GDP Jumped Again in Q3, New Home Sales Slowed in September: October 22 – 26

The U.S. economy chugged along during Q3, albeit at a slower pace than before.  Here are the five things we learned from U.S. economic data released during the week ending October 26.

#1GDP moderated during Q3, propped up in part by inventory gains. The Bureau of Economic Analysis’ first estimate of third-quarter 2018 Gross Domestic Product (GDP) finds the U.S. economy expanded 3.5 percent on a seasonally adjusted annualized basis between July and September. While down from Q2’s 4.2 percent increase, this was the second best quarter for GDP since Q2 2014. The biggest positive contributor to Q3 GDP growth was personal consumption, which added 269-basis points to the final figure. The second largest contributor was the $113.1 billion increase in private inventories, which swelled GDP by 207-basis points. (The large impact of the expansion in inventories may signal a slower GDP growth rate in Q4 as business burn through these stockpiles.) Rising government expenditures contributed 56-basis points to GDP growth while business investment (fixed nonresidential investment) added 12-basis points. Trade became a significant drag on economic growth as falling exports and rising imports led to net exports having a negative GDP contribution of -0.45. Housing also continued to flag with a third straight quarterly negative contribution (-0.16). The BEA will revise its Q3 GDP estimate twice over the next two months.GDP-2015-8 102618

#2Economic growth slowed specifically in September. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators, lost ten basis points during the month to a reading of +0.17 (the fourth straight month in which the CFNAI came in with a positive reading). Even though the CFNAI’s three-month moving average slipped by six-basis points to +0.21, the moving average’s continued positive reading was indicative of economic growth above the historical average. Forty-six of the 85 tracked indicators made positive contributions to the CFNAI while 36 indicators advanced during the month. Three of four major categories of indicators made positive contributions to the CFNAI: production (+0.11), employment (+0.07), and sales/orders/inventories (+0.05). Indicators related to consumption/housing had a negative contribution of -0.05.

#3Durable goods flew in September because of defense aircraft orders. The Census Bureau estimates new orders for manufactured durable goods jumped 0.8 percent during the month to a seasonally adjusted $262.1 billion, its third gain in four months. Leading the way was a 1.9 percent gain in orders for transportation goods, boosted by a 119.1 percent surge in orders for defense aircraft and a 1.3 percent rise in orders for motor vehicles. Durable goods orders net of transportation equipment inched up by only 0.1 percent. Rising during the month were orders for machinery (+0.8 percent), and primary metals (+0.1 percent) while orders fell for fabricated metal products (-0.7 percent), electrical equipment/appliances (-0.5 percent), computers (-0.4 percent), and communications equipment (-0.1 percent). Also slumping was a proxy for business investment as non-aircraft civilian capital goods orders slipped 0.1 percent.

#4New home sales slumped again in September. Sales of single-family homes fell 5.5 percent during the month to a seasonally adjusted annualized rate (SAAR) of 553,000 units, per the Census Bureau. Sales declined in three of four Census regions: Northeast (-40.6 percent), West (-12.0 percent), and South (-1.5 percent). Transactions increased by 6.9 percent in the Midwest. Sales were off 13.2 percent from a year earlier, with deals down in the Northeast (-51.3 percent), West (-15.8 percent), and South (-11.4 percent). Again, the Midwest was the exception with a positive 12-month comparable of +4.1 percent. Inventories of new homes continued to grow, with a 2.8 percent increase to 327,000 units (+16.8 percent versus September 2017). This was the equivalent to a 7.1 month supply.

#5Consumer sentiment flagged ever so slightly in October. The University of Michigan’s Index of Consumer Sentiment pulled back by 1.5 points during the month to a seasonally adjusted 98.6 (1966Q1=100). While 4/10ths of a point of drop from the preliminary October reading reported a few weeks ago and 2.1 points below the year-ago reading, the sentiment measure remained near its post-recession highs. The current conditions index shed 2.1 points during the month to 113.1 (October 2017: 116.5) while the expectations index’s decline was smaller, losing 1.2 points to 89.3 (October 2017: 90.5). Partisanship continued to have a significant influence on one’s sentiment—the headline index for those identifying as Republican was 126.4, compared to 81.0 for those identifying as a Democrat and 96.2 for those who view themselves of politically independent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 20, 2018, First-Time Claims, seasonally adjusted): 215,000 (+5,000 vs. previous week; -19,000 vs. the same week a year earlier). 4-week moving average: 211,750 (-11.7% vs. the same week a year earlier).
FHFA House Price Index (August 2018, Purchase-Only Index, seasonally adjusted): +03% vs. July 2018, +6.1% vs. August 2017.
Beige Book

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

Not Longer Accommodative: September 24 – 28

The Fed made a move and suggests it will do so again before the year is out. Here are the five things we learned from U.S. economic data released during the week ending September 28.

#1The Fed raises its short-term interest rate target while no longer calling its policies “accommodative.” The policy statement released following this past week’s meeting of the Federal Open Market Committee (FOMC) noted that economic activity was “rising at a strong rate” and that the job market had “continued to strengthen.” The word “strong” also was used to describe job gains and growth in both household spending and business fixed investment. Further, the Fed sees core inflation being near its two-percent target. As a result, the FOMC voted without dissent to raise the fed funds target rate by a quarter point to a range between 2.00 and 2.25 percent. Unlike in recent years, the statement did not characterize its fed funds target rate as being “accommodative,” suggesting a shift in the thinking of the committee. Released in conjunction with the policy statement, the median forecast among FOMC members has one more quarter-point rate hike this year, three hikes in 2018, and one in 2019.

#2Personal spending mellowed a bit in August. Real personal consumption expenditures (PCE) grew a seasonally adjusted 0.2 percent, breaking a four-month streak of 0.3 percent increases for the Bureau of Economic Analysis measure. Real PCE has increased 2.8 percent over the past year. Real spending on services grew 0.2 percent during the month while that of goods increased 0.3 percent. Looking closer at the latter, spending on durable goods gained 0.2 percent while that for nondurables rose 0.4 percent. Matching their July gains were nominal personal income (+0.3 percent), nominal disposable income (+0.3 percent), and real disposable income (+0.2 percent). The latter has grown 2.9 percent over the past 12 months. The savings rate held firm at +6.6 percent. The PCE deflator—a measure of inflation—has risen 2.2 percent over the past year while the core measure (net of both energy and food) has a 12-month comparable of +2.0 percent.

#3The third estimate of Q2 GDP matches that of the second estimate. The Bureau of Economic Analysis reports that Gross Domestic Product (GDP) grew 4.2 percent on a seasonally adjusted annualized basis, matching the previous estimate reported in late August and up a smidge from the initial 4.1 percent annualized gain published in late July. Contributors to GDP growth during the quarter were (in decreasing order): personal consumption, net exports, nonresidential fixed investment, and government expenditures. Negative contributors to Q2 GDP growth were private inventory accumulation and residential fixed investment (housing). Downwardly revised were the estimate of corporate profits, with the estimate now indicating a 3.0 percent increase during Q2.

#4Consumer sentiment rose in September. The Conference Board’s Consumer Confidence Index grew by 3.7 points during the month to a seasonally adjusted 138.4 (1985=100), its best reading since September 2000. The current conditions index grew by a small 3/10ths of a point to 173.1—it was the expectations index that had a big increase, adding a full six points to 115.3. 41.1 percent of survey respondents described current business conditions as “good” while only 9.1 percent see them as “poor.” Similarly, 45.7 percent of Americans see jobs as being “plentiful” while 13.2 percent describe jobs as “hard to get.” The press release said that current confidence levels “should continue to support healthy consumer spending.”

The Index of Consumers Sentiment from the University of Michigan came in at a seasonally adjusted reading of 100.1 (1966Q1 = 100). While this was off 7/10ths of a point from the preliminary September reading a few weeks ago, it represented increases from August 2018 and September 2017 of 3.9 points and 5.0 points, respectively. The current conditions grew by 4.9 points during the month to 115.2 (September 2017: 111.7) while the expectations index added 3.4 points to 90.5 (September 2017: 84.4). The press release noted that most of the improved sentiment was reported by lower income survey respondents—the headline index for households in the bottom third of incomes hit its highest reading in nearly 18 years.

#5Rising aircraft sales fueled durable goods orders in August, but business investment lagged. The Census Bureau estimates new orders for durable goods jumped 4.5 percent during the month to a seasonally adjusted $259.6 billion, the second increase in three months. Transportation goods orders surged 13.0 percent, supported by large gains for orders of both civilian (+69.1 percent) and defense aircraft (+17.0 percent). New orders for motor vehicles dropped 1.0 percent. Net of transportation goods, new orders for durable goods managed a mere 0.1 percent gain. Rising during the month were orders for primary metals (+0.9 percent), electrical equipment/appliances (+0.6 percent), and machinery (+0.1 percent). New orders for civilian capital orders net of aircraft (a proxy for business investment) dropped 0.5 percent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 22, 2018, First-Time Claims, seasonally adjusted): 214,000 (+12,000 vs. previous week; -44,000 vs. the same week a year earlier). 4-week moving average: 206,250 (-23.1% vs. the same week a year earlier).
New Home Sales (August 2018, New Home Sales, seasonally adjusted annualized rate): 629,000 (+3.5% vs. July 2018, +12.7% vs. August 2017).
Pending Home Sales (August 2018, Index (2001=100), seasonally adjusted): 104.2 (-1.8% vs. July 2018, -2.3% vs. August 2017).
Chicago Fed National Activity Index (August 2018, Index (0.00 = U.S. economic growth at historical average): +0.18 (vs. July 2018: +0.18, vs. August 2017: -0.08). 3-month moving average: +0.24 (vs. July 2018: +0.02, vs. August 2017: -0.05).
Case-Shiller Home Price Index (July 2018, 20-City Index, seasonally adjusted): +0.1% vs. June 2018, +5.9% vs. July 2017.
FHFA House Price Index (July 2018, Purchase-Only Index, seasonally adjusted): +0.2% vs. June 2018, +6.4% vs. July 2017.
Agricultural Prices (August 2018, Prices Received by Farmers): -2.2% vs. July 2018, -4.9% vs. August 2018).

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

Consumers Spend, Prices Hit a Target: August 27 – 31

Consumers focused their spending on nondurable goods and services during July. Here are the five things we learned from U.S. economic data released during the week ending August 31.  

#1Consumers continued spending in July while inflation hits the Fed’s target. Real personal consumption expenditures (PCE) increased at a seasonally adjusted 0.2 percent rate during the month. This was down from the 0.3 percent gains reported by the Bureau of Economic Analysis for the three prior months. Spending on goods and services each grew by 0.2 percent during July, with the latter split by a 0.6 percent bump in nondurable goods spending and a 0.5 percent drop in durable goods spending. Nominal (non-price adjusted) PCE grew 0.4 percent for a second consecutive month. Nominal personal and disposable income gained 0.3 percent, with real disposable income rising 0.2 percent. The savings rate slipped by 1/10th of a percentage point to +6.7 percent. Over the past year, real disposable income has increased 2.9 percent while real PCE has expanded 2.8 percent. The same report includes data on inflation—the PCE deflator growing 0.1 percent during July with the core PCE deflator (removing energy and food) gained 0.2 percent. Over the past year, the two price measures have grown by 2.3 percent and 2.0 percent, respectively, with the latter matching the Federal Reserve’s two-percent inflation target.Consumer Spending April - July 2018 083118

#2GDP expanded a smidge faster than previously believed during Q2. The Bureau of Economic Analysis’ second estimate of gross domestic product (GDP) for the months of April, May, and June has the U.S. economy expanding 4.2 percent on a seasonally adjusted annualized basis. This was up from the 4.1 percent gain reported a month earlier and was the best quarter for GDP growth since the third quarter of 2014. The small upward revision was the result of higher than previously believed levels of business investment and private inventory accumulation partially offset by lower than the previously thought level of consumer spending. The sectors of the economy making positive contributions to GDP growth were (in declining order of contribution) were: personal spending (+255-basis points), fixed nonresidential investment (+107-basis points), exports (+110-basis points), government expenditures (+41-basis points), and imports (+7-basis points). Negative contributions came from private inventory accumulation (-97-basis points) and fixed residential investment (-6-basis points).

#3Economic growth “moderated” in July. The Chicago Fed National Activity Index (CFNAI) lost 35-basis points to +0.13 (June 2017: -0.18). Since the CFNAI is a weighted averaged 85 economic measure indexed such that a reading of 0.00 is indicative of the U.S. economy growing at its historical rate, July reading suggests the economy continued to expand during the month but at a slower pace than it had in June. Thirty-four of the 85 indicators improved during the month while 51 had weakened. The components related to production made a total contribution to CFNAI of +0.05 (versus a +0.45 contribution in June). Also making positive contributions were measures related to employment (+0.12 versus a +0.03 contribution in June) and sales/orders/inventories (+0.03 versus a +0.06 contribution in June). The measures linked to personal consumption/housing had a negative contribution of -0.07 (versus -0.06 in June). The CFNAI’s three-month moving average remained positive at +0.05 despite losing 15-basis points from June (June 2017: -0.07).

#4One measure of consumer sentiment surged to an 18-year high while another pulled back. The Conference Board’s Consumer Confidence Index jumped 5.5 points in August to a seasonally adjusted 133.4 (1985=100). The index has not been this high since October 2000. Measures tracking both current and expected business conditions improved—the current conditions index increased from 166.1 to 172.2 while the expectations index added 5.4 points to 107.6. 40.3 percent of survey respondents described current business conditions as “good” while only 9.3 percent see them as “bad.” Similarly, 42.7 percent of respondents saw the availability of jobs as “plentiful” with only 12.7 percent described jobs as being “hard to get.” The press release states that the strong sentiment among consumers “should continue to support healthy consumer spending in the near-term.

Meanwhile, the Index of Consumer Sentiment from the University of Michigan lost 1.7 points during August to a seasonally adjusted 96.2 (1966Q1=100), its worst reading since January. While down 6/10ths of a point from a year earlier, this was a 9/10ths of a point improvement from the preliminary August reading reported several weeks ago. The measure tracking current business conditions shed 4.1 points to its lowest points since November 2016 at 110.3 (August 2017=110.9) while the expectations index slipped by only 2/10ths of a point to 87.1 (August 2017=87.7).

#5Contract signings to purchase a home slipped in July. The National Association of Realtors’ Pending Home Sales Index lost 8/10ths of a point to a seasonally adjusted reading of 106.2 (2001=100), leaving the measure 2.3 percent below its July 2017 reading. The index, which tracks contracts signed to purchase a previously owned home but have not yet closed, improved during the month in the Northeast (+1.0 percent) and Midwest (+0.3 percent), but lost ground in the South (-1.7 percent) and West (-0.9 percent). The index has negative 12-month comparables in all four Census regions: West (-5.8 percent), Northeast (-2.3 percent), Midwest (-1.5 percent), and South (-0.9 percent). NAR’s press release continued to express concern about “inadequate supply” leading to many homebuyers being “unable to afford” homes in some markets.

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 25, 2018, First-Time Claims, seasonally adjusted): 213,000 (+3,000 vs. previous week; -25,000 vs. the same week a year earlier). 4-week moving average: 212,250 (-10.9% vs. the same week a year earlier).
Agricultural Prices (July 2018, Prices Received by Farmers): -3.8% vs. June 2018, -4.3% vs. July 2017).
Case-Shiller Home Price Index (June 2018, 20-City Index, seasonally adjusted): +0.1% vs. May 2018, +6.3% vs. July 2017). 

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