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.

The Fed Is ‘Patient,’ Employers Speed Hiring: January 28 – February 1

The Fed hits the breaks while the job creation motors on. Here are the five things we learned from U.S. economic data released during the week ending February 2.

Note that the partial shutdown of the federal government delayed the release of certain economic data reports.

#1The FOMC leaves its short-term interest rate target unchanged and suggests that they may stay put for a while. The statement released following the past week’s meeting of the Federal Open Market Committee noted that “the labor market has continued to strengthen and that economic activity has been rising at a solid rate.” As a result, the committee decided to keep the fed funds target rate at a range between 2.25 and 2.50 percent. The statement also said that it is the “most likely” outcome that “sustained” economic growth will continue with inflation remaining near the Fed’s two-percent target. But at the same time, the FOMC “will be patient” as to if/when it decides to change the fed funds target rate, noting “global economic and financial developments.” Written another way, it appears the Fed’s campaign to hike its short-term interest rate target may be taking an extended hiatus.

#2U.S. payrolls expanded for a 100th consecutive month in January. Nonfarm payrolls expanded by 304,000 on a seasonally basis during the month, the largest single-month gain in employment since last February. The Bureau of Labor Statistics’ revisions to November and December knocked payrolls estimates for the two months by a net 70,000 jobs. Private sector employers added 296,000 workers in December, split between 72,000 on the goods-producing side of the economy and 224,000 in the service sector. Among the industries added the most jobs in January were leisure/hospitality (+74,000), construction (+52,000), health care/social assistance (+45,400), professional/business services (+30,000), and transportation/warehousing (+26,600). Average hourly earnings inched up by three cents during the month to $27.56 (+3.2 percent versus January 2018) while average weekly earnings grew by $1.03 to $950.82 (+3.5 percent versus Januar 2018).

Based on a separate survey of households, the unemployment rate inched up by 1/10th of a point to 4.0 percent (just under January 2018’s 4.1 percent unemployment rate). The labor force participation rate also added 1/10th of a point to 63.2 percent. The same measure for adults aged 25-54 added 1/10th of a point 82.4 percent. The median length of unemployment decreased by 2/10ths of a week to 8.9 weeks (January 2018: 9.4 weeks) while the count of part-time workers seeking a full-time opportunity blossomed by 490,000 to 5.147 million (the increase reflecting private sector contractors losing work from the partial federal government shutdown). Also reflecting the impact from the shutdown was the broadest measure of the labor underutilization (the U-6 series), which swelled by a half point to 8.1 percent. 

#3Economic activity picked up slightly in December. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic indicators, added six-basis points during the month to a reading of +0.27. This was the measure’s best reading since last August. Forty-six of the economic indicators made positive contributions to the CFNAI during the month while the other 35 made negative contributions. Of the four major categories of economic indicators, two made larger positive contributions during December: production-related contributions (a positive 22-basis point contribution, up from a two-basis point contribution in November) and employment (a basis point increase to a +0.11 contribution). Smaller contributions came from indicators tied to sales/orders/inventories (a neutral contribution versus a +0.12 contribution in November) and personal consumption/housing (a negative six-basis point contribution versus -0.03 in November). The CFNAI’s three-month moving average grew by four-basis points to +0.16, indicative of above-average economic growth.

#4January was a harsh month for consumer sentiment. The Conference Board’s Consumer Confidence Index shed 6.4 points during the month to a seasonally adjusted reading of 120.2 (1985=100), its lowest reading since July 2017. A weaker outlook for the future was the cause of most of the decline in the headline index—the expectations index fell 10.4 points to 87.3. The present conditions index had a far more modest decline as it decreased by 3/10ths of a point to 169.6. The press release linked the depressed headline and expectation indices on “financial market volatility and the government shutdown.” 37.4 percent of survey respondents described current business conditions as “good” versus 11.1 percent said that they were “bad.” Similarly, 46.6 percent of consumers reported that jobs were “plentiful” versus a mere 12.9 percent saying that were “hard to find.”

Also falling was the University of Michigan’s Index of Consumer Sentiment, which declined by 7.1 points to a seasonally adjusted 91.2 (1966Q1=100). The measure was 4.5 points below its January 2018 mark as it fell to its lowest reading since the 2016 election. The current conditions index lost 7.3 points to a reading of 108.8 (January 2018: 110.5) while the expectations index declined 7.1 points to 79.9 (January 2018: 86.3).  The press release warned that it the continuing budget “standoff” continues, it could result in sustained declines in consumer sentiment and spending that “could push the economy into a recessionary downturn.”

#5Manufacturing activity picked up in January. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business—added 2.3 points during January to a reading of 56.6. “This represented a partial rebound from December’s 4.5 point drop and was the 29th straight month in which the PMI was above a reading of 50.0, indicative of an expanding manufacturing sector. Three of five PMI components improved from their December marks: new orders (up 6.9 points), production (up 6.4 points), and inventories (up 1.6 points). Components for supplier deliveries (-2.8 points) and employment (-0.5 points) dropped versus December. Fourteen of 18 tracked manufacturing industries expanded during December, led by textiles, computer/electronics, and plastic/rubber products. The press release noted while the sector “continues to expand, reversing December’s weak expansion, but inputs and prices indicate fundamental changes in supply chain constraints.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 26, 2019, First-Time Claims, seasonally adjusted): 253,000 (+53,000 vs. previous week; +19,000 vs. the same week a year earlier). 4-week moving average: 220,250 (-5.9% vs. the same week a year earlier).
Pending Home Sales (December 2018, Index (2001=100), seasonally adjusted): 99.0 (-2.2% vs. November 2018, -9.8% vs. December 2017).
New Home Sales (November 2018, New Homes Sold, seasonally adjusted annualized rate): 657,000 (+16.9% vs. October 2018, -7.7% vs. November 2017).
Construction Spending (November 2018, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.300 (+0.8% vs. October 2018, +3.4% vs. November 2017).
Bankruptcy Filings (12-month period ending December 31, 2018, Business and Nonbusiness Filings): 773,418 (-2.0% vs. 12-month period ending December 31, 2017).
Agricultural Prices (November 2018, Prices Received by Farmers): +3.5% vs. October 2018, -3.6% vs. November 2017. 

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

Manufacturing Ends 2018 on a High Note: January 14 – 18

Factories were more active as 2018 wrapped up, but consumer sentiment softened in the early days of 2019. Here are the five things we learned from U.S. economic data released during the week ending January 18. 

Note that the partial shutdown of the federal government has and will delay the release of certain economic data reports.

#1Manufacturing output surged in December. The Federal Reserve reports that manufacturing production jumped a seasonally adjusted 1.1 percent during the month, its biggest gain since last February and leaving output up 3.2 percent over the past 12 months. Durable goods production blossomed by 1.3 percent, boosted by significant gains for motor vehicles, nonmetallic mineral products, wood products, aerospace, and computers/electronics. Production of nondurables increased 0.9 percent, pulled up by petroleum/coal products and food/beverage/tobacco goods. Manufacturing output has grown by 3.2 percent over the past year. Overall industrial production gained 0.3 percent during December and had expanded 4.0 percent since December 2017. Mining output jumped 1.5 percent for the month and had swelled 13.4 percent over the past year (boosted by oil and gas extraction). Relatively moderate weather in December led to a 6.3 percent drop in output at utilities (-4.3 percent versus December 2017).Manufacturing 2016-8 011819.png

#2Wholesale prices fell in December. The Producer Price Index (PPI) for final demand dropped by 0.2 percent on a seasonally adjusted basis during the month. This was the first decline in the Bureau of Labor Statistics’ wholesale price measure since February 2017. The core measure of wholesale prices, which removes the impact of energy, food and trade services, was unchanged in December. PPI for energy plummeted by 5.4 percent (slightly greater than November’s 5.0 percent drop) as gasoline prices fell 13.1 percent. PPI for final demand food swelled 2.4 percent, as prices for fresh fruit surged 48.9 percent. PPI for final demand services contracted by 0.1 percent, pulled down by lower prices for trade services (-0.3 percent) and transportation & warehousing (-0.2 percent). For all of 2018, final demand PPI has risen 2.5 percent while the core measure gained 2.8 percent.

#3Many issued weighed heavily on consumers during the opening days of the new year. The preliminary January reading of the University of Michigan’s Index of Consumer Sentiment came in at 90.7, 7.6 points below the final December reading, five full points below the January 2018 mark, and its lowest reading since 2016. The current conditions slumped by 6.1 points to 110.0 (January 2018: 110.5) while the expectations index plummeted by 8.7 points to 78.3 (January 2018: 86.3). The press release noted that survey respondent’s “year-ahead outlook for the national economy [was] judged the worst since mid 2014,” blaming the greater pessimism on the “partial government shutdown, the impact of tariffs, instabilities in financial markets, the global slowdown, and the lack of clarity about monetary policies.” Look for the release of final January sentiment figures on February 1.

#4Homebuilder confidence slightly rebounded in January. The Housing Market Index (HMI) added two points during the month to a seasonally adjusted reading of 58. Even with its first increase since October, the National Association of Home Builders’ measure is 14 points below its January 2018 mark. Nonetheless, this was the 55th consecutive month with an HMI above a reading of 50, indicative of a higher percentage of homebuilders saying the housing market was “good” as opposed as being “poor.” The HMI improved in two Census regions (Northeast, up 12 points to 48, and West, up five points to 70), was steady in the South (at 61), and shed three points in the Midwest (49). Improving from January were indices for current sales of single-family homes (up two points to 63), expected sales of new homes (up three points to 64), and traffic of prospective buyers (up a point to 44). The press release stated that “the gradual decline in mortgage rates in recent weeks helped to sustain builder sentiment.”

#5Much of December’s job growth was centered about eight states. The Bureau of Labor Statistics state-level employment report finds the following states had “statistically significant” increases in nonfarm payrolls during the month: Texas (+38,000), Florida (+22,800), Georgia (+16,700), Indiana (+13,200), Washington state (+11,400), South Carolina (+10,800), Colorado (+9,800), and Alabama (+8,100). Employment also had grown at other states, but not at “statistically significant” level. Relative to a year earlier, nonfarm payrolls increased in size in 40 states, with the largest year-to-year percentage gains in Nevada (+3.9 percent), Arizona (+3.4 percent), and Texas (+3.2 percent).

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 12, 2019, First-Time Claims, seasonally adjusted): 213,000 (-3,000 vs. previous week; -13,000 vs. the same week a year earlier). 4-week moving average: 220,750 (-8.3% vs. the same week a year earlier).
Import Prices (December 2018, All Imports, not seasonally adjusted): -1.0% vs. November 2018, -0.6% vs. December 2017. Nonfuel Imports: Unchanged vs. November 2018, +0.5% vs. December 2017.
Export Prices (December 2018, All Exports, not seasonally adjusted): -0.6% vs. November 2018, +1.1% vs. December 2017.
Beige Book

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