Economic Activity Grew, Sentiment Did Not: December 24 – 28

Economic activity was above average in November, but consumers were less cheery about the future as 2018 ended. Here are the five things we learned from U.S. economic data released during the week ending December 28.

Note that the partial shutdown of the federal government has and will delay the release of certain economic data reports.

#1Economic activity picked up in November. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic measures, rose from showing average economic growth (with a reading of 0.00) in October to indicating above-average growth with a reading of +0.22 in November. Forty-eight of 85 economic measures made a positive contribution to the CFNAI while the other 37 made negative contributions. Among the four major categories of economic indicators, those associated with production and sales/orders/production had greater positive contributions in November, with the former up 17-basis points to a +0.08 contribution and the latter up 11-basis points to +0.09. Making smaller contributions were economic indicators associated with employment (down five basis points to +0.10) and consumption/housing (off a basis point to a negative contribution of -0.05). The CFNAI’s three-month moving average lost 11-basis points during the month to a reading of +0.12. This reading is consistent with above average economic growth.

#2Consumer confidence mellowed in December. The Conference Board’s Consumer Confidence Index shed 8.3 points during the month to fall to a seasonally adjusted reading of 128.1 (1986=100). Most of the decline came from consumers’ lowered enthusiasm for the future as the expectations index lost 13.2 points to 99.1. The drop in the present conditions index was far more modest as it lost 1.1 points to 171.6. The former was pulled down by fewer survey respondents anticipating business conditions will improve over the next six months (18.3 percent of respondents) and there to be more jobs available in the near future (16.6 percent). The press release noted that overall sentiment was “ending 2018 on a strong note” but also stated that the lowered expectations reflected “an increasing concern that the pace of economic growth will begin moderating in the first half of 2019.”

#3Home purchase contract signing activity slipped again. The Pending Home Sales Index (PHSI) from the National Association of Realtors lost 7/10ths in November to a seasonally adjusted 101.4 (2001=100), its lowest mark since 2014. While the measure of contracts signed to purchase a previously owned home declined on a national basis, it managed to increase in both the Northeast (up 2.5 points to 95.1) and West (up 2.4 points to 87.2). The index fell both the South (down 3.2 points to 115.7) and Midwest (off 2.3 points to 98.1). The PHSI has slumped 7.7 percent over the past year (the 11th consecutive month with year-to-year declines), with negative 12-month comparables in all four Census regions. The press release laid the blame for the slower activity on lower home affordability (home prices and interest rates) and warned the partial government shutdown could harm the housing market (due to the shutdown’s starving off the availability of flood insurance).

#4One measure of home prices signals a cooling. The purchase-only House Price Index (HPI) from the Federal Housing Finance Agency (FHFA), the regulator of Fannie Mae and Freddie Mac, grew 0.3 percent on a seasonally adjusted basis during October. While this was larger than September’s 0.2 percent gain, it was under the 0.4 percent increase experienced each month from April through July. The HPI, which tracks the prices of previously owned homes purchased with a conforming mortgage, grew in seven of nine tracked Census regions, led by the Pacific (+1.4 percent), West North Central (+1.1 percent), and East North Central (+0.7 percent). Home prices fell in both the South Atlantic (-0.6 percent) and Middle Atlantic (-0.2 percent). The HPI has risen 5.7 percent over the past year, the smallest 12-month comparable since the Spring of 2016.

#5…As does another. The 20-city Case-Shiller Home Price Index increased 0.4 percent on a seasonally adjusted basis in October after having risen 0.7 percent during the prior month. Home prices have risen 5.0 percent over the past year, down from a +5.2 percent 12-month comparable reported a month earlier. The index rose in 18 of the 20 tracked metropolitan areas, led by a 0.8 percent jump in Las Vegas and 0.7 percent increases in Atlanta, Boston, New York, and Phoenix. Home prices dropped in San Francisco (-0.6 percent) and Seattle (-0.3 percent). All 20-tracked metro areas enjoyed positive 12-month comparables, with the largest year-to-year percentage price gains in Las Vegas (+12.8 percent), San Francisco (+7.9 percent), Phoenix (+7.7 percent), and Seattle (+7.3 percent).

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 22, 2018, First-Time Claims, seasonally adjusted): 216,000 (+2,000 vs. previous week; +26,000 vs. the same week a year earlier). 4-week moving average: 218,000 (-8.0% vs. the same week a year earlier).

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

The Fed Shares One Final Gift Before the Holidays: December 17 – 21

The Federal Reserve hiked its short-term interest rate target for a fourth and final time in 2018. Here are the five things we learned from U.S. economic data released during the week ending December 21.

#1The Fed bumps up short-term rates but forecasts fewer hikes in 2019. The statement released following last week’s meeting of the Federal Open Market Committee once again noted that “the labor market has continued to strengthen and that economic activity has been rising at a solid rate.” Also, it indicated that core inflation was near its two-percent target rate, but also pointed out that business investment had “moderated.” Unlike with previous statements, this one included a comment that the committee “will continue to monitor global economic and financial developments and assess their implications for the economic outlook.” This is a reference to (among other things) the potential impact of tariffs, Brexit and partial government shutdowns. With all of this in mind, the committee voted unanimously to bump up the fed funds target rate by a quarter point to range between 2.25 and 2.50 percent. The hike was widely expected, despite some external cajoling to the contrary.

Released in conjunction with the policy statement was economic projections of Federal Reserve Board members and Federal Reserve Bank presidents and one big takeaway was an expectation for slightly slower economic growth than previously predicted. The median forecast now has gross domestic product (GDP) growing 2.3 percent in 2019, whereas the previous prediction had growth at 2.5 percent. The median projection for the unemployment rate next year remained at 3.5 percent, but the core inflation rate now is expected to be 2.1 percent in 2019 (versus the previous 2.0 percent forecast). Most notable is the median prediction among FOMC members now has two hikes in the fed funds target rate in 2019—previously, FOMC members had anticipated three hikes next year.Fed Funds Target Rate Forecast.png

#2A revised Q3 GDP estimate continued to show robust economic growth. The Bureau of Economic Analysis’ third estimate of Q3 gross domestic product has the U.S. economy expanding at a healthy 3.4 percent seasonally adjusted annualized rate. This was just below the 3.5 percent rate of expansion reported in the first two previously published estimates. The downward revision was a product of lower than previously believed estimates of consumer spending and exports (only partially counterbalanced by an upward revision to private inventory accumulation). Corporate profits (with inventory valuation and capital consumption adjustments rose 3.5 percent to $2.321 trillion (+10.4 percent versus 2017 Q3).

#3Personal spending remained resilient in November. The Bureau of Economic Analysis estimates real (inflation-adjusted) personal consumption expenditures (PCE) increased 0.3 percent on a seasonally adjusted basis during the month. While this was half of October’s 0.6 percent bounce, it leaves real PCE up 2.8 percent over the past year. Real spending on goods rose 0.9 percent during November while services expenditures expanded at a more modest 0.2 percent. The 12-month comparables for both were a solid +3.4 percent and +2.8 percent, respectively. Funding the increased spending were 0.2 percent gains for nominal personal income and both real and nominal disposable income. Real disposable income has grown by 2.8 percent over the past year. The savings rate was +6.0 percent, down 1/10th of a percentage point from October.

#4Sales of previously owned homes grew for a second straight month after showing general weakness for much of 2018. The National Association of Realtors reports existing home sales increased 1.9 percent in November to a seasonally adjusted annualized rate of 5.32 million units. Despite the rise, home sales were 7.0 percent under its year-ago market, representing the largest negative 12-month comparable since November 2011. Sales grew during the month in three of four Census regions, with the West’s 6.3 percent decline being the outlier. All four Census regions experienced negative year-to-year sales trends: West (-15.4 percent), South (-5.6 percent), Midwest (-4.3 percent), and Northeast (-2.6 percent). Inventories contracted 5.9 percent during November to 1.74 million units (+4.2 percent versus November 2017 and the equivalent to a 3.9-month supply). The median sales price has risen 4.2 percent over the past year to $257,700.

#5Consumer sentiment ends the year on a high note. The University of Michigan’s Index of Consumer Sentiment added 8/10ths of a point in December to a seasonally adjusted 98.3. This places the sentiment measure 2.4 points ahead of its year-ago mark and keeps it within the same five-point range where it has been over the past two years. In December, the present conditions index added 3.8 points to 116.1 (December 2017: 113.8) while the expectations index shed 1.1 points to 87.0 (December 2017: 84.3). The press release notes that 2018 was the best year for the headline index’s 12-month average (98.4) since 2000.

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 15, 2018, First-Time Claims, seasonally adjusted): 214,000 (-27,000 vs. previous week; +8,000 vs. the same week a year earlier). 4-week moving average: 222,000 (-6.0% vs. the same week a year earlier).
Leading Indicators (November 2018, Index (2016=100), seasonally adjusted): 111.8 (+0.2% vs. October 2018, +5.2% vs. November 2017).
Durable Goods (November 2018, New Orders for Manufactured Durable Goods, seasonally adjusted): $250.8 billion (+0.8% vs. October 2018). Nontransportation goods new orders: $163.8 billion (-0.3% vs. October 2018).
Housing Starts (November 2018, Housing Units Started, seasonally adjusted annualized rate): 1.256 million (+3.2% vs. October 2018, -3.6% vs. November 2017).
Housing Market Index (December, Index (>50 = “Good” housing market, seasonally adjusted): 56 (vs. November 2018: 60; December 2017: 74).
Treasury International Capital Flows (October 2018, Net Purchases of U.S. Securities, not seasonally adjusted): -$6.5 billion (vs. September 2018: +$7.5 billion; vs. October 2017: +$10.5 billion.
State Employment (November 2018, Nonfarm Payrolls, seasonally adjusted): Vs. October 2018: Payrolls grew in 4 states and were essentially unchanged in 46 states and the District of Columbia. Vs. November 2017: Payrolls grew in 37 states and were essentially unchanged in 13 states and the District of Columbia.

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

Home Sales & Starts Inched Up: November 19 – 23

Home sales and starts grew in October, but builder confidence stumbled nonetheless.  Here are the five things we learned from U.S. economic data released during the week ending November 23.

#1Existing home sales grew for the first time in seven months in October. Sales of previously owned homes increased 1.4 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.22 million units, its first increase since March. The National Association of Realtors tells us that sales grew in the three of four Census regions: West (+2.8 percent), South (+1.9 percent), and Northeast (+1.4 percent). Sales slipped 0.8 percent in the Midwest. Existing home sales have fallen a sharp 5.1 percent over the past year, with negative 12-month comparables in all four Census regions: West (-11.2 percent), Northeast (-6.8 percent), Midwest (-3.1 percent), and South (-2.3 percent). Inventories of homes available for sale remained very tight as there were 1.85 million homes on the market at the end of October, down 1.6 percent for the month and the equivalent to a 4.3 month supply. The median sales price of homes sold was $255,400, up 3.8 percent from that of a year earlier. This slower growth rate in home prices allowed, according to the press release, “for much more manageable, less frenzied buying conditions.”Existing Home Sales 112318

#2Housing starts grew, but homebuilders were less confident about the market. The Census Bureau reports that housing starts increased 1.5 percent to a seasonally adjusted annualized rate (SAAR) of 1.228 million units. Even with the increase, starts were 2.9 percent behind the year-ago pace. October’s gain was solely on the multi-unit side—starts of five or more unit housing increased 6.2 percent during the month. Meanwhile, single-family home starts slowed 1.8 percent. Looking towards the future, the number of issues building permits slipped 0.6 percent to a SAAR of 1.27 million units (-6.0 percent versus October 2017). Fewer homes were finished as the new home housing completed fell 3.3 percent during the month to 1.111 million units (SAAR).

The Housing Market Index (HMI), the National Association of Home Builder’s measure of builders’ sentiment, plummeted by eight points to a seasonally adjusted 60. While this was the 53rd consecutive month in which the HMI was above a reading of 50—meaning more homebuilders see the housing market as “good” rather than “bad”—it was the index’s lowest mark since August 2016. The HMI fell sharply in all four Census regions: Northeast (down nine points to 52), West (down nine points to 65), Midwest (down six points to 54), and South (down five points to 65). Also losing ground were indices for single-family home sales (down seven points to 67), expected sales (down ten points to 65), and traffic of prospective buyers (down eight points to 45). The press release notes survey respondents had stated consumers were “taking a pause due to concerns over rising interest rates and home prices.”

#3Forward-looking economic indicators suggest moderating growth over the near-term. The Conference Board’s Leading Economic Index (LEI) grew by only 1/10th of a point in October to a seasonally adjusted 112.1, its smallest increase since May and representing a still robust 5.9 percent gain over the past year. Five of the LEI’s ten components made positive contributions during the month, led by consumers’ economic expectations and the interest rate spread. The coincident index added 2/10ths of a point to a reading of 104.7, up 2.2 over the prior 12 months. All four coincident index components made positive contributions, including nonfarm payrolls and personal income net of transfer payments. The lagging index increased by 4/10ths of a point to 105.5 (+2.5 percent versus October 2017), with four of seven components making positive contributions. The press release stressed that the reading still suggests “robust economic growth in early 2019,” but also that rate of economic growth “may already have peaked.”

#4Durable goods orders slumped in October. The Census Bureau estimates new orders for manufactured durable goods plummeted 4.4 percent to a seasonally adjusted $248.5 billion, its third decrease over the past four months. Aircraft orders can be volatile month-to-month and tend to be a primary driver for the headline estimate of durable goods orders, and October was no exception. Civilian aircraft orders fell 21.3 percent and defense aircraft orders slumped 59.3 percent. As a result, overall transportation goods order declined 12.2 percent (motor vehicle orders inched up 0.2 percent). Net of transportation goods, durable goods orders eked out a 0,1 percent gain. Falling during the month were orders for primary metals (-2.3 percent) and machinery (-0.5 percent) while orders rose for electrical equipment/appliances (+2.9 percent), computers/electronics (+1.6 percent), and fabricated metal products (+1.0 percent). Weakness continued for core capital goods (i.e., civilian capital goods net of aircraft—a proxy for business investment), which were unchanged in October after having declined in both August and September.

#5Consumer sentiment edged down in November. The Index of Consumer Sentiment from the University of Michigan lost 1.1 points during the month to a seasonally adjusted reading of 97.5 (1966Q1=100). This reading was 8/10ths of a point below the preliminary November reading reported a few weeks ago and one full point under the November 2017 mark. The index has been within a relatively tight 5.7 point range over the past 12 months. The current conditions index shed 8/10ths of a point during the month to a reading of 112.3 (November 2017: 113.5) while the expectations index fell by 1.2 points to 88.1 (November 2017: 88.9). The press release noted that sentiment among lower-income survey respondents had improved during the month while that of higher income respondents had slumped.

Other U.S. economic data released over the past week:

Jobless Claims (week ending November 17, 2018, First-Time Claims, seasonally adjusted): 224,000 (+3,000 vs. previous week; -15,000 vs. the same week a year earlier). 4-week moving average: 218,500 (-9.0% vs. the same week a year earlier).

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