Consumer Spending Pauses, Expectations Ease: June 26 – 30.

Growth in consumer spending moderated during May as had consumer sentiment in June. Here are the 5 things we learned from U.S. economic data released during the week ending June 30.

#1Personal spending grew at a sluggish pace during May. The Bureau of Economic Analysis estimates real consumer personal expenditures (PCE) grew 0.1 percent during the month following two back-to-back months of 0.4 percent gains. Real spending swelled for both nondurable goods (+0.2 percent) and services (+0.1 percent) but slipped for durable goods (-0.1 percent). Real PCE has increased 2.7 percent over the past year, including a strong +7.0 percent year-to-year gain in durable goods spending. Removing the adjustments for price variability, nominal consumer spending also increased 0.1 percent during the month to $13.214 trillion on a seasonally adjusted annualized basis. Growing at a faster rate were personal income (+0.4 percent), nominal disposable income (+0.5 percent), and real disposable income (+0.6 percent). The latter was the largest single-month gain in real disposable income since April 2015. As a result, the savings rate rose to its highest mark since last September with a 4/10ths of a percentage point increase to +5.5 percent. Finally, the PCE deflator, a closely watched measure of inflation, has grown +1.4 percent over the past year, as did the core PCE deflator (which removes both energy and food from the analysis). Both remained below the Federal Reserve’s 2.0 percent inflation target.Real Disposable Income and PCE-063017

#2One possible reason: Consumers appear a bit less confident about the future. The Conference Board’s Consumer Confidence Index added 1.3 points during June to a seasonally adjusted 118.9 (1985=100), marked by Americans feeling better about current business conditions but less so about conditions in the coming months. The present conditions index surged 5.7 points to 146.3 (approaching the measure’s best reading since 2001) while the expectations index shed 1.7 points to 100.6. 30.8 percent of surveyed consumers felt current business conditions were “good,” compared to 12.7 percent who saw them as being “poor.” Survey respondents also were more positive about labor market conditions as 32.8 percent of consumers said jobs were “plentiful” while only 18.0 percent felt that they were “hard to get.” The press release noted that “[c]onsumers anticipate the economy will continue expanding in the months ahead, but they do not foresee the pace of growth accelerating.”

On the other hand, the University of Michigan’s Index of Consumer Sentiment lost two full points during June to drop to a seasonally adjusted 95.1 (1966Q1=100). This was the measure’s lowest reading since last fall’s election and was the resulting a deteriorating outlook for the future. The expectations index fell by 3.8 points to 83.9 while the current conditions index edged up by 8/10ths of a point to 112.5. As has been the trend with this survey since last November, Republicans were far more positive about current and future business conditions than were Democrats. The press release indicates that the index readings suggest personal spending will grow by 2.3 percent during 2017.

#3Even with another upward revision, Q1 GDP growth was soft. The Bureau of Economic Analysis now estimates Gross Domestic Product grew at a seasonally adjusted annualized rate (SAAR) of +1.4 percent, an improvement from the 1.2 percent gain reported a month earlier and the initial estimate of a 0.7 percent advance. Q1 economic growth was slower than the 2.1 percent and 3.5 percent during the two previous quarters. The most recent upward revision was the product of higher than previously believed levels of personal consumption expenditures (PCE) and exports. The biggest contributors to Q1 GDP growth were nonresidential fixed investment (+123 basis point contribution to GDP growth), exports (+82-basis points), personal consumption expenditures (+75-basis points), and residential fixed investment (+48-basis points). Notable is that the contribution from consumption was down sharply from the previous quarter when PCE added 240-basis points of GDP growth. Also holding back Q1 GDP growth were the negative contributions from private inventory accumulation (-111-basis points), imports (-59-basis points), and government expenditures (-16-basis points). Corporate profits from current production slumped 2.3 percent during Q1 to $2.102 trillion (SAAR). Even with the decline, corporate profits were up 3.3 percent from a year earlier.

#4Economic growth has appeared to have downshifted during May. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators, plummeted by 83-basis points during the month to a seasonally adjusted -0.26. Only 32 of the 85 economic indicators made a positive contribution to the CFNAI. Among the four major categories of indicators, production-related indicators deteriorated by far the most, with its contribution to the headline index falling from +0.53 to -0.16. Also softening from their April contributions were indicators related to employment (down 14-basis points to -0.02) and consumption/housing (off two-basis points to -0.09). The contribution from sales/orders/inventories indicators improved by 3-basis points to +0.02. The three-month moving average for the CFNAI, which smooths some of the month-to-month variability and therefore may be a better indicator of business trends, fell by 17-basis points to +0.04. Nevertheless, the reading above 0.00 suggests that slightly above average economic growth over the past three months (even if the pace of expansion slowed sharply during May).

#5Durable goods orders fell for second consecutive month in May. Per the Census Bureau, new orders for durable goods dropped 1.1 percent to a seasonally adjusted $228.2 billion. This followed a 0.9 percent decline in April. Pulling down the headline measure were large declines in orders for civilian and defense aircraft (-11.7 percent and -30.8 percent, respectively). This resulted in a 3.4 percent decrease in overall transportation goods, even as new orders for vehicles gained 1.2 percent during May. Net of transportation goods, durable goods orders edged up 0.1 percent, its third increase in four months. Orders increased for electrical equipment/appliances (+1.0 percent), machinery (+0.6 percent), and primary metals (+0.3 percent), but fell for computers (-3.2 percent), communications equipment (-3.1 percent), and fabricated metal products (-0.2 percent). A proxy for business investment—civilian capital goods orders net of aircraft—cooled 0.2 percent during May. Durable goods shipments improved for the first time in three months (+0.8 percent). Unfilled orders shrank 0.2 percent while inventories expanded 0.2 percent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 24, 2017, First-Time Claims, seasonally adjusted): 244,000 +2,000 vs. previous week; -23,000 vs. the same week a year earlier). 4-week moving average: 242,250 (-9.2% vs. the same week a year earlier).
Pending Home Sales (May 2017, Index (2001=100), seasonally adjusted):  108.5 (vs. April 2017: 109.4, vs. May 2017: 110.4)
Case-Shiller Home Price Index (April 2017, 20-City Home Price Index, seasonally adjusted): +0.3% vs. March 2017, +5.7% vs. April 2016).
Agricultural Prices (May 2017, Prices Received by Farmers, seasonally adjusted): +2.1% vs. April 2017, +4.8% vs. May 2016).

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

The Unemployment Rate Falls to a 16-Year Low: May 29 – June 2

The last time the unemployment rate was this low, it was 2001. But the pace of job creation during May was relatively modest. Here are the 5 things we learned from U.S. economic data released during the week ending June 2.

#1The unemployment rate fell to a 16-year low, but employers slowed the pace of hiring. The Bureau of Labor Statistics reports that nonfarm employers added a seasonally adjusted 138,000 workers to their payrolls during the month, down from April’s job gain of 174,000 jobs but well above the 50,000 added workers during March. If the job openings and turnover data released in recent months are any indication, some of the weakness in this report may be due to employers being unable to find qualified candidates for their openings. Whatever the case, the private sector saw payrolls expand by 147,000 workers, with the gain split between 131,000 new jobs in the service sector and 16,000 new workers in the service sector. Industries most responsible for the month’s job creation were professional/business services (+38,000), health care/social assistance (+32,300), leisure/hospitality (+31,000), construction (+11,000), and financial activities (+11,000). The average workweek was at 34.4 hours, unchanged from both April 2017 and May 2016. Average weekly earnings grew by $1.38 during the month to $901.97 (+2.5 percent vs. May 2016).Unemployment Rate 1997-2017-060217

Based on a separate survey of households, the unemployment rate slipped 1/10th of a percentage point to 4.3 percent, its lowest point since May 2001. This was partially the result of 429,000 people leaving the labor force during the month to 159.784 million. The labor force participation rate declined by 2/10ths of a percentage point to 62.7 percent. This places the labor force participation rate closer to its multi-decade low, but that is explained partially by older Americans leaving the labor force due to retirement. Even though the typical length of unemployment edged up by 2/10ths of a week to 10.4 weeks, the measure has remained within a tight range between 10.0 and 10.4 weeks since last summer. The same survey also found that the count of “involuntary” part-time workers contracted by 53,000 to 5.219 million (May 2016: 6.409 million). Finally, the broadest definition of labor underutilization (the U-6 series) fell to its lowest reading since November 2007 with a 2/10ths decline to 8.4 percent.

#2Consumers were spending money during April. “Real” personal consumption expenditures (PCE) grew by 0.2 percent during the month, which had followed a 0.5 percent gain during March and a 0.1 decline in February. Per the Bureau of Economic Analysis, real spending on goods jumped 0.7 percent during April, split between a 1.1 percent surge in spending on durable goods and a 0.5 percent increase in spending of nondurables. Services spending was virtually unchanged for the month. Over the past year, real PCE has grown a moderate 2.6 percent, with spending on goods gaining 3.6 percent and spending services increasing 2.1 percent. Without adjusting for price variations, nominal PCE rose 0.4 percent, its biggest single-month increase since last December. Supporting the gain in spending was a 0.4 percent increase in both personal and disposable income. After adjusting for inflation, real disposable income increased 0.2 percent during April and has grown 1.9 percent over the past year. Meanwhile, the savings rate held steady at +5.3 percent for a third consecutive month.

#3The trade deficit widened to a four-month high during April. The Census Bureau and the Bureau of Economic Analysis estimates exports dropped by $0.5 billion during the month to a seasonally adjusted $191.0 billion (+5.0 percent vs. April 2016) while imports grew by $1.9 billion to $238.6 billion (+8.3 percent vs. April 2016). As a result, the seasonally adjusted trade deficit expanded by $2.3 billion to -$47.6 billion, which was 23.9 percent larger than the deficit of a year earlier. The goods deficit grew by $2.3 billion to $68.4 billion (+16.1 percent vs. April 2016) while the goods surplus held steady at +$20.8 billion (+1.4 percent vs. April 2016). The former increased as imported goods grew by $1.8 billion (thanks to greater imports of cell phones, art/collectibles, and capital goods) and exported goods slipped by $0.4 billion (thanks to smaller exports for consumer goods and automotive vehicles). The U.S. had its largest goods deficits with China (-$32.1 billion), the European Union (-$13.2 billion), Mexico (-$6.4 billion), and Germany (-$5.5 billion).

#4Purchasing managers indicate that manufacturing held steady during May. The Institute for Supply Management’s Purchasing Managers Index (PMI) inched up 1/10th of a point to a seasonally adjusted reading of 54.9. This was the ninth straight month in which the measure was above a reading of 50.0, indicative of an expanding manufacturing sector. Three of five PMI components improved during the month: new orders (up 2.0 points to 59.5), employment (up 1.5 points to 53.5), and inventories (up a half point to 51.5). Falling were measures of supplier deliveries (down 2.0 points to 53.1) and production (off 1.5 points to 57.1). Fifteen of 18 tracked manufacturing industries expanded during May, led by nonmetallic mineral products, furniture, and plastics/rubber products. The press release noted the purchasing managers’ comments generally reflected “stable to growing business conditions.”

#5Survey results suggest a slight cooling of consumer sentiment. The Conference Board’s Consumer Confident Index declined for a second straight month as it lost 1.5 points to a seasonally adjusted reading of 117.9 (1985=100). The measure has lost 7.7 points since March (when it had hit a 16-plus year high) but nevertheless remained at strong levels. The current conditions index added edged up by 4/10ths of a point to 140.7 while the expectations measure shed 2.8 points to 102.6. In all, 29.4 percent of survey respondents characterized current economic conditions as “good” (vs. 30.8 percent that said the same in April) while 13.7 percent stated that they were “bad” (unchanged from the percentage indicating the same in April). Slightly less hopeful was the short-term economic outlook: 21.3 percent of respondents expected business conditions would improve (April 2017: 25.1 percent) while 10.1 percent were expecting conditions to worsen (April 2017: 10.4 percent). The Conference Board in its press release said that even with the decline in overall sentiment, they expected “little change in overall economic conditions” as consumers “remain optimistic that the economy will continue expanding into the summer months.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 27, 2017, First-Time Claims, seasonally adjusted): 248,000 +13,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 238,000 (-13.4% vs. the same week a year earlier).
Vehicle Sales (May 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.66 million vehicles (-1.3% vs. April 2017, -3.0% vs. May 2016).
Pending Home Sales (April 2017, Index (2001=100), seasonally adjusted): 109.8 (-1.5 points vs. March 2017, -3.8 points vs. April 2016).
Construction Spending (April 2017, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.219 trillion (-1.4% vs. March 2017, +6.7% vs. April 2016).
Agricultural Prices (April 2017, Prices Received by Farmers (Index: 2011=100, seasonally adjusted): 96.7 (+2.0% vs. March 2017, +4.4% vs. April 2016).
Case-Shiller Home Price Index (March 2017, 20-City Index, seasonally adjusted): +0.9% vs. February 2017, +5.9% vs. March 2016).
Beige Book

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

Q1 GDP Growth Revised From Weak to Tepid: May 22 – 26

The U.S. economy expanded at a tepid pace in early 2017 while the housing market paused in April. Here are the 5 things we learned from U.S. economic data released during the week ending May 26.

#1Even with an upward revision, the U.S. economy expanded at a slow pace during the opening months of 2017. The Bureau of Economic Analysis revised its estimate of first-quarter growth in the Gross Domestic Product (GDP) from a seasonally adjusted annualized growth rate of 0.7 percent to a gain of 1.2 percent. The weak Q1 GDP gain followed a 2.1 percent annualized increase in economic activity during the final three months of 2016. The Q1 GDP revision was the result of higher than previously believed levels of nonresidential fixed investment, personal spending, and state & local government spending (although pulling down the estimate was a lowered estimate of private inventory accumulation during the quarter). Nevertheless, the updated GDP estimate still presents a similar story of what had been reported a month ago: a sharp slowdown in the growth of personal consumption expenditure resulted in the smallest growth in economic activity in a year. Consumption added 44-basis points to GDP growth during Q1 after having contributed 240-basis points to Q4 2016 growth. Most of Q1’s economic growth instead came from fixed investment, with residential and nonresidential fixed economic responsible for 50-basis points and 134-basis points of economic growth during the quarter, respectively. This report also presented the first glimpse of corporate profits, which were at a seasonally adjusted annualized rate of $2.110 trillion. This was off 1.9 percent from the final three months 2016 but up 3.7 percent from Q1 2016. The BEA will revise its GDP estimate once again on June 29.Q1 GDP Contributors 052817

#2On the bright side, economic activity appears to have sped up during April. The Chicago Fed National Activity Index, a weighted average of 85 economic measures, jumped by 42-basis points during the month to a reading of +0.49. This was the measure’s highest point since November 2014. The surge was largely the result of a 45-basis point improvement in the index components tied to production (to a +0.46 contribution to the CFNAI). Also improving during April were CFNAI components linked to employment, with a five-basis point increase to +0.10. Slipping from their March performance were index components tied to sales/orders/inventories (down seven basis points to a neutral contribution of 0.00) and the personal consumption/housing categories of index components (shedding two basis points to -0.06). In all, 46 of the CFNAI’s 85 components made positive contributions to the index. The CFNAI’s three-month moving average grew by 23-basis points to a reading of +0.23. A reading above 0.00 for the moving average is consistent with an economy that is expanding faster than its historical average.

#3Sales of previously owned homes took a breather during April. Per the National Association of Realtors, existing home sales declined 2.3 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.57 million units. Sales decreased during April in the South (-5.0 percent), West (-3.3 percent), and Northeast (-2.7 percent), but improved in Midwest (+3.8 percent). Existing home sales were 1.6 percent above their April 2016 pace. There was a 4.2 month supply of homes on the market at the end of April, its highest point since last October. However, the 1.93 million homes available for sale at the end of April was 9.0 percent below that of a year earlier. As a result, the median sales price of $244,800 was 6.0 percent above that of a year earlier. NAR’s press release linked the slowdown in home sales to “new and existing inventory…not keeping up with the fast pace homes are coming off the market.”

#4Sales of new homes sagged during April. The Census Bureau reports that new home sales fell 11.4 percent during the month to a seasonally adjusted annualized rate (SAAR) of 569,000 units. This was still 0.5 percent above the year-ago sales rate of new homes. Sales dropped in all four Census regions during the month, led by sharp declines in both the West (-26.3 percent) and Midwest (-13.1 percent). On a year-to-year basis, new home sales had grown in the Midwest (+19.7 percent) and South (+4.1 percent) but had slowed in both the West (-13.7 percent) and Northeast (-5.1 percent). Inventories of unsold new homes expanded 1.5 percent to 268,000 units. This was the equivalent to a 5.7 month supply.

#5Consumer confidence remained strong during May, although one’s political views greatly influenced their outlook. The Index of Consumer Sentiment from the University of Michigan inched up 1/10th of a point during the month to a seasonally adjusted reading of 97.1. The same measure was at 94.7 one year ago and was in line with its six-month average of 97.3. The current conditions index dropped by a full point to 111.7 (May 2016: 109.9) while the expectations index added 7/10ths of a point to 87.7 (May 2016: 84.9). The press release noted that the recent pattern of a sharp partisan divide remained, with survey participants that identify themselves as Republicans indicating great optimism and those that are Democrats being particularly pessimistic. 84 percent of Republicans reported “favorable” news about recent economic developments, compared to a mere 37 percent of Democrats. Conversely, 73 percent of Democrats described “unfavorable” economic news versus only 19 percent of Republicans. The press release also stated that the survey results suggested real personal spending would grow 2.3 percent during 2017.

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 20, 2017, First-Time Claims, seasonally adjusted): 234,000 +1,000 vs. previous week; -34,000 vs. the same week a year earlier). 4-week moving average: 235.250 (-14.7% vs. the same week a year earlier).
Durable Goods (April 2017, New Orders, seasonally adjusted):  $231.2 billion (-0.7% vs. March 2017). New orders net of transportation goods: $152.7 billion (-0.4% vs. March 2017).
FOMC minutes
FHFA House Price Index (March 2017, Purchase-Only Index, seasonally adjusted):  +0.6% vs. February 2017, +6.2% vs. March 2016.
Wholesale Inventories (March 2017, Inventories of Merchant Wholesalers, seasonally adjusted): $594.6 billion (+0.2% vs. February 2017, +3.0% vs. March 2016).

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