The U.S. Economy Expanded During the Summer, Held Firm in September: October 23 – 27

GDP enjoyed a second consecutive quarter of robust growth during the summer. Here are the five things we learned from U.S. economic data released during the week ending October 27.  

#1The U.S. economy expanded solidly during Q3. The Gross Domestic Product (GDP) grew a seasonally adjusted annualized rate (SAAR) of 3.0 percent during the months of July, August, and September. This follows the Bureau of Economic Analysis’ estimate of GDP growing 3.1 percent during Q2, marking the two best consecutive quarters of economic growth since the second and third quarters of 2014. Positive contributors to Q3 economic growth were consumption (adding 162-basis points to GDP growth), the change in private inventory accumulation (+73-basis points), business fixed investment (+49-basis points), exports (+28-basis points), imports (+12-basis points), and federal government expenditures (+8-basis points). Dragging down Q3 GDP growth were residential fixed investment (cost 24-basis points in GDP growth) and state/local government expenditures (-9-basis points). The BEA report did not contain any comment on whether the recent hurricanes had hindered overall economic growth. The BEA will revise its estimate of Q3 GDP growth twice over the next two months.GDP Growth 2010-2017 102717

#2Economic activity appears to have improved in September. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic indicators, jumped by 54-basis points to a reading of +0.17. (A reading of 0.00 would have indicated economic growth at the historical average.) This was the measure’s best reading since June. Fifty-four of the CFNAI’s components improved from the August’ readings, with all four major categories of components advancing during the month. Among the big 4 categories, the largest surge came from those related to production with its contribution to CFNAI rising from -0.33 in August to +0.10 in September. Much smaller improvements came with components related to employment (up five-basis points to +0.06), personal consumption/housing (up four-basis points to -0.07), and sales/orders/inventories (up a basis point to +0.07). The CFNAI’s three-month moving average—which smooths out some of the month-to-month volatility in the index—held steady at a reading of -0.16.

#3Durable goods orders grew in September. The Census Bureau tells us that new orders for manufactured durable goods blossomed 2.2 percent during the month to a seasonally adjusted $238.7 billion. Some of the gain comes from a sharp 31.5 percent increase in new orders for civilian aircraft. Transportation goods gained 5.1 percent for the month, also reflecting smaller increased orders for defense aircraft (+0.7 percent) and motor vehicles (+0.1 percent). Net of transportation goods, core durable goods orders increased 0.7 percent during September, matching its August gain and just below its July increase of 0.8 percent. Rising during the month were new orders for communications equipment (+4.8 percent) and fabricated metal products (+1.7 percent). New orders fell for computers/related products (-5.5 percent), machinery (-0.2 percent), and primary metals (-0.1 percent). Durable goods shipments grew for the fourth time in five months with a 1.0 percent bounce to $240.5 billion. Net of transportation goods, durable goods shipments increased 1.2 percent. Growing for the first time in three months was the value of unfilled orders (+0.2 percent) while durable goods orders inventories expanded for the 14th time in fifteen months (+0.5 percent).

#4New home sales jumped during September. Per the Census Bureau, new home sales rose 18.9 percent during the month to a seasonally adjusted annualized rate (SAAR) of 667,000 units. This was the fastest pace of new home sales since right before the start of the last recession in October 2007. Sales jumped by double-digit percentages in three of four Census regions: Northeast (+33.3 percent), South (+25.8 percent), and Midwest (+10.6 percent). Sales grew by a more modest 2.9 percent in the West. New home sales were 17.0 percent above their September 2016 pace. There were 279,000 new homes available for sale at the end of September, matching the count from the prior month but up 15.3 percent from a year earlier. This translated into a 5.0-month supply (its lowest point since March). 

#5Consumer sentiment surged to a 17 year high in October. The University of Michigan’s Index of Consumer jumped 5.6 points during the month to a seasonally adjusted 100.7. This was up 13.5 points from the same month a year earlier and the measure’s best reading since November 2000. Indices for both current and expectations both rose from their September mark, with the former up 4.8 points to 116.5 and the latter adding 6.1 points to 90.5. The current conditions index has not been this high since May 2000 while the expectations index hit its best reading since January 2015. The press statement noted that more than half of survey respondents “expected good times during the year ahead and anticipated the expansion to continue uninterrupted over the next five years.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 21, 2017, First-Time Claims, seasonally adjusted): 233,000 (+10,000 vs. previous week; -22,000 vs. the same week a year earlier). 4-week moving average: 239,500 (-5.0% vs. the same week a year earlier).
Pending Home Sales (September 2017, Index (2001=100), seasonally adjusted): 106.0 (unchanged vs. August 2017; -3.5% vs. September 2016).
FHFA House Price (August 2017, Purchase-Only Index, seasonally adjusted): +0.7% vs. July 2017; +6.6% vs. August 2016).

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

Economic Activity Eased During the End of Summer: September 25 – 29

Personal spending and overall economic activity both slowed in August. Here are the five things we learned from U.S. economic data released during the week ending September 29.

#1Personal spending paused in August. “Real” personal consumption expenditures (PCE) slipped 0.1 percent on a seasonally adjusted basis during the month, the first monthly decline in the inflation-adjusted measure of consumer spending since January. Real spending on goods fell 0.5 percent (also its largest drop since January), as spending on durable goods dropped 1.0 percent while that on nondurables slowed 0.2 percent. Real spending on services edged up 0.1 percent. Over the past year, real PCE has grown 2.5 percent, with 12-month comparables of +3.1 percent and +2.2 percent for spending on goods and services, respectively. The same Bureau of Economic Analysis report finds nominal (not adjusted for inflation) personal income had increased 0.2 percent during August while nominal disposable income grew 0.1 percent and real disposable income slipped 0.1 percent. Real disposable income has risen 1.2 percent over the past year. The personal saving rate was at +3.6 percent, matching July’s rate. The report’s closely watched measure of inflation—the PCE deflator—grew 0.2 percent during the month and had increased 1.2 percent over the past year. Net of energy and food, the core PCE deflator inched up 0.1 percent during the month and had risen 1.3 percent since August 2016. Both 12-month comparables were well below the Federal Reserve’s two-percent interest rate target.Change in Personal Consumption Expenditures 2016-7 092917

#2There was another small upward revision to Q2 economic growth. The Bureau of Economic Analysis upgraded its estimate of second-quarter 2017 growth in the Gross Domestic Product (GDP) from a 3.0 percent seasonally adjusted annualized gain to a 3.1 percent increase (the original Q3 estimate had a 2.6 percent increase). The small upward revision was the result of higher than previously believed levels of private sector inventory accumulation. This was the fastest month of economic growth since the first quarter of 2015. Positive contributors to Q3 GDP growth were personal consumption expenditures (PCE, adding 224-basis points to GDP growth), nonresidential fixed investment (+54 basis points), exports (+21-basis points), federal government spending (+13-basis points), and the change in private inventories (+12-basis points). Dragging down GDP growth were fixed residential investment (housing, costing 30-basis points in GDP growth), imports (-22-basis points), and state/local government expenditures (-16-basis points). Corporate profits from current production edged up 0.7 percent during the quarter to a SAAR of $2.123 trillion.

#3However, economic data suggest economic growth slowed in August. The Chicago Fed National Activity Index (CFNAI) fell by 34-basis points to a reading of -0.31. The CFNAI is a weighted index of 85 economic measures indexed so that a reading of 0.00 would be indicative of economic growth at the historical average. Hence, August’s reading is consistent with below average economic activity. This was the CFNAI’s lowest reading since May 2016. Only 35 of the 85 index components made a positive contribution to the CFNAI, but 45 components improved from their July’s readings. Among the four broad categories of components, two made negative contributions to the CFNAI: those associated with production (-0.36 contribution) and personal consumption/housing (-0.06). Boosting the CFNAI were components tied to sales/orders/inventories (+0.06) and employment (+0.05). The CFNAI’s three-month moving average was negative for the first time since March as it shed four-basis points to a reading of -0.04.

#4Consumer sentiment chilled in the autumn air of September. The Conference Board Consumer Confidence Index inched back 6/10ths of a point to a seasonally adjusted reading of 119.8 (1985=100). The index of current conditions fell back by 2.3 points to 146.1 while the expectations index added a half point to 102.2. A slightly smaller percentage of survey respondents characterized current business conditions as being “good” (33.9 percent, off 6/10th of a percentage point) while a few more said that they were “bad” (up 6/10ths of a percentage point to 13.8 percent). Twice as many respondents expected business conditions would improve over the next six months than believe they will deteriorate (19.8 percent versus 9.9 percent). The press release noted that sentiment weakened in both hurricane impacted Texas and Florida, but also that the overall results indicate “the economy will continue expanding at its current pace.”

The Index of Consumer Sentiment from the University of Michigan lost 1.7 points to a seasonally adjusted reading of 95.1 (1966Q1=100). Whereas the measure remained 3.9 points above its September 2016 reading, it has stayed within a tight four-point range since February. The current conditions index added 8/10ths of a point to 111.7 (September 2016: 104.2) while the expectations index shed 3.3 points to 84.4 (September 2016: 82.7). The press release stated that confidence has remained resilient despite “a long list of issues that could have derailed the overall level of consumer confidence, including the unprecedented partisan divide, North Korea, Charlottesville, and the hurricanes.” The release also noted that the results were consistent with consumer spending growing “2.6% in 2017 and in the 1st half of 2018.”

#5Durable goods orders rebounded in August. The Census Bureau estimates new orders for manufactured durable goods grew 1.7 percent during the month to a seasonally adjusted $232.8 billion. Nearly every month, the headline number is heavily influenced by transportation goods orders (and, specifically, aircraft orders), which tend to be quite volatile month-to-month. New orders for civilian aircraft surged 44.8 percent, leading to a 4.9 percent overall gain in transportation goods (new orders for automobiles increased 1.5 percent). Net of transportation goods, new orders grew 0.2 percent during the month, which included gains for communications equipment (+4.0 percent), machinery (+0.3 percent), primary metals (+0.3 percent). On the flipside, orders fell for computers (-1.3 percent), fabricated metal products (-0.4 percent), and electrical equipment/appliances (-0.1 percent). New orders for non-defense durable goods gained 2.2 percent during August while those of non-defense, non-aircraft capital goods (a proxy for business investment) rose 0.4 percent. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 23, 2017, First-Time Claims, seasonally adjusted): 272,000 (+12,000 vs. previous week; +19,000 vs. the same week a year earlier). 4-week moving average: 277,750 (+8.9% vs. the same week a year earlier).
New Home Sales (August 2017, New Residential Sales, seasonally adjusted annualized rate): 560,000 (-3.4% vs. July 2017, -1.2% vs. August 2016).
Pending Home Sales (August 2017, Index (2001=100), seasonally adjusted): 106.3 (-2.6% vs. July 2017, -2.6% vs. August 2016).
Agricultural Prices (August 2017, Prices Received by Farmers (Index: 2011=100)): 93.4 (-2.0% vs. July 2017, +4.1% vs. August 2016).

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

Job Creation and Wage Growth Slowed in August: August 28 – September 1

Manufacturing and construction sectors were responsible for more than a third of August’s net job creation. Here are the five things we learned from U.S. economic data released during the week ending September 1.  

#1Employers added fewer workers during August while wage growth momentum sputtered. Nonfarm payrolls expanded by 156,000 workers during the month following gains of 189,000 and 210,000 during July and June, respectively. The number of jobs created during August reported by the Bureau of Labor Statistics was below the average monthly job gains over the past year of 174,750. The private sector added 165,000 jobs during the month, split between 70,000 in the goods producing side of the economy and 95,000 in the service sector. Industries adding the most workers during the month were professional/business services (+40,000 jobs), manufacturing (+36,000, including 13,700 in motor vehicle manufacturing), construction (+28,000), and health care/social assistance (+16,600). The average work week totaled 34.4 hours, off 1/10th of an hour from July but 1/10th of an hour from a year earlier. Average hourly earnings grew by a mere three cents during the month to $26.39 (+2.5 percent versus August 2016). Average weekly earnings of $907.82 was off $1.60 from July but remained percent above a year ago levels.

A separate survey of households has the unemployment rate edging up 1/10th of a percentage point to a still low 4.4 percent. A year earlier, the unemployment rate was 4.9 percent. 77,000 people entered the labor force during the month, leaving the labor force participation rate at 62.9 percent (August 2016: 62.8 percent). The median length of unemployment slipped by 1/10th of a week to 10.5 weeks (August 2016: 10.9 weeks) while the count of “involuntary” part-time workers–these are part-timers seeking a full-time job–shrank by 27,000 to 5.255 million (August 2016: 6.027 million). Finally, the BLS’s broadest measure of labor underutilization (U-6 series) held firm during the month at 8.6 percent. A year earlier, the same measure was at 9.7 percent.Job Creation, Unemployment Rate 2011-2017-090117

#2The U.S. economy expanded more quickly than previously believed during Q2. The Bureau of Economic Analysis raised its estimate of second quarter 2017 annualized growth in the Gross Domestic Product (GDP) from a 2.7 percent gain, as reported a month ago, to a 3.0 percent increase. This represents the fastest pace of economic growth since Q2 2015. The upward revision was the product of higher than previously believed levels of consumption and nonresidential fixed investment (although government expenditures were lower than previously thought). By far the biggest contributor to Q2’s economic expansion was personal consumption expenditures, which added 228 basis points to the quarter’s GDP growth. Also adding to GDP growth were nonresidential fixed investment (adding 85 basis points), exports (adding 45 basis points), federal government spending (adding 13 basis points) and the change in private inventories (adding two basis points). Drags on Q2 economic growth were fixed residential investment (costing 26-basis points in growth), imports (costing 23 basis points), and state/local government spending (costing 18 basis points). Corporate profits (with inventory valuation and capital consumption adjustments) grew 1.3 percent during the quarter to a seasonally adjusted annualized rate of $2.136 trillion. This had followed a 2.1 percent drop during Q1 and was up 7.0 percent from the same quarter a year earlier.

#3Personal spending grew at a moderate pace in July. The Bureau of Economic Analysis estimates real personal consumption expenditures (PCE) grew 0.2 percent on a seasonally adjusted basis, matching June’s gain but slower than May’s 0.3 percent increase. Consumers increased their real spending on goods by 0.4 percent and that on services by 0.2 percent. The former was split by a 0.8 percent spending increase on durable goods and a 0.3 percent bump in nondurables spending. Over the past year, real PCE has increased 2.7 percent, split between gains for goods and services spending of 3.6 percent and 2.3 percent, respectively. Without adjustments for inflation, nominal PCE grew 0.3 percent, supported by a 0.4 percent increase in nominal personal income and a 0.3 percent gain in nominal disposable personal income. Real personal income increased 0.2 percent during July after having been unchanged in June. Real disposable income has grown by 1.3 percent over the past year. The savings rate slipped by 1/10th of a percentage point to +3.5 percent.

#4Purchasing managers report higher manufacturing sector activity in August. The PMI from the Institute for Supply Management increased by 2.5 points during the month to a seasonally adjusted reading of 58.8. This was the 12th straight month in which the measure was above a reading of 50.0 (indicative of an expanding manufacturing sector) and its highest reading since April 2011. Four of the five components of the PMI improved during the month: inventories (up 5.5 points to 55.5), employment (up 4.7 points to 59.9), supplier deliveries (up 1.7 points to 57.1), and production (up 4/10ths of a point to 61.0). The new orders index slipped by 1/10th of a point to 60.3. Fourteen of 18 tracked manufacturing industries expanded during the month, led by textiles, petroleum/coal products, and machinery. The press release said that survey respondents’ comments had reflected “expanding business conditions.”

#5Consumers grew more confident during August. The Conference Board’s Consumer Confidence Index added 2.9 points during the month to seasonally adjusted 122.9. This was the index’s second straight monthly increase and its best reading since March (which had been its 16-year high). Indices for present and expected business conditions both grew during the month: the former up 5.8 points to 151.2 and the latter increasing by a full point to 104.0. 34.5 percent of survey respondents described current economic conditions as “good” while 13.1 percent said that they were “bad.” Looking towards the future, 22.4 percent of consumer expect business conditions will improve over the next six months while 7.3 percent anticipate conditions will deteriorate. The press release said the data suggest consumers “do not anticipate an acceleration in the pace of economic activity in the months ahead.”

The Index of Consumer Sentiment from the University of Michigan grew by 3.4 points during August to a seasonally adjusted 96.8. This placed the index seven full points above its year ago reading. The increase in the headline index resulted largely from the 7.2 point gain in the Index of Consumer Expectations (+9.0 points versus August 2016). The Current Economic Conditions index shed 2.5 points to 110.9 (+3.9 points versus August 2016). The press release notes that the headline index “has been higher during the first eight months of 2017 than in any year since 2000, which was the peak year of the longest expansion in U.S. history.” The press release also stated that current news events are not weighing significantly on sentiment as “surprisingly few consumers made any reference to Charlottesville, North Korea or Harvey—although the ultimate extent of the damage from Harvey was unknown at the time of the last interviews.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 26, 2017, First-Time Claims, seasonally adjusted): 236,000 (+1,000 vs. previous week; -24,000 vs. the same week a year earlier). 4-week moving average: 236,750 (-9.3% vs. the same week a year earlier).
Construction Spending (July 2017, Value of Construction Put into Place, seasonally adjusted annualized rate): $1.212 trillion, (-0.6% vs. June 2017, +1.8% vs. July 2016).
Vehicle Sales (August 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.14 million units (-3.7% vs. July 2017, -6.3% vs. August 2016).
Agricultural Prices (July 2017, Prices Received by Farmers (Index (2011=100)), seasonally adjusted): 95.3 (-2.9% vs. June 2017, +5.3% vs. July 2016).

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