0% vs. first 9 months of FY2016).
Beige Book
University of Michigan Consumer Sentiment (July 2017-preliminary, Index of Consumer Sentiment, seasonally adjusted): 93.1 (vs. June 2017: 95.1, vs. July 2016: 90.0).

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

Hiring Picks Up, Trade Deficit Narrows: July 3 – 7

The labor market rebounded in June with accelerated hiring in health/social assistance and leisure/hospitality. Here are the five things we learned from U.S. economic data released during the week ending July 7.

#1Employers picked up hiring activity during June. The Bureau of Labor Statistics indicates nonfarm payrolls expanded during June by a seasonally adjusted 222,000, the best month for job creation since February. Further, the BLS upwardly revised its April and May employment estimates by a combined 47,000 jobs to +207,000 and +152,000, respectively. Private sector payrolls grew during June by 187,000 while government employers added 35,000 jobs. Private sector industries enjoying the largest payroll gains during the month were health care/social assistance (+59,100), leisure/hospitality (+36,000), professional/business services (+35,000), financial activities (+17,000), and construction (+16,000). Retailers added 8,100 workers following declines in April and May. The average work week grew by 1/10th of an hour to 34.5 hours (June 2016: 34.4 hours) with average weekly earnings up 2.8 percent from a year earlier to $905.63.

Based on a separate survey of households, the unemployment rate edged up by 1/10th of a percentage point to 4.4 percent. This was a half point below the year ago unemployment rate of 4.9 percent, leaving it near its post-recession low point. 361,000 people entered the labor force during the month, resulting in a 1/10th of a percentage point gain in the labor force participation rate to 62.8 percent. The median length of unemployment fell by 8/10ths of a week to 9.6 weeks (June 2016: 10.2 weeks). While the number of part-time workers seeking a full-time opportunity (“involuntary” part-time workers) increased by 107,000 during June, it was still 8.5 percent below the count of a year earlier. Finally, the broadest measure of labor underutilization (the “U6” series) increased 2/10ths of a percentage point to 8.6 percent, a full percentage point below the measure’s year-ago reading.Unemployment Rate Trend 2006 2017-070717

#2The trade deficit narrowed during May. The Census Bureau and Bureau of Economic Analysis report exports grew by $0.9 billion during the month to $192.0 billion (+5.4 percent vs. May 2016) while imports narrowed by $0.2 billion to $238.5 billion (+6.6 percent vs. May 2016). This left the trade deficit at $46.5 billion, $1.1 billion smaller than that of April but up 12.0 percent over the past year. The goods deficit contracted by $0.9 billion to -$67.5 billion while the goods surplus widened by $0.2 billion to +$21.0 billion. Exports grew during the month for automotive vehicles (+$0.6 billion) and cell phones/other household goods (+$0.5 billion) but slowed for soybeans (-$0.6 billion). Imports fell for consumer goods (-$1.5 billion, including -$0.9 billion for cell phones), automotive vehicles (-$0.7 billion), but grew by $1.3 billion for capital goods. The trade deficit for the first five months of 2017 was 13.1 percent larger than that of 2016, the result of exports growing 6.0 percent and imports expanding 7.3 percent.

#3The decline in new factory orders accelerated in May. The Census Bureau reports that new orders for manufactured goods fell 0.8 percent during the month following a 0.3 percent drop in April. The resulting seasonally adjusted value of new orders of $464.9 billion was up 4.2 percent from a year earlier. Both durable and nondurable goods orders slowed by a similar 0.8 percent rate while those of nondefense, nonaircraft capital goods (a measure of business investment) edged up 0.2 percent. Shipments grew for the fifth time in six months with a 0.1 percent increase to $471.5 billion. Durable goods shipments rose 1.0 percent while nondurable goods shipments slowed 0.8 percent. Unfilled order shrank 0.2 percent to $1.120 trillion while inventories contracted 0.1 percent to $648.9 billion.

#4Purchasing managers report that both manufacturing and service sector business activity grew during June. The Purchasing Managers Index (PMI) from the Institute for Supply Management gained 2.9 points during June to a seasonally adjusted 57.8. This was the 10th straight month in which the measure was above a reading of 50.0, indicative of an expanding manufacturing sector. Four of five PMI components improved during the month: production (up 5.3 points to 62.4), new orders (up 4.0 points to 63.5), supplier deliveries (up 3.7 points to 57.2), and employment (up 3.7 points to 57.2). The index tracking inventories shed 2.5 points to a contractionary reading of 49.0. Fifteen of 18 tracked manufacturing industry segments expanded during the month, led by furniture, nonmetallic mineral productions, and paper products. The press release indicated that survey respondent comments noted “expanding business” but that “supplier deliveries and inventories [were] struggling to keep up with the production pace.”

The ISM’s measure of nonmanufacturing economic activity added a half point during June to 57.4, the 90th consecutive month in which the NMI was above a reading of 50.0. Three of four index components improved from their June marks: new orders (up 2.8 points to 60.5), supplier deliveries (up a full point to 52.5), and business activity/production (up 1/10th of a point to 60.8). The employment index shed two full points to 57.8. Sixteen of 18 tracked service sector industries expanded during June, led by agriculture, wholesale trade, management of companies/support. The press release said that the “majority of respondents’ comments are positive about business conditions and the overall economy.”

#5Vehicle sales continued to slacken in June. Per automaker sales data compiled by Autodata, the seasonally adjusted annualized rate of vehicle sales was below 17 million units for a fourth straight month. The annualized sales rate of 16.50 million vehicles was down 1.0 percent from May and 1.8 percent from a year earlier. Car sales continued to slump, dropping 4.7 percent during the month and 13.2 percent from June 2016 to an annualized rate of 5.91 million vehicles. Light truck/SUV sales inched up 1.3 percent during June to an annualized rate of 10.60 million vehicles. This was 5.8 percent above light truck/SUV sales of a year earlier

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 1, 2017, First-Time Claims, seasonally adjusted): 248,000 +4,000 vs. previous week; -11,000 vs. the same week a year earlier). 4-week moving average: 243,000 (-8.4% vs. the same week a year earlier).
Construction Spending (May 2017, Value of Construction Put in Place, seasonally adjusted annual rate): $1.230 trillion (unchanged vs. April 2017, +4.5% vs. May 2016).
FOMC minutes

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

The Unemployment Rate Falls to a 16-Year Low: May 29 – June 2

The last time the unemployment rate was this low, it was 2001. But the pace of job creation during May was relatively modest. Here are the 5 things we learned from U.S. economic data released during the week ending June 2.

#1The unemployment rate fell to a 16-year low, but employers slowed the pace of hiring. The Bureau of Labor Statistics reports that nonfarm employers added a seasonally adjusted 138,000 workers to their payrolls during the month, down from April’s job gain of 174,000 jobs but well above the 50,000 added workers during March. If the job openings and turnover data released in recent months are any indication, some of the weakness in this report may be due to employers being unable to find qualified candidates for their openings. Whatever the case, the private sector saw payrolls expand by 147,000 workers, with the gain split between 131,000 new jobs in the service sector and 16,000 new workers in the service sector. Industries most responsible for the month’s job creation were professional/business services (+38,000), health care/social assistance (+32,300), leisure/hospitality (+31,000), construction (+11,000), and financial activities (+11,000). The average workweek was at 34.4 hours, unchanged from both April 2017 and May 2016. Average weekly earnings grew by $1.38 during the month to $901.97 (+2.5 percent vs. May 2016).Unemployment Rate 1997-2017-060217

Based on a separate survey of households, the unemployment rate slipped 1/10th of a percentage point to 4.3 percent, its lowest point since May 2001. This was partially the result of 429,000 people leaving the labor force during the month to 159.784 million. The labor force participation rate declined by 2/10ths of a percentage point to 62.7 percent. This places the labor force participation rate closer to its multi-decade low, but that is explained partially by older Americans leaving the labor force due to retirement. Even though the typical length of unemployment edged up by 2/10ths of a week to 10.4 weeks, the measure has remained within a tight range between 10.0 and 10.4 weeks since last summer. The same survey also found that the count of “involuntary” part-time workers contracted by 53,000 to 5.219 million (May 2016: 6.409 million). Finally, the broadest definition of labor underutilization (the U-6 series) fell to its lowest reading since November 2007 with a 2/10ths decline to 8.4 percent.

#2Consumers were spending money during April. “Real” personal consumption expenditures (PCE) grew by 0.2 percent during the month, which had followed a 0.5 percent gain during March and a 0.1 decline in February. Per the Bureau of Economic Analysis, real spending on goods jumped 0.7 percent during April, split between a 1.1 percent surge in spending on durable goods and a 0.5 percent increase in spending of nondurables. Services spending was virtually unchanged for the month. Over the past year, real PCE has grown a moderate 2.6 percent, with spending on goods gaining 3.6 percent and spending services increasing 2.1 percent. Without adjusting for price variations, nominal PCE rose 0.4 percent, its biggest single-month increase since last December. Supporting the gain in spending was a 0.4 percent increase in both personal and disposable income. After adjusting for inflation, real disposable income increased 0.2 percent during April and has grown 1.9 percent over the past year. Meanwhile, the savings rate held steady at +5.3 percent for a third consecutive month.

#3The trade deficit widened to a four-month high during April. The Census Bureau and the Bureau of Economic Analysis estimates exports dropped by $0.5 billion during the month to a seasonally adjusted $191.0 billion (+5.0 percent vs. April 2016) while imports grew by $1.9 billion to $238.6 billion (+8.3 percent vs. April 2016). As a result, the seasonally adjusted trade deficit expanded by $2.3 billion to -$47.6 billion, which was 23.9 percent larger than the deficit of a year earlier. The goods deficit grew by $2.3 billion to $68.4 billion (+16.1 percent vs. April 2016) while the goods surplus held steady at +$20.8 billion (+1.4 percent vs. April 2016). The former increased as imported goods grew by $1.8 billion (thanks to greater imports of cell phones, art/collectibles, and capital goods) and exported goods slipped by $0.4 billion (thanks to smaller exports for consumer goods and automotive vehicles). The U.S. had its largest goods deficits with China (-$32.1 billion), the European Union (-$13.2 billion), Mexico (-$6.4 billion), and Germany (-$5.5 billion).

#4Purchasing managers indicate that manufacturing held steady during May. The Institute for Supply Management’s Purchasing Managers Index (PMI) inched up 1/10th of a point to a seasonally adjusted reading of 54.9. This was the ninth straight month in which the measure was above a reading of 50.0, indicative of an expanding manufacturing sector. Three of five PMI components improved during the month: new orders (up 2.0 points to 59.5), employment (up 1.5 points to 53.5), and inventories (up a half point to 51.5). Falling were measures of supplier deliveries (down 2.0 points to 53.1) and production (off 1.5 points to 57.1). Fifteen of 18 tracked manufacturing industries expanded during May, led by nonmetallic mineral products, furniture, and plastics/rubber products. The press release noted the purchasing managers’ comments generally reflected “stable to growing business conditions.”

#5Survey results suggest a slight cooling of consumer sentiment. The Conference Board’s Consumer Confident Index declined for a second straight month as it lost 1.5 points to a seasonally adjusted reading of 117.9 (1985=100). The measure has lost 7.7 points since March (when it had hit a 16-plus year high) but nevertheless remained at strong levels. The current conditions index added edged up by 4/10ths of a point to 140.7 while the expectations measure shed 2.8 points to 102.6. In all, 29.4 percent of survey respondents characterized current economic conditions as “good” (vs. 30.8 percent that said the same in April) while 13.7 percent stated that they were “bad” (unchanged from the percentage indicating the same in April). Slightly less hopeful was the short-term economic outlook: 21.3 percent of respondents expected business conditions would improve (April 2017: 25.1 percent) while 10.1 percent were expecting conditions to worsen (April 2017: 10.4 percent). The Conference Board in its press release said that even with the decline in overall sentiment, they expected “little change in overall economic conditions” as consumers “remain optimistic that the economy will continue expanding into the summer months.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 27, 2017, First-Time Claims, seasonally adjusted): 248,000 +13,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 238,000 (-13.4% vs. the same week a year earlier).
Vehicle Sales (May 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.66 million vehicles (-1.3% vs. April 2017, -3.0% vs. May 2016).
Pending Home Sales (April 2017, Index (2001=100), seasonally adjusted): 109.8 (-1.5 points vs. March 2017, -3.8 points vs. April 2016).
Construction Spending (April 2017, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.219 trillion (-1.4% vs. March 2017, +6.7% vs. April 2016).
Agricultural Prices (April 2017, Prices Received by Farmers (Index: 2011=100, seasonally adjusted): 96.7 (+2.0% vs. March 2017, +4.4% vs. April 2016).
Case-Shiller Home Price Index (March 2017, 20-City Index, seasonally adjusted): +0.9% vs. February 2017, +5.9% vs. March 2016).
Beige Book

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