Solid Consumer Spending, Inflation Under Target: June 24 – 28

Consumer spending held firm in May. Here are the five things we learned from U.S. economic data released during the week ending June 28.

#1Personal spending and prices grew at a moderate rate in May. The Bureau of Economic Analysis estimates real personal consumption expenditures (PCE) increased 0.2 percent on a seasonally adjusted basis during the month, matching April’s gain. Real spending on durable goods jumped 0.4 percent, boosted by a 1.6 percent bounce for durable goods (spending on nondurables slowed 0.2 percent), while services expenditures increased 0.2 percent. Nominal (not inflation adjusted) spending rose 0.4 percent in May, funded by 0.5 percent increases for both nominal personal income and nominal disposable income. After adjusting for price variations, real disposable gained 0.3 percent.  The savings rate held steady at 6.1 percent. Over the past year, real personal spending has risen 2.7 percent, while real disposable income has a 12-month comparable of +2.3 percent. The PCE deflator—a measure of inflation—gained 0.2 percent during the month, with the core measure (which nets out energy and food) also growing 0.2 percent. The year-to-year increases for both measures were below the Federal Reserve’s two-percent inflation target with gains of +1.5 percent and +1.6 percent, respectively.

#2Another revision reaffirmed Q1’s robust economic growth. The Bureau of Economic Analysis’ third estimate of Gross Domestic Product (GDP) has the U.S. economy expanding at a seasonally adjusted annualized rate of 3.1 percent. This matches the GDP estimate reported a month earlier and was just below the initial 3.2 percent estimate for Q1 economic growth indicated two months ago. Q1 GDP growth contributors (in descending order) were net exports, consumption, change in private inventories, nonresidential fixed investment, and government expenditures. The same report found that corporate profits (net of inventory valuation and capital consumption expenditures) fell 2.6 percent during the quarter. We will get our first glance of second-quarter GDP on July 26.

#3Concerns about trade tariffs weighed on consumer sentiment in June. The Consumer Confidence Index from the Conference Board fell by 9.8 points during the month to a seasonally adjusted 121.5 (1985=100), its lowest reading since September 2017. The present conditions index lost 8.1 points to a reading of 162.6 while the expectations index plummeted by 10.9 points to 94.1. Even with the pullback, a far higher percentage of survey respondents viewed current business conditions as “good” (36.7 percent) versus being “bad (10.9 percent). Consumers were less confident about the future—18.1 percent of survey respondents expect business conditions to improve over the next six months, while 13.1 percent expect them to worsen. The press release tied the pullback in sentiment to “the escalation in trade and tariff tensions.”

The University of Michigan’s Index of Consumer Sentiment declined by 1.8 points during June to a seasonally adjusted reading of 98.2. While a slight 3/10ths of a point improved from the preliminary June report published a few weeks ago, it matched its June 2018 mark. The present conditions index gained 1.9 points to 111.9 (June 2018: 116.5) while the expectations index slumped by 5.2 points to 89.3 (June 2018: 89.3). The press release noted that the decline in the headline index was about higher income survey respondents “who more frequently mentioned the negative impact of tariffs.”

#4There were more home purchase contract signings in May. The National Association of Realtors’ Pending Homes Sales Index (PHSI) ticked up 1.1 points during the month to a seasonally adjusted reading of 105.4 (2001=100). The index of contracts signed to purchase a previously owned home grew in three of four Census regions, with the West being the exception. The PHSI was off 0.7 percent from a year earlier with negative 12-month comparables in three of four Census regions (in this case, the South was the exception). The press release stated that homebuyers were “anxious” to take advantage of the recent decline in mortgage interest rates.

#5Homebuilder confidence slipped slightly in June. The National Association of Home Builders’ Housing Market Index (HMI) lost two points during the month to a seasonally adjusted reading of 64. This was the 60th consecutive month in which the HMI was above a reading of 50, indicative of more homebuilders’ seeing the housing market as being “good” versus being “poor.” The HMI improved in the Midwest, held steady in the South, but lost ground in both the Northeast and West. Also slipping in June were measures for current sales of single-family homes (71), expected home sales (70), and traffic of prospective buyers (48). The press release reports that housing demand was “sound,” but also that builders report concern about “trade issues” and rising development and construction costs.

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 22, 2019, First-Time Claims, seasonally adjusted): 227,000 (+10,000 vs. previous week; -4,000 vs. the same week a year earlier). 4-week moving average: 221,250 (+0.4% vs. the same week a year earlier).
New Home Sales (May 2019, New Home Sales, seasonally adjusted annualized rate): 626,000 (-7.8% vs. April 2019, -3.7% vs. May 2018).
FHFA House Price Index (April 2019, Purchase-Only index, seasonally adjusted): +0.4% vs. March 2019, +5.2% vs. April 2018.
Case-Shiller Home Price Index (April 2019, 20-City Index, seasonally adjusted): Unchanged vs. March 2019, +2.5% vs. April 2018.
Agricultural Prices (May 2019, Prices Received by Farmers): -1.1% vs. April 2019, -3.1% vs. May 2018.

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

Consumer Spending Wobbled Again: May 27 – 31

Real consumer spending failed to grow in April. Here are the five things we learned from U.S. economic data released during the week ending May 31.

#1Personal spending growth matched price gains in April. Real personal consumption expenditures (PCE) were unchanged on a seasonally adjusted basis during the month, down from a 0.9 percent jump in March. Real spending on goods grew 0.1 percent, as a 0.3 percent bounce in spending of nondurables outweighed a 0.4 percent drop for durables expenditures. Real spending on services slipped 0.1 percent. The same Bureau of Economic Analysis report has the PCE deflator, a measure of inflation, growing by 0.3 percent during the month, which means nominal (not price adjusted) personal spending rose 0.3 percent during the month. The increase in spending was funded by gains in nominal personal and disposable income of 0.5 percent and 0.4 percent, respectively. Real disposable income advanced 0.1 percent. The savings rate edged up by 1/10th of a percentage point to +6.2 percent. Over the past year, real disposable income has grown 2.2 percent, while real spending expanded 2.7 percent.Personal Spending 2018-9 053119

#2A revision finds Q1 economic expansion was slightly less robust than previously believed. The Bureau of Economic Analysis lowered its growth estimate of first quarter 2019 Gross Domestic Product (GDP) from a seasonally adjusted annualized rate (SAAR) of +3.2 percent to +3.1 percent. The downward revision was the result of lower than previously believed levels of business investment and private inventory accumulation. Q1 GDP growth outpaced that of the final three months of 2018 (+2.2 percent) but was slower than that of Q2 (+4.2 percent) and Q3 (+3.4 percent). Contributors to Q1 economic growth were (in declining order) personal spending (adding 90-basis points to the increase in GDP), the change in private inventories (+60-basis points), exports (+58-basis points), imports (+39-basis points), government expenditures (+42-basis points), and fixed nonresidential investment (+31-basis points). Residential fixed investment—i.e., housing—subtracted 13-basis points from Q1 GDP growth. The same report included the BEA’s first estimate of Q1 corporate profits, which sank 2.8 percent from the prior quarter. 

#3Consumer sentiment firmed in May. The Conference Board’s Consumer Confidence Index added 4.9 points during the month to a seasonally adjusted reading of 134.1 (1985=100), near its 18-year high. The present conditions index added 6.2 points to 175.2 while the expectations index grew by 3.9 points to 106.6. 38.3 percent of survey respondents described current business conditions as “good” while only 10.2 percent seeing them as “bad.” Similarly, 47.2 percent of survey respondents viewed jobs as being “plentiful” versus only 10.9 percent sensing jobs were “hard to get.” The press release stated the results “suggest no significant pullback in consumer spending in the months ahead.

#4…But one survey hints that confidence softened towards the end of the month. The Index of Consumer Sentiment from the University of Michigan came in at 100.0 (100=1966Q1), up 2.8 points from April 2019 and 2.0 points from May 2018. All of the increase came from a brighter outlook for the future as the expectations index surged by 5.9 points to 93.5 (May 2018: 89.1). The current conditions slipped 2.3 points to 110.0, which also was 1.8 points below its year-ago mark. The press release noted that even though the index had gained from April, “confidence significantly eroded in the last two weeks of May.”

#5Home purchase contract activity slowed in April. The National Association of Realtors’ Pending Home Sales Index (PHSI) pulled back 1.5 percent during the month to a seasonally adjusted reading of 104.3 (2001=100). This left the measure of contract signings of previously owned homes 2.0 percent below from its year-ago reading. The PHSI grew 1.3 percent in the Midwest but lost ground in the South (-2.5 percent), Northeast (-1.8 percent), and West (-1.8 percent). The measure had negative 12-month comparables in all four Census regions. The press release said that despite the pullback in the PHSI, “it’s inevitable for sales to turn higher in a few months.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 25, 2019, First-Time Claims, seasonally adjusted): 215,000 (+3,000 vs. previous week; -6,000 vs. the same week a year earlier). 4-week moving average: 216,750 (-1.5% vs. the same week a year earlier).
FHFA House Price Index (March 2019, Purchase-Only Index, seasonally adjusted): +0.1% vs. February 2019, +4.9% vs. March 2018.
Case-Shiller Home Price Index (March 2019, 20-City Index, seasonally adjusted): +0.1% vs. February 2019, +2.7% vs. March 2018.
Agricultural Prices (April 2019, Prices Received by Farmers): +1.1% vs. March 2019, +0.1% vs. April 2018. 

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

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.