Retail Sales Pause Again, Inflation Takes a Spring Break. What We Learned During the Week of April 10 – 14

Retail sales unimpressed again during March while inflation reversed course. Here are the 5 things we learned from U.S. economic data released during the week ending April 14.

#1Retail sales softened again during March. The Census Bureau reports that retail and food services sales slipped 0.2 percent during the month to a seasonally adjusted $470.8 billion. Despite the recent weakness, sales were 5.2 percent above their year ago pace. After removing the 1.2 percent sales decline among auto dealers and parts stores, retail sales held steady during the month and were up 5.0 percent from a year earlier. Sales improved during the month at electronics/appliance stores (+2.6 percent), apparel retailers (+1.0 percent), grocery stores (+0.5 percent), and department stores (+0.2 percent). Sales during March fell at building material retailers (-1.5 percent), gas stations (-1.0 percent), sporting goods/hobby stores (-0.8 percent), and restaurants/bars (-0.6 percent). Meanwhile, nonstore retailers (including internet-based retailers) saw sales jump 0.6 percent during the month, putting them 11.9 percent above their March 2016 mark.Growth in Internet Sales-1992-2017-041417

#2Consumer prices declined for the first time in a year during March. Per the Bureau of Labor Statistics, the Consumer Price Index (CPI) sank 0.3 percent on a seasonally adjusted basis during the month, the first time since February 2016 in which the measure of consumer prices dropped. Some of the decrease was the product of a 3.2 percent drop in energy prices, reflecting lower prices for gasoline (-6.2 percent), fuel oil (-0.8 percent), utility delivered natural gas (-0.8 percent), and electricity (-0.1 percent). Food prices grew 0.3 percent (its largest single-month increase since May 2014) with four of six major grocery categories experiencing price increases. Net of energy and food, core CPI slipped 0.1 percent but remained 2.0 percent above that of a year earlier. While prices grew for transportation services (+0.4 percent), medical care commodities (+0.2 percent), shelter (+0.1 percent), and medical care services, they declined for used vehicles (-0.9 percent), apparel (-0.7 percent), and new vehicles (-0.3 percent).

#3Wholesale prices edged down during March. The Producer Price Index for final demand slipped 0.1 percent on a seasonally adjusted basis during the month, its first monthly decrease since last August. Core PPI for final demand (net of energy, food, and trade services) grew 0.1 percent. The former remained 2.3 percent above its year ago market while the latter’s 12-month comparable was +1.7 percent. PPI for final demand goods slipped 0.1 percent, with energy PPI down 2.9 percent and food PPI up 0.9 percent. An 8.3 percent drop in the wholesale price of gasoline helped pulled down the former while higher prices for meats and processed poultry were partially responsible for the latter’s increase. PPI for final demand services slipped 0.1 percent with wholesale prices for trade services and transportation/warehousing declining 0.1 percent and 0.2 percent, respectively.

#4The pace of hiring slipped during February even as the count of job openings grew. According to the Bureau of Labor Statistics, employers hired a seasonally adjusted 5.314 million workers during the month, down 90,000 from January and off 2.4 percent from a year earlier. Private sector employers added 4.968 million workers, off 99,000 from January and 2.5 percent from a year earlier. Industries with the largest year-to-year percentage increases in hiring included construction (+6.3 percent), manufacturing (+6.3 percent), transportation/warehousing (+4.8 percent), and health care/social assistance (+1.1 percent). Hiring slowed versus a year earlier in financial activities (-19.7 percent), retail (-9.0 percent), leisure/hospitality (-5.9 percent), and the government (-2.0 percent). Even if the pace of hiring chilled, the number of available jobs did not. There were a seasonally adjusted 5.743 million job openings at the end of February, up 118,000 from January and +3.2 percent from a year earlier. Private sector employers reported 5.235 million job openings, a 2.8 percent increase from a year earlier. Industries the largest positive 12-month comparables in terms of job openings included health care/social assistance (+21.1 percent), manufacturing (+19.0 percent), financial activities (+8.1 percent), and government (+7.0 percent). 5.701 million people left their jobs during March (-2.2 percent versus February 2016). Voluntary quits were up 3.4 percent from a year earlier to 3.084 million while layoffs plummeted 13.6 percent versus February 2016 to 1.584 million.

#5Small business owner sentiment held firm in March. The National Federation of Independent Business reports that its Small Business Optimism Index lost 6/10ths of a point to a seasonally adjusted reading of 104.7 (1986=100). Even with the decline, the index has remained above 100.0 for four straight months (essentially since last fall’s election), which kept it near its highest readings in a decade. Just two of the index’s ten components improved during the month: plans to make capital outlays (up three points) and plans to increase employment (up a point). Six other index components weakened during March: expected real sales (down eight points), earnings trends (down four points), current inventories (down three points), current job openings (down two points), plans to increase inventories (down a point), and expectations for the economy to improve (down a point). The press release characterized the survey results as “an excellent performance) but also noted that the group’s measure of uncertainty rose to its second highest level ever as small business owners are “having a difficult time anticipating the factors that affect their businesses, especially government policy.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 8, 2017, First-Time Claims, seasonally adjusted): 234,000 (-1,000 vs. previous week; -24,000 vs. the same week a year earlier). 4-week moving average: 247,250 (-8.0% vs. the same week a year earlier).
University of Michigan Index of Consumer Sentiment (April 2017-preliminary, Index (1966Q1=100), seasonally adjusted: 98.0: (+1.1 points vs. March 2017, +9.0 points vs. April 2016).
Import Prices (March 2017, not seasonally adjusted): -0.2% vs. February 2017, +4.2% vs. March 2016.  Net of fuel: +0.2% vs. February 2017, +1.0% vs. March 2016.
Export Prices (March 2017, not seasonally adjusted): +0.2% vs. February 2017, +3.6% vs. March 2016.  Net of agricultural exports: +0.2% vs. February 2017, +3.3% vs. March 2016
Treasury Budget (March 2017, Budget Surplus/Deficit): -$176.2 billion (vs. February 2017:  -$192.0 billion, March 2016: -$106.5 billion).  First six months of FY2017: -$526.9 billion (+14.7% vs. first six months of FY2016).
Manufacturing & Trade Inventories (February 2017, seasonally adjusted): $1.840 trillion (+0.3% vs. January 2017, +2.8% vs. February 2016).

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

Hiring Came in Like a Lamb During March. What We Learned During the Week of April 3 – 7

Employers hired fewer workers during March and the trade deficit contracted in February. Here are the 5 things we learned from U.S. economic data released during the week ending April 7.

#1The pace of hiring slowed sharply in March. The Bureau of Labor Statistics reports that nonfarm payrolls grew by a seasonally adjusted 98,000 during the month, the fewest number of jobs created in a single month since last May. Some of the slowdown could be linked to this year’s moderate winter weather, which prompted some employers to take on workers earlier than usual. But it is also worth noting that January and February job gains were revised downward by a combined 38,000 jobs. Private sector payrolls grew by 89,000 during the month (down from a 221,000 increase in February), with the gain split between 61,000 jobs in the service sector and 28,000 jobs in the goods-producing side of the economy. Industries with the greatest number of new jobs were professional/business services (+56,000), health care/social assistance (+16,700), manufacturing (+11,000), and mining/logging (+11,000). Meanwhile, retailers shed 29,700 jobs from their payrolls during March. The average workweek held steady during the month at 34.3 hours (March 2016: 34.4 hours). Average weekly earnings grew by $1.71 during March to $896.60 (+2.4 percent versus March 2016).

A separate survey of households painted a somewhat more robust picture of the labor market, including showing the unemployment rate had dropped by 2/10ths of a percentage point to 4.5 percent (its lowest reading in nearly ten years). While 145,000 people entered the labor force during the month (to 160.2 million), the labor force participation rate held firm at 63.0 percent. The median length of unemployment grew by 3/10ths of a week to 10.3 weeks (March 2016: 11.4 weeks) while the count of “involuntary” part-time workers declined by 151,000 to 5.553 million (March 2016: 6.120 million). Finally, the broadest measure of labor underutilization dropped to another post-recession low of 8.9 percent, down 3/10ths of a percentage point from February 2017 and 9/10ths of a percentage point from March 2016. This same measure peaked during the last recession back in April 2010 at 17.1 percent.Labor-Underutilization-2005-2007-040717

#2The trade deficit reversed the previous month’s sharp increase in February. The Census Bureau and Bureau of Economic Analysis reports that exports edged up $0.4 billion to $192.9 billion (+6.7 percent versus February 2016) while imports slowed by $4.3 billion to $236.4 billion (+4.5 percent versus February 2016). As a result, the trade deficit contracted by $4.6 billion to -$43.6 billion. The goods deficit shrank by $4.6 billion to -$65.0 billion (-1.0 percent versus February 2016) while the services surplus edged up by less than $0.1 billion to +$21.4 billion (+6.9 percent vs. February 2016). The former declined in part because of a sharp $3.1 billion drop in imports of imported consumer goods (including cell phones and automobiles). The U.S. had its largest goods deficits with China (-$31.4 billion), the European Union (-$12.0 billion), and Mexico (-$6.2 billion).

#3New factory orders increased for the seventh time in eight months. Per the Census Bureau, new orders for manufactured goods grew 1.0 percent during February to a seasonally adjusted $476.5 billion. This was up 7.3 percent from a year earlier. Like we saw with the preliminary data released a week earlier, much of the increase in new orders was because of a sharp increase in orders for civilian aircraft (+47.5 percent) resulted in a 4.4 percent increase in transportation equipment orders. Net of transportation goods, new orders were up 0.4 percent for the month and 7.5 percent from their February 2016 pace. Durable goods orders expanded 1.8 percent during the month while those of nondurables advanced 0.2 percent. The 12-month comparables for the two were +5.3 percent and +9.2 percent, respectively. Shipments grew for the 11th time in 12 months, with a 0.3 percent increase to $480.0 billion. Unfilled orders just barely ended their three-month losing streak with less than 0.1 percent increase to $1.115 trillion. Inventories expanded for the seventh time in eight months with a 0.3 percent gain to $630.0 billion.

#4Purchasing managers indicate slightly slower economic growth in March. The Purchasing Managers Index (PMI) from the Institute for Supply Management declined by a half point to a seasonally adjusted 57.2. This was the seventh straight month in which the measure was above a reading of 50.0, indicative of an expanding manufacturing sector (although the decline from February suggests slower growth). Three of the five PMI components fell during the month: production (down 5.3 points to 57.6), inventories (down 2.5 points to 49.0), and new orders (down 6/10ths of a point 64.5). Rising were components measuring employment (up 4.7 points to 58.9) and supplier deliveries (up 1.1 points to 55.9). Seventeen of the 18 tracked manufacturing industry sectors reported growth during the month, led by electrical equipment/appliances, printing, and furniture. The press release noted that respondents from all 18-tracked industries reported an increase in new orders.

The headline measure from the ISM’s Report on Business-Nonmanufacturing (NMI) shed 2.4 points during March to a seasonally adjusted reading of 55.2. While this was the NMI’s lowest reading since last October, this was the 87th straight month in which the measure remained above a reading of 50.0. Only one of the NMI’s four components grew during the month:  supplier deliveries (up a full point to 51.5). Declining were components associated with business activity/production (down 4.7 points to 58.9) employment (down 3.6 points to 51.6), and new orders (down 2.3 points to 58.9). Fifteen of 18 tracked industry expanded during the month, led by the management of companies, utilities, and wholesale trade. The press release noted that a “majority of respondents’ comments indicate a positive outlook on business conditions and the overall economy,” but that there also were “several comments about the uncertainty of future government policies on health care, trade and immigration, and the potential impact on business.”

#5Strength in the housing sector pulled up construction spending during February. The Census Bureau reports that the value of construction put in place grew 0.8 percent during February to a seasonally adjusted annualized rate (SAAR) of $1.193 trillion. This was 3.0 percent above the annualized value of construction put into place a year earlier. Private sector spending also expanded at a 0.8 percent rate to $917.3 billion (+6.9 percent versus February 2016), as a 1.8 percent jump in private sector residential spending more than counterbalancing a 0.3 percent drop in nonresidential construction spending. The former included gains in new single-family and multifamily construction spending of 1.2 percent and 1.8 percent, respectively. Public sector construction spending increased 0.6 percent during February to an annualized $275.5 billion. Despite the gain, public sector spending was off 8.0 percent from a year earlier.

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 1, 2017, First-Time Claims, seasonally adjusted): 234,000 (-25,000 vs. previous week; -37,000 vs. the same week a year earlier). 4-week moving average: 250,000 (-7.5% vs. the same week a year earlier).
Vehicle Sales (March 2017, Total Light Vehicle Sales, seasonally adjusted annualized rate): 16.62 million vehicles (-5.5% vs. February 2017, -0.3% vs. March 2016).
Consumer Credit (February 2017, Outstanding Consumer Credit Balances-net of real estate, seasonally adjusted): $3.792 trillion (+$15.2 billion vs. January 2017, +6.3% vs. February 2016).
Wholesale Trade (February 2017, Wholesale Inventories, seasonally adjusted): $594.2 billion (+0.4% vs. January 2017, +3.2% vs. February 2016).
FOMC minutes

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

Consumers Spend Less, Prices Continue Rising: What We Learned During the Week of February 27 – March 3

Personal spending took a pause while inflation continued to firm in January. Here are the 5 things we learned from U.S. economic data released during the week ending March 3.

#1Personal spending and income softened during January, inflation did not. The Bureau of Economic Analysis reports that “real” personal consumption expenditures (PCE) declined 0.3% during the month following gains of 0.3% in December and 0.2% in November. Real spending on goods also fell by 0.3%, pulled down a 0.8% drop in durable goods spending. Real spending on nondurable goods held steady during January while that on services declined 0.2%. Versus a year earlier, real personal spending has grown 2.8%, with a 4.3% jump in spending on goods and an 8.8% bump up in spending on durable goods. On a nominal (not price adjusted) basis, personal consumption expenditures were at a seasonally adjusted annualized rate (SAAR) of $13.550 trillion, up 0.2% for the month. Nominal personal income increased 0.4% during the month to $16.371 trillion (SAAR). Disposable income grew 0.3% on a nominal basis but fell 0.2% after adjustments for inflation. Real disposable income has increased 2.0% over the past year, reflecting a sharp decline from 12-month comparables for disposable income reported recently. The savings rate inched up by 1/10th of a percentage point to +5.5%.

Meanwhile, the PCE deflator, a measure of price changes, jumped 0.4% during the month and was up 1.9% over the past year. Net of energy and food, the core PCE deflator gained 0.3% in January and was up 1.7% from a year earlier. With the price measures moving ever so more closely to its two-percent target for inflation, the Federal Reserve appears primed to raise the fed funds target rate as soon as its next FOMC meeting.inflation-pce-deflator-030417

#2A new report keeps Q4 2016 economic growth at a moderate rate. The Bureau of Economic Analysis’ 2nd estimate of Q4 2016 Gross Domestic Product (GDP) finds the U.S. economy grew 1.9% on a seasonally adjusted annualized rate, matching the growth rate reported a month ago. For all of 2016, GDP grew 1.6%, down from the 2.6% growth rate of 2015 and the slowest pace of economic expansion since 2011. As with the previously reported Q4 GDP estimate, the biggest contributors to economic growth during the quarter were personal consumption, the change in private inventories, fixed residential investment, fixed nonresidential investment, and government spending. Net exports, however, were a significant drag on GDP during the quarter. The BEA will once again revise its Q4 2016 GDP estimate in a few weeks.

#3Net of aircraft orders, durable orders chilled during January. The Census Bureau estimates that new orders for manufactured durable goods totaled $230.4 billion during the month, up 1.8% from December. New orders for civilian and defense aircraft rose 69.9% and 59.9%, respectively. In all, transportation goods orders grew 8.0% during the month (automobile orders edged up 0.2%). Net of transportation goods, durable goods orders slipped 0.2% in January. Rising during the month were orders for computers (+3.9%), fabricated metal products (+1.9%), and machinery (+0.5%). Falling were new orders for communications equipment (-5.0%), electrical equipment/appliances (-2.2%), and primary metals (-1.6%). A proxy for business investment (new orders for nondefense capital goods net of aircraft) declined 0.4% during January.

#4Purchasing managers report strong business activity during February. The Purchasing Managers Index (PMI) from the Institute for Supply Management added 1.7 points during the month to a seasonally adjusted 57.7. This was the 6th straight month in which the PMI was above a reading of 50.0 (indicative of a growing manufacturing sector) and its highest reading since August 2014. 4 of 5 PMI components improved during the month: new orders (up 4.7 points to 65.1), inventories (up 3.0 points to 51.5), production (up 1.5 points to 62.9), and supplier deliveries (up 1.2 points to 54.8). The employment index declined during the month, shedding 1.9 points to a reading of 54.2. 17 of 18 manufacturing industries expanded during the month, led by growth in textiles, apparel, and machinery. The press release noted that survey respondents had reported “strong” sales and a “positive view of business conditions,” but also had “a watchful eye on commodities and the potential for inflation.”

The ISM’s measure of service sector business activity added 1.1 points during February, putting the “NMI” to a seasonally adjusted reading of 57.6. This was the 86th straight month in which the measure was above a reading of 50.0 and its highest point since October 2015. 3 of 4 index component grew from their January readings: business activity/production (up 3.3 points to 63.6), new orders (up 2.6 up 61.2), and employment (up a half point to 55.2). The supplier deliveries index lost 2.0 points to 50.5. 16 of 18 tracked nonmanufacturing sectors reported growth during February, including utilities, mining, and management of companies/support services. While most survey respondents shared a “positive outlook on business conditions and the overall economy,” the press release indicated that some comments pointed to some “uncertainty.”

#5Construction spending slowed during January. The Census Bureau reports that the value of construction put in place fell 1.0% during the month to a seasonally adjusted annualized rate of $1.180 trillion. This was 3.1% ahead of the January 2016 pace. The decline in construction spending during the month was led by a 5.0% drop in public sector spending to $268.7 billion (-9.0% vs. January 2016). Private sector spending, on the other hand, edged up 0.2% to $911.6 billion (+7.3% vs. January 2016). Private sector residential construction spending grew 0.5% during the month, including gains of 1.1% and 2.2% for new single-family and multi-family home construction, respectively. Private sector residential construction has risen 5.9% over the past year.

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 25, 2017, First-Time Claims, seasonally adjusted): 223,000 (-19,000 vs. previous week; -39,000 vs. the same week a year earlier). 4-week moving average: 244,250 (-10.3% vs. the same week a year earlier).
Vehicle Sales (February 2017, Light Vehicle Sales, seasonally adjusted annualized rate): 17.58 million (unchanged vs. January 2017, -0.1% vs. February 2017).
Pending Home Sales (January 2017, Index (2001 = 100), seasonally adjusted): 106.4 (-2.8% vs. December 2016, +0.4% vs. January 2016).
Agricultural Prices (January 2017, Prices Received by Farmers (Index: 2011 = 100), seasonally adjusted): 86.4 (-1.6% vs. December 2016, -2.9% vs. January 2016).
Beige Book
Case-Shiller Home Price Index (December 2016, 20-City Index, seasonally adjusted): +0.9% vs. November 2016, +5.6% vs. December 2015.

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