Perhaps (Slightly) Slower Growth: June 25 – 29

Last week featured a series of data pointing to a slight cooling of the economy. Here are the five things we learned from U.S. economic data released during the week ending June 29. #1Personal spending paused in May. The Bureau of Economic Analysis estimates real personal consumption expenditures (PCE) were unchanged on a seasonally adjusted basis during the month, following gains of 0.3 percent and 0.6 percent during April and March, respectively. Spending on goods increased 0.3 percent (with equal 0.3 percent gains for both durable and nondurable goods) while expenditures on services dropped 0.2 percent. On a nominal (not price adjusted) basis, personal spending expanded 0.2 percent in May, funded by a 0.4 percent gain in both personal income and disposable income. Adjusting for inflation, real disposable income increased 0.2 percent during the month. Over the past year, real personal consumption has grown 2.3 percent over the past year while real disposable income has risen 1.7 percent. The difference was funded by reduced savings—the savings rate has dropped from +3.8 percent to +3.2 percent over the past year.Savings Rate 2013-2018 062918#2Q1 GDP growth was less robust than previously believed. The Bureau of Economic Analysis released its third estimate of first quarter 2018 Gross Domestic Product (GDP), now reporting that the U.S. economy had expanded 2.0 percent on a seasonally adjusted annualized basis. This was down from the +2.2 percent and +2.3 percent growth rates reported over the two previous months and represented the slowest quarter for the U.S. economy in a year. The downward revision was the result of lower than previously reported levels of private inventory accumulation, consumption, and exports. Positive contributions to Q1 GDP growth came from (in descending order): nonresidential fixed investment (+128-basis points), consumption (+60-basis points), exports (+44-basis points), and government expenditures (+22-basis points). The same report finds that corporate profits grew 1.8 percent (seasonally adjusted) from Q4 2017 and 6.8 percent from the same quarter a year earlier.#3Economic growth appears to have slowed in May. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators, plummeted by 57-basis points to -0.15. This was the CFNAI’s first negative reading since January. Thirty-nine of the 85 index components made positive contributions to the CFNAI with 43 indicators improving from their April readings. Virtually all the CFNAI’s decline came from the indicators tied to production—the contribution to the CFNAI from production-related indicators plummeted from +0.33 to -0.29 during the month. Smaller moves came from indicators linked to sales/orders/inventories (from a neutral reading to +0.05), employment (up from +0.12 to +0.13), and personal consumption/housing (from -0.03 to -0.04). The CFNAI’s three-month moving average lost 13-basis points to +0.10. As the CFNAI is designed such that a 0.00 reading is indicative of the U.S. economy expanding at its historical economic growth rate, the +0.10 moving average suggests that the economy was growing slightly more quickly than average.#4Weakness in transportation pulled down durable goods orders in May. The Census Bureau reports that new orders for manufactured durable goods fell 0.6 percent during the month to a seasonally adjusted $248.8 billion. Transportation goods orders dropped 1.0 percent, pulled down not only by a 7.0 percent decline in civilian aircraft orders but also by motor vehicles orders plunging 4.2 percent. Net of transportation goods, durable goods orders slowed 0.3 percent. Among major categories, only machinery (+0.3 percent) enjoyed an increase in orders. Falling were orders for electrical equipment/appliances (-1.5 percent), fabricated metals (-1.2 percent), primary metals (-0.4 percent), and computers/electronics (-0.1 percent). New orders for nondefense capital goods net of aircraft—a proxy for business investment—slowed 0.2 percent during May.#5Consumers remained confident but seem slightly more wary about the future. The Conference Board’s Consumer Confidence Index lost 2.4 points to a seasonally adjusted reading of 126.4 (1985=100). The current conditions slipped by a mere 1/10th of a point to a still very robust 161.1 while the expectations index shed four full points to 103.2. 36.0 percent of survey respondents viewed current economic conditions as “good” while only 11.7 percent see them as “bad.” Similarly, 40.0 percent of Americans believe that jobs are “plentiful” versus 14.9 percent see them as “hard to get.” The press release notes that the pullback in expectations as indicating consumers not expecting “the economy gaining much momentum in the months ahead.”The University of Michigan’s Index of Consumer Sentiment eked out a 2/10ths of a point gain in June to a seasonally adjusted 98.2. While this represented a 1.1 point pullback from the preliminary June reading reported a few weeks ago, the final June mark was 3.2 points ahead of that from a year earlier. The current conditions measure jumped 4.7 points to 116.5 (June 2017: 112.4) while the expectations index shed 2.8 points to 86.3 (June 2017: 83.8). The press release links the headline index’s decline from its preliminary June reading to the building trade war, with one in four consumers making a note of the recently announced trade tariffs with most seeing them as having “a negative impact on the domestic economy.” Other U.S. economic data released over the past week:
Jobless Claims (week ending June 23, 2018, First-Time Claims, seasonally adjusted): 227,000 (+9,000 vs. previous week; -16,000 vs. the same week a year earlier). 4-week moving average: 222,000 (-8.7% vs. the same week a year earlier).
New Home Sales (May 2018, New Residential Sales, seasonally adjusted annualized rate): 689,000 (+6.7% vs. April 2018, +14.1% vs. May 2017).
Case-Shiller Home Price Index (April 2018, 20-City Index, seasonally adjusted): +0.2% vs. March 2017, +6.6% vs. April 2017.
Agricultural Prices (May 2018, Prices Received by Farmers, seasonally adjusted): +1.7% vs. April 2018, -3.9% vs. May 2017.The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.

Economic Growth Continued, Housing Slowed a Bit: May 21 – 25

Home sales edged down in April. Here are the five things we learned from U.S. economic data released during the week ending May 25.

#1Sales of previously owned homes slowed in April. The National Association of Realtors reports that existing home sales declined 2.5 percent to a seasonally adjusted annualized rate of 5.46 million units. This was 1.4 percent below the year-ago sales pace. Sales failed to grow in any of the four Census regions, with declines in three of the regions: Northeast (-4.4 percent), West (-3.3 percent), and South (-2.9 percent). Over the past year, sales increased only in the South (+2.2 percent). Tight inventories remained the primary culprit, although the number of homes available for sales expanded 9.8 percent during April to 1.80 million units. This was nevertheless 6.3 percent fewer than the number of homes available for sale a year ago and translated into a mere 4.0 month supply. As a result, the median price of homes sold has risen 5.3 percent over the past year to $257,900. The press release warns that “[t]he current pace of price appreciation far above incomes is not sustainable in the long run.”

#2…As did those of new homes. Sales of new single-family homes slipped 1.5 percent during April to 662,000 on a seasonally adjusted annualized basis, per the Census Bureau. Even with April’s drop, new home sales tracked 11.6 percent ahead of its year-ago pace. Much of the decline occurred in the West, where new home sales slumped 7.9 percent during the month. Sales improved 11.1 percent in the Northeast and 0.3 percent in the South. All four Census regions enjoyed positive year-to-year new home sales gains. There were 300,000 new homes available for sale at the end of April, up 0.7 percent for the month and 12.4 percent from a year earlier. This was the equivalent to a 5.4 month supply. 

#3Economic growth appears to have been solid in April. The Chicago Fed National Activity Index (CFNAI) added two-basis points during the month to a seasonally adjusted +0.34. The CFNAI is a weighted index of 85 economic indicators adjusted such that a reading of 0.00 is indicative of the U.S. economy expanding at its historical rate. Fifty of the 85 indicators made positive contributions to the CFNAI. Among the four major categories of CFNAI components, two made positive contributions: those related to production (up eight basis points to +0.27) and employment (up six basis points to +0.10). The other two major groupings of components made smaller contributions: sales/orders/inventories (down six basis points to +0.02) and personal consumption/housing (down seven basis points to -0.05). The CFNAI’s three-month moving average rose by 23 basis points to +0.46, its best reading since last November.

#4Outside of civilian aircraft, durable goods orders rose in April. The Census Bureau reports that new orders for manufactured durable goods were at a seasonally adjusted $248.5 billion, down 1.7 percent from March. Much of the decline can be tied to the 29.0 percent drop in new orders for civilian aircraft, which had pulled down transportation goods orders 6.1 percent during the month. Net of transportation goods, new orders jumped 0.9 percent to $161.4 billion. Rising during the month were new orders for electrical equipment/appliances (+2.6 percent), fabricated metals (+2.0 percent), motor vehicles (+1.8 percent), primary metals (+1.3 percent), and computers/electronics (+1.1 percent). Durable goods shipments slipped 0.1 percent during March to $246.7 billion but jumped 1.0 percent after netting out transportation goods.

#5Consumer sentiment slightly eased in May. The University of Michigan Index of Consumer Sentiment lost 8/10ths of a point to 98.0. The same measure of consumer confidence was at 97.1 a year earlier. The current conditions index pulled back by 3.1 points to 111.8 (May 2017: 111.7) while the expectations index moved up by 7/10ths of a point to 89.1 (May 2017: 87.7). The press release stated that the survey results suggest real personal consumption will rise 2.6 percent over the next year. The Conference Board will publish its May consumer confidence survey results during the upcoming week.

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 19, 2018, First-Time Claims, seasonally adjusted): 234,000 (+11,000 vs. previous week; -3,000 vs. the same week a year earlier). 4-week moving average: 219,750 (-7.9% vs. the same week a year earlier).
FHFA House Price Index (March 2018, Purchase-Only Index, seasonally adjusted): +0.1% vs. February 2018, +6.7% vs. March 2017.
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The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.

GDP Growth Downshifted in Q1: Week of April 23 – 27

Slower growth in consumer spending pulls back economic expansion during early 2018. Here are the five things we learned from U.S. economic data released during the week ending April 27.

#1The U.S. economic growth decelerated during Q1. The Bureau of Economic Analysis’ advance estimate of Gross Domestic Product (GDP) had the U.S. economy expanding at a seasonally adjusted annualized rate (SAAR) of +2.3 percent. While this was the 16th consecutive quarter of GDP growth, it was the most modest pace of economic expansion in a year. The biggest culprit was a slowdown in the growth rate of consumer spending, which contributed only 73-basis points to Q1 GDP growth after having added 275-basis points during the final three months of 2017. Most other GDP components made positive contributions: fixed nonresidential investment (+0.76), change in private inventories (+0.43), net exports (+0.20), and government expenditures (+0.20). The only component that did not make a positive contribution was fixed residential investment, which had made neither a positive or negative contribution. The BEA will release its estimate of Q1 GDP growth twice over the next two months.2018 Q1 GDP contributors-042718

#2Economic indicators point to the economy expanding at a slower rate in March. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic indicators, shed 88-basis points during the month to a reading of +0.10. Forty-four of the 85 economic indicators made positive contributions to the CFNAI. Only two of the four major categories of economic indicators made net positive contributions (those associated with production and sales/orders/inventories) while measures tied to employment and personal consumption/housing pulled down the headline index. Experiencing a far less significant decline was the CFNAI’s three-month moving average, losing four basis points to +0.27. A reading above 0.00 is indicators of economic growth greater than the historical average.

#3Sales of both existing and new homes increased in March. Sales of previously owned homes grew 1.1 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.60 million units, per the National Association of Realtors. This was 1.2 percent below the year-ago sales pace. Sales grew in the Northeast (+6.3 percent) and Midwest (+5.7 percent) but slowed in the West (-3.1 percent) and South (-0.4 percent). Inventories remained extraordinarily tight but improved during the month—the 1.67 million homes available for sale at the end of March was a 5.7 percent gain from the prior month but still 5.7 percent fewer than that of a year earlier and translated into a mere 3.6 month supply. The median sales price of $250,400 represented a 5.8 percent increase over the previous year. Despite the upturn in home sales activity, the press release noted the “woefully low” supply of homes that was causing prices to rise “above what some would-be buyers can afford.”

The Census Bureau estimates the seasonally adjusted annualized sales pace of new home sales was at 694,000 in March, up 4.0 percent for the month and 8.8 percent over the past year. Virtually all of the month-to-month gain occurred in the West, where new home sales surged 28.3 percent. The 301,000 new homes available for sale at the end of March matched that of February, was 13.2 percent larger than that of a year earlier and was the equivalent to a 5.2 month supply. The median sales price of new homes was $337,200 in March, up 4.8 percent from the same month a year earlier.

#4Two surveys paint slightly different (if still solid) pictures of consumer sentiment. The Conference Board’s Consumer Sentiment Index added 1.7 points during April to a seasonally adjusted 128.7 (1985=100), leaving the measure near its post-recession high achieved in February. The present conditions index added 1.5 points to 159.6 while the expectations index gained 1.9 points to 108.1. 35.2 percent of survey respondents characterized current business conditions as “good” while only 11.3 percent saw them as “bad.” Similarly, 38.1 percent of consumer perceive the availability of jobs as being “plentiful” while 15.2 percent see them as “hard to get.” The press release noted that only six percent of consumers were “expecting their incomes to decline over the coming months,” the lowest percentage saying so since December 2000.

Losing pace was the Index of Consumer Sentiment, as measured by the University of Michigan. The index shed 2.6 points during April to a seasonally adjusted 98.8 (1966Q1=100). This was a full point improvement from the preliminary April reading reported a few weeks earlier and left the measure 1.8 points ahead of its year-ago mark. The current conditions index dropped 6.3 points to 114.9 while the expectations index pulled back by 4/10ths of a point to 88.4. The press release noted the survey respondents mostly had positive opinions about the recently enacted tax reform policies but were more pessimistic about the effects of recently proposed import tariffs.

#5A surge in aircraft orders led to a jump in durable goods orders in March. The Census Bureau reports that new orders for manufactured durable goods surged 2.6 percent during the month to a seasonally adjusted $254.9 billion. This was the fourth increase in durable orders over the past five months. Civilian aircraft orders swelled 44.5 percent during March, leading to a 7.6 percent increase in overall transportation goods orders. Net of transportation goods, however, new orders were unchanged for the month. Also gaining during the month were new orders for primary metals (+1.4 percent), computer/electronic products (+1.3 percent), and electrical equipment/appliances (+0.1 percent). Falling were new orders for machinery (-1.7 percent) and nondefense capital goods net of aircraft (-0.1 percent). The latter is a proxy for business investment and has declined in three of the past four months.

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 21, 2018, First-Time Claims, seasonally adjusted): 209,000 (-24,000 vs. previous week; -43,000 vs. the same week a year earlier, and the fewest since December 1969). 4-week moving average: 229,250 (-6.0% vs. the same week a year earlier).
Case-Shiller Home Price Index (February 2018, 20-City Index, seasonally adjusted):  +0.7% vs. January 2018, +6.8% vs. February 2017.
FHFA House Price Index (February 2018, Purchase-Only Index, seasonally adjusted): +0.6% vs. January 2018, +7.2% vs. February 2017.
Agricultural Prices (March 2018, Prices Received by Farmers (Index (2011=100)): 94.9 (+4.5% vs. February 2018, +0.9%).

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