Economic Growth Moved Forward in Q1: April 22 – 26

The U.S. economy grew faster than expected during the first three months of this year. Here are the five things we learned from U.S. economic data released during the week ending April 26.  

#1GDP rebounded in Q1. The Bureau of Economic Analysis’ initial estimate of first quarter Gross Domestic Product (GDP) has the U.S. economy expanding at a seasonally adjusted annualized rate (SAAR) of 3.2 percent. This up from Q4 2018’s 2.2 percent growth rate, but below the Q2 and Q3 paces of expansion of +4.2 percent and +3.4 percent, respectively. The biggest positive contributors to Q1 GDP were personal consumption (adding 82-basis points to the growth rate), change in private inventories (contributing 65-basis points), imports (58-basis points), exports (45-basis points), government expenditures (41-basis points), and nonresidential fixed investment (38-basis points). Dragging down Q1 GDP was residential fixed investment, which cost 11-basis points in economic growth. The BEA will revise its estimate of Q1 GDP twice over the next two months.GDP Growth 2015-2019 042619

#2Economic data suggest business activity picked up in March. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic measures, improved by 16-basis points during the month to a reading of -0.15, its best reading since last December. (The CFNAI is designed such that a 0.00 reading indicates the U.S. economy is growing at its historical average.) Thirty-seven CFNAI components made positive contributions to the headline index, with 47 others making negative contributions and one with a neutral contribution. Among the four major categories of indicators, three of four made improved contributions in March: sales/orders/inventories made a +0.05 contribution (up from +0.01 in February), employment improved by 12-basis points to -0.03, and production improved by two-basis points to -0.10. Losing a basis point was the contribution from personal consumption/housing (to -0.07). The CFNAI’s three-month moving average slumped by six basis points to -0.24, which suggests below average economic growth.

#3Existing home sales pulled back in March following February’s bounce. The National Association of Realtors indicates that sales of previously owned homes dropped 4.9 percent during March to a seasonally adjusted annualized rate of 5.21 million units. This followed an 11.2 percent sales surge in February. Sales fell in all four Census regions: Midwest (-7.9 percent), West (-6.0 percent), South (-3.4 percent), and South (-2.1 percent). Existing home sales were 5.4 percent behind their March 2018 pace, with negative 12-month comparables in all four Census regions. There were 1.68 million homes on the market at the end of March, which was the most since last November, up 2.4 percent from a year earlier, and the equivalent to a 3.9 month supply. The press release noted that sales were “underperforming in relation to the strength in the jobs markets.

#4But new home sales rose in March. The Census Bureau reports that sales of single-family homes increased 4.5 percent during the month to a seasonally adjusted annualized rate (SAAR) of 692,000 units. This was 3.0 percent ahead of the March 2018 sales pace. Sales grew during the month in three of four Census regions—Midwest (+17.6 percent), West (+6.7 percent), and South (+3.6 percent—but dropped 22.2 percent in the Northeast. There were 344,000 new homes available for sale at the end of March, up 13.2 percent from a year earlier and the equivalent to a 6.0 month supply.

#5Consumer confidence eased slightly in April. The Index of Consumer Sentiment lost 1.2 points during the month to a seasonally adjusted 97.2 (1966Q1=100), per the University of Michigan. While the measure was off 1.6 points from a year earlier, it has stayed within a relatively narrow ten-point range (91.2 to 101.4) since November 2016. Losing a full point was the current conditions index to 112.3 (April 2018: 114.9) while the expected conditions index shed 1.4 points to 87.4 (April 2018: 88.4). The press released noted that the “data indicate that inflation-adjusted personal consumption expenditures will grow by 2.5 percent in 2019.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 20, 2019, First-Time Claims, seasonally adjusted): 230,000 (+37,000 vs. previous week). 4-week moving average: 206,000
Durable Goods Orders (March 2019, New Orders for Manufactured Durable Goods, seasonally adjusted): $258.5 billion (+2.7% vs. February 2019).
Bankruptcy Filings (12-Month Period through March 31, 2019, Business and Non-Business Filings): 772,646 (-0.9% vs. March 31, 2018).- FHFA House Price Index (February 2019, Purchase-Only Index, seasonally adjusted): +0.3% vs. January 2019, +4.9% vs. February 2018.

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

A Slowdown in Growth: March 25 – 29

Economic activity was lukewarm in Q4 and early 2019. Here are the five things we learned from U.S. economic data released during the week ending March 29.

#1Q4 economic growth was less robust than previously believed. The Bureau of Economic Analysis’ third release of fourth quarter 2018 gross domestic product (GDP) finds the U.S. economy grew 2.2 percent on a seasonally adjusted annualized basis. This was a downward revision from the Q4 GDP report published a month ago that had indicated a 2.6 percent increase, and it was below Q3’s 3.4 percent annualized gain. Even with the downward revision, GDP grew 2.9 percent for all of 2018, ahead of increases of 2.2 percent and 1.6 percent for 2017 and 2016, respectively. The downward revision was the result of lower than previously believed levels of personal consumption expenditures, government spending, and business spending. The same report indicates that business profits slipped 0.4 percent from Q3 to an annualized $2.311 trillion. Corporate earnings for all of 2018 were $2.263 trillion, up 7.8 percent from 2017. The first view of Q1 2019 GDP comes out in late April, with early indications suggesting a weaker report (see next).GDP 2007-2018 032919

#2Meanwhile, economic activity appears to have been tepid in February. The Chicago Fed National Activity Index lost four basis points during the month to a reading of -0.29. This was the third consecutive month in which the CFNAI was negative, indicative of below-average economic growth. Of the 85 data points included in the CFNAI, only 38 made positive contributions, and just 37 indicators showed improvement from their January readings. Among the four major categories of indicators, two improved from the previous month: production (up 13-basis points to a contribution of -0.16) and sales/orders/inventories (up two-basis points to +0.02). Slipping in February were measures related to employment (down 17-basis points to a -0.10 contribution) and personal consumption/housing (down three-basis points to -0.03). The CFNAI’s three-month moving average fell to its lowest reading since October 2016, shedding 18-basis points to a reading of -0.18 (again, indicative of below-average economic growth). 

#3Real personal spending slightly grew in January. Real personal consumption expenditures (PCE) increased 0.1 percent on a seasonally adjusted basis during the month following December’s 0.6 percent decline, per the Bureau of Economic Analysis. Spending grew for both nondurable goods (+0.5 percent) and services (+0.2 percent) but plummeted 1.6 percent for durable goods. Nominal (not inflation adjusted) spending also grew 0.1 percent. The modest gain in spending occurred despite a 0.1 percent drop in nominal personal income and with disposable income (both nominal and real) falling 0.2 percent. Over the past year, real disposable income has grown 3.0 percent while real PCE increased 2.3 percent. January’s saving rate of 7.5 percent was off 2/10ths of a percentage point from December.

#4The trade deficit narrowed (but remained rather wide) in January. The Census Bureau and the Bureau of Economic Analysis reports that exports grew by $1.9 billion to $207.3 billion (+3.0 percent versus January 2018) during January while imports shrank by $6.8 billion to $258.5 billion (+1.6 percent versus January 2018). The resulting trade deficit of -$51.1 billion was down $8.8 billion from the previous month and 3.7 percent smaller than that of January 2018. The goods deficit plummeted by $8.2 billion to -$73.3 billion (down 2.8 percent from a year earlier) while the services surplus grew by $0.5 billion to +$22.1 billion (off 0.7 percent over the previous year). The former was the result in a $1.8 billion gain in exported goods (due to increased food and automotive exports) and a $6.5 billion decline in imported goods (due to a decrease in imports of capital goods and crude oil). The U.S. had its biggest goods deficits with China (-$33.2 billion), the European Union (-$13.1 billion), and Mexico (-$7.2 billion).

#5Differing stories from two measures of consumer sentiment. The Conference Board’s Consumer Confidence Index shed 7.3 points during March to a seasonally adjusted reading of 124.1 (1985=100). Also falling were indices for present conditions (slumping 12.2 points to 160.6) and expected conditions (off 4.0 points to 99.8). Dropping hard was the percentage of survey respondents who viewed current business conditions as “good,” declining from 40.6 percent to 33.4 percent. However, only 13.6 percent of consumers viewed current conditions as “poor.” The press release characterized sentiment as “volatile,” as consumers “have had to weather volatility in the financial markets, a partial government shutdown and a very weak February jobs report.”

Presenting a different story was the University of Michigan’s Index of Consumer Sentiment, which added 4.6 points during March to a seasonally adjusted reading of 98.4 (1966Q1=100). The present conditions grew by 4.8 points to 113.3 (March 2018: 121.2) while the expectations index rose by 4.4 points to 88.8 (which matched its reading from a year earlier). The press release noted that the improvement in the headline measure “was entirely due to households with incomes in the bottom two-thirds of the income distribution.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 23, 2019, First-Time Claims, seasonally adjusted): 211,000 (-5,000 vs. previous week; -6,000 vs. the same week a year earlier). 4-week moving average: 217,250 (-1.6% vs. the same week a year earlier).
New Home Sales (February 2019, New Houses Sold, seasonally adjusted annualized rate): 667,000 (+4.9% vs. January 2019, +0.6% vs. February 2018).
Housing Starts (February 2019, Housing Starts, seasonally adjusted annualized rate): 1.162 million (-8.7% vs. January 2019, -9.9% vs. February 2018).
Pending Home Sales (February 2019, Index (2001=100), seasonally adjusted): 101.9 (-1.0% vs. January 2019, -4.9% vs. February 2018).
Case-Shiller Home Price Index (January 2019, 20-City Index, seasonally adjusted): +0.1% vs. December 2018, +3.6% vs. January 2018).
FHFA Housing Price Index (January 2019, Purchase-Only Index, seasonally adjusted): +0.6% vs. December 2018, +5.6% vs. January 2018. 

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

GDP Growth Slowed in Q4, Was Solid for 2018: February 25 – March 1

GDP growth slowed during Q4 but was relatively healthy for all of 2018. Here are the five things we learned from U.S. economic data released during the week ending March 1. 

#1The economic expansion slowed a bit during the final three months of 2018. The first estimate of fourth-quarter 2018 gross domestic product (GDP) places economic growth at a seasonally adjusted annualized rate (SAAR) of +2.6 percent, compared to gains of +4.2 percent and +3.4 percent in Q2 and Q3, respectively. GDP has expanded 3.1 percent since Q4 2017. The Bureau of Economic Analysis also reports that GDP grew 2.9 percent for all of 2018, an improvement over gains of +1.6 percent and +2.2 percent in 2016 and 2017, respectively. Positive contributors to Q4 GDP growth were (in decreasing order) personal consumption expenditures, nonresidential fixed investment (i.e., business investment), exports, the change in private inventories, and government spending. Dragging down Q4 GDP were imports and residential fixed investment (i.e., housing). The BEA will update its Q4 GDP estimate twice over the next two months.GDP Growth 2015-2018 03019

#2Personal spending slumped in December, as had personal income in January. The Bureau of Economic Analysis reports that real personal consumption expenditures (PCE) fell 0.6 percent in December. Real spending on goods slumped 1.4 percent during the month, pulled down by declines for durable and nondurable goods of -1.9 percent and -1.2 percent, respectively. The reduction in spending on services was at a more modest -0.2 percent. Real personal disposable income jumped 1.0 percent in December, with gains for nominal disposable income and nominal personal income growing 1.0 percent the same month. (“Real” measures control for inflation while “nominal” measures do not.) The same report also included January nominal income data, but the story was not as good as nominal personal income slipped 0.1 percent (its first drop since November 2015) while nominal disposable income declined 0.2 percent. Delayed data collection due to the partial federal government shutdown prevented the publication of January data of real disposable income and personal consumption expenditures.

#3Manufacturing activity grew at a slower rate in February. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, lost 2.4 points during the month to a reading of 54.2. Despite the PMI dropping to its lowest point since November 2016, the measure has been above a reading of 50.0 for 30 straight months, indicative of an expanding manufacturing sector. Four of five PMI components declined in February: production (-5.7 points), employment (-3.2 points), new orders (-2.7 points), and supplier deliveries (-1.3 points). The index tracking inventories added 6/10ths of a point during the month. Sixteen of 18 tracked manufacturing sector expanded in February, led by printing, textile mills, and computer/electronics.

#4Housing starts plummeted in December. The Census Bureau estimates housing starts dropped 11.2 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.078 million units. This was 10.9 percent under the year-ago pace of starts. Starts of multi-family units (five or more units) slumped 22.0 percent while single-family home starts slowed 6.7 percent. Starts fell in three of four Census regions during December but held steady in the Northeast. Looking towards the future, the number of issued building permits edged up 0.3 percent to 1.326 million (SAAR), an increase of 0.5 percent from a year earlier. The number of permits issued to build single-family homes dropped 2.2 percent while that for multi-family units of at least five units jumped 5.7 percent. The annualized rate of completed homes slowed 2.7 percent to 1.097 million, an 8.4 percent decline from December 2017.

#5Consumer sentiment rebounded in February. The Conference Board’s Consumer Confidence jumped by 9.7 points during the month to a seasonally adjusted 131.4 (1985=100), its first increase in four months. Much of the gain came from an improved outlook for near-future business conditions as the expectations index surged a full 14 points to 103.4. The current conditions measure added 3.3 points to 173.5. 41.2 percent of surveyed consumers saw current business conditions as “good” compared to just 10.8 percent saying there were “bad.” Similarly, 46.1 percent of survey respondents viewed jobs as being “plentiful” versus 11.8 percent of them as being “hard to get.”

Meanwhile, the University of Michigan’s Index of Consumer Sentiment grew to a seasonally adjusted reading of 93.8 (1966Q1=100), up 2.6 points for the month but still below the year-ago reading of 99.7. The present conditions index edged down by 3/10ths of a point to 84.4 (February 2018: 90.0) while the expectations index improved by 4.5 points to 84.4 (February 2018: 90.0). The press release said that the survey data suggests real personal spending will grow 2.6 percent for all of 2019, which “will mean that the expansion is expected to set a new record length by mid-year.

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 23, 2019, First-Time Claims, seasonally adjusted): 225,000 (+8,000 vs. previous week; +8,000 vs. the same week a year earlier). 4-week moving average: 229,000 (+2.7% vs. the same week a year earlier).
Chicago Fed National Activity Index (January 2019, Index (0.00=U.S. Expanding at its Historical Average): -0.43 (vs. December 2018: +0.05; January 2018: -0.29).
Factory Orders (December 2018, New Orders for Manufactured Goods, seasonally adjusted): $499.9 billion (+0.1% vs. November 2018, +2.4% vs. December 2017).
Pending Home Sales (January 2019, Index (100=2001), seasonally adjusted): 103.2 (December 2018: 98.7; January 2018: 105.6).
FHFA House Price Index (December 2018, Purchase-Only Index, seasonally adjusted): +0.3% vs. November 2018, +5.6% vs. December 2017.
Case-Shiller Home Price Index (December 2018, 20-City Index, seasonally adjusted): +0.2% vs. November 2018, +4.2% vs. December 2017.
Agricultural Prices (January 2019, Prices Received by Farmers (Index: 2011=100)): -4.5% vs. December 2018, -0.7% vs. January 2018.

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