Manufacturing Faltered Again in December: December 30 – January 3

Purchasing managers report manufacturing activity slowed for a fifth straight month. Here are the five things we learned from U.S. economic data released during the week ending January 3.

#1A measure of economic activity in manufacturing fell to a more than ten-year low in December. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, shed 9/10ths of a point to a reading of 47.2. This reading was the PMI’s lowest point since June 2009 and its fifth straight month under 50.0 (the threshold between an expanding and contracting manufacturing sector). Three of five PMI components fell during the month: production (-5.9 points), employment (-1.5 points), and new orders (-0.4 points). PMI components tied to supplier deliveries (+2.6 points) and inventories (+1.0 point) each climbed. Only three manufacturing industries expanded in December: food/beverage/tobacco, miscellaneous manufacturing, and computer/electronic products. The press release noted that “global trade” remained a key focus area for many manufacturers and that sentiment was “marginally positive regarding near-term growth.”

#2Construction spending grew in November. The Census Bureau places the seasonally adjusted annualized value of construction put into place during the month at $1.324 trillion, up 0.6 percent from October and 4.1 percent from a year earlier. Despite November’s gain, construction spending during the first 11 months of 2019 was 0.8 percent under that of the first 11 months of 2018. The Census Bureau also revised estimates for September and October spending upwards. Private sector expenditures grew 0.4 percent to $985.5 billion (+1.6 percent), including a 1.9 percent bounce in private sector residential spending. Private nonresidential spending fell 1.2 percent. Public sector construction expenditures gained 0.9 percent to $338.6 billion, up 12.4 percent from a year earlier.

#3The Conference Board finds that consumer sentiment “dipped” slightly in December. The Consumer Confidence Index slipped by 3/10ths of a point to a seasonally adjusted reading of 126.5. The present conditions index added 3.4 points to 170.0, while the expectations index lost 2.9 points to 97.4. 38.7 percent of survey respondents said that business conditions were “good” while only 11.1 saw them as being “bad.” An even higher percentage of Americans see jobs as being “plentiful” (47.0 percent) versus being “hard to get” (13.1 percent). The press release cautioned that “there is little to suggest that growth, and in particular consumer spending, will gain momentum in 2020.”

#4Pending home sales rebounded in November. The National Association of Realtors’ measure of home purchase contract signings increased 1.2 percent during the month to a seasonally adjusted 108.5 (2001=100). The index jumped 5.5 percent in the West and gained 1.0 percent in the Midwest but edged down in both the South (-0.2 percent) and Northeast (-0.1 percent). The Pending Home Sales Index was 7.4 percent ahead of its year-ago reading with positive 12-month comparables in all four Census regions, including a 14.0 percent jump in the West. The press release noted November’s increase occurred despite “insufficient level of inventory” of homes for sale.

#5Two reports find home prices rose at a moderate pace in October. The Federal Housing Finance Agency’s House Price Index increased a seasonally adjusted 0.2 percent during the month. The measure, which tracks prices of homes purchased with a conforming mortgage, gained in six of nine Census regions, led by the West South Central (+0.7 percent), East South Central (+0.7 percent), Pacific (+0.6 percent), and Middle Atlantic (+0.6 percent). Over the past year, the Housing Price Index has risen 5.0 percent, with the largest 12-month comparables in the Mountain (+6.7 percent), South Atlantic (+6.1 percent), and East South Central (+5.8 percent) regions.

The 20-City Case-Shiller Home Price Index grew 0.4 percent (seasonally adjusted) in October, up from a 0.3 percent bump in September. The measure grew in 18 of the 20 tracked cities, with home prices rising 0.7 percent in Atlanta, Los Angeles, and Seattle. The index has risen 2.2 percent over the past year, with positive year-to-year comparables in 19 of 20 cities (San Francisco being the exception). The press release characterized the home price data as “reassuring.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 28, 2019, First-Time Claims, seasonally adjusted): 222,000 (-2,000 vs. previous week; -9,000 vs. the same week a year earlier). 4-week moving average: 233,250 (-5.2% vs. the same week a year earlier).
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A Robust Start to the Holiday Shopping Season: December 16 – 20

Consumer spending and sentiment were solid in November. Here are the five things we learned from U.S. economic data released during the week ending December 20.

#1Consumer spending signaled strength in November. The Bureau of Economic Analysis estimates real personal consumption expenditures (PCE) grew 0.3 percent on a seasonally adjusted basis during the month, its largest increase since July. Spending on goods increased 0.5, split between gains for durables and nondurables of +1.2 percent and 0.1 percent, respectively. (It is worth noting that just last week, Census Bureau data pointed to modest retail sales during the same month.) Expenditures on services crept up 0.2 percent. Nominal (not inflation-adjusted) PCE rose 0.4 percent in November, funded by 0.5 percent gains for both nominal personal income and nominal disposable income. Real disposable income expanded 0.4 percent. The savings rate edged up 1/10th of a point to 7.9 percent. Over the past year, real personal spending has risen 2.4 percent funded by a 3.1 percent jump in real disposable income.

#2Manufacturing output grew for the second time in five months in November. The Federal Reserve estimates manufacturing production jumped 1.1 percent during the month. Output of durable goods surged 2.2 percent, boosted by a post-GM strike rise in automobile manufacturing and sizable increases for both primary metals and computers/electronics. Nondurable goods output grew 0.1 percent. Overall industrial production gained 1.1 percent. Mining output slipped 0.2 percent as gas/oil drilling slowed. Cold weather in parts of the U.S. led to a 2.9 percent rise in utility output. Even with their November gains, both overall industrial production and manufacturing output have declined 0.8 percent over the past year.

#3The latest revision to Q3 GDP has the U.S. economy growing at a moderate rate. The third estimate of Q3 Gross Domestic Product keeps the seasonally adjusted annualized growth rate at a good but not great +2.1 percent. The Bureau of Economic Analysis’ revision reflects higher than previously believed levels of consumer spending and business investment, offset by lower levels of inventory accumulation. The only sectors of the economy making positive contributions to GDP growth were consumer spending, government spending, fixed residential investment, and exports. The same report finds corporate profits slipping 0.2 percent during the quarter. We will see our first snapshot of Q4 GDP on January 30.

#4Employers continued having difficulty finding people to fill open jobs. The Bureau of Labor Statistics reports that there were a seasonally adjusted 7.267 million open jobs at the end of October, up 235,000 for the month but off by 326,000 from a year earlier (but still near a record high for the data series). (By comparison, the BLS estimates that there were “only” 5.855 million unemployed adults during the same month.) Private-sector employers had 5.515 million open jobs, down 6.2 percent versus October 2018. Employers were unable to fill these jobs as hiring declined by 213,000 to 5.764 million (-1.9 percent versus October 2018). 5.636 million people departed their jobs, down 162,000 from September but essentially matching that of a year earlier. This included a small rise in workers voluntarily quitting their jobs (up 41,000 to 3.512 million, +1.2 percent versus October 2018). Meanwhile, the count of layoffs plummeted by 198,000 to 1.769 million (-4.6 percent versus October 2018).

#5Consumer confidence ends 2019 on a high note. The December Index of Consumer Sentiment reading of 99.3 (seasonally adjusted), essentially matched the preliminary mark reported a few weeks earlier and was up by 2.5 points from November and a full point over the previous year. The University of Michigan also notes that its current conditions index jumped 3.9 points to 115.5 (December 2018: 116.1) while the expectations index added 1.6 points to 88.9 (December 2018: 87.0). The press release stated that the impeachment hearings “had a barely noticeable impact on economic expectations,” with only two percent of survey respondents mentioning it.

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 14, 2019, First-Time Claims, seasonally adjusted): 234,000 (-18,000 vs. previous week; +14,000 vs. the same week a year earlier). 4-week moving average: 225,500 (+0.7% vs. the same week a year earlier).
Leading Indicators (November 2019, Index (2016=100)): 111.6 (Unchanged vs. October 2019, +0.1% vs. November 2018).
Existing Home Sales (November 2019, Sales, seasonally adjusted annualized rate): 5.35 million (-1.7% vs. October 2019, +2.7% vs. November 2018).
Housing Starts (November 2019, Housing Starts, seasonally adjusted annualized rate): 1.365 million units (+3.2% vs. October 2019, +13.6% vs. November 2018).
Housing Market Index (December 2019, Index (>50=Greater Percentage of Homebuilders View the Housing Market as Being “Good” versus Being “Poor,” seasonally adjusted): 76 (vs. November 2019: 71, vs. December 2018: 56).
State Employment (November 2019, Nonfarm Payrolls, seasonally adjusted): Vs. October 2019: Payrolls grew in 6 states, decreased in 1 state, and were essentially unchanged in 43 states and the District of Columbia. Vs. November 2018: Payrolls grew in 25 states and were essentially unchanged in 25 states and the District of Columbia.

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