Factories and Consumers Were Active in April: May 14 – 18

Manufacturing rebounded while retail held firm in April. Here are the five things we learned from U.S. economic data released during the week ending May 18.

#1Manufacturing output picked up in April. The Federal Reserve estimates manufacturing production gained 0.5 percent on a seasonally adjusted basis during the month after being unchanged in March. Manufacturing output has increased 1.8 percent over the past year. Durable goods production grew 0.4 percent during the month while that for nondurables expanded 0.5 percent. Leading the former were substantial increases for machinery, aerospace equipment, electrical equipment/appliances, and computers/electronics. Boosting the latter were apparel and petroleum/coal. Overall industrial production increased 0.7 percent in April, matching March’s gain and having risen 3.5 percent over the past year. Production at utilities jumped 1.8 percent during April while mining output swelled 1.1 percent (with oil/gas extraction leading the latter).Industrial Production 2016-18 051818

#2Retail sales remained stout in April even as gas prices rise. The Census Bureau reports that retail and food services sales totaled a seasonally adjusted $497.6 billion, up 0.3 percent for the month and 4.7 percent from the April 2017 sales pace. Sales at auto dealers and parts stores inched up 0.1 percent while that as gas stations rose 0.8 percent (because of higher prices at the pump). Net of both, core retail sales increased 0.3 percent during April. Reporting higher sales during the months were retailers focused on apparel (+1.4 percent), furniture (+0.8 percent), groceries (+0.5 percent), and building materials (+0.4 percent). Sales slowed at health/personal care stores (-0.4 percent), restaurants/bars (-0.3 percent), electronics/appliance retailers (-0.1 percent), and sporting goods/hobby stores (-0.1 percent). Nonstore retailers (e.g., internet retailers) saw sales grow 0.6 percent during April and rise 9.6 percent over the past year.

#3Housing starts slowed in April, with less activity for multi-family units. The Census Bureau pegs the seasonally adjusted annualized rate (SAAR) of housing starts for April at 1.287 million units, off 3.7 percent for the month but still 10.5 percent ahead of the year-ago pace. Dragging down the measure was the 12.6 percent drop in starts of multifamily units (to an annualized 374,000 units). Single-family home starts edged up 0.1 percent to an annualized 894,000 units. Looking towards future activity, there were an annualized 1.352 million issued permits to build new homes. While this represented a 1.8 percent decrease from March, it was 7.7 percent above April 2017 levels. Single-family home permits were 0.9 percent higher than that of March. Home completions increased 2.8 percent during the month to an annualized 1.257 million units (+14.8 percent versus April 2017).

#4Homebuilders remained confident about the housing market during May. The National Association of Home Builders’ Housing Market Index (HMI) added two points during the month to a seasonally adjusted reading of 70. This was the 47th consecutive month with an HMI above a reading of 50 (indicative of a greater percentage of builders viewing the housing market as “good” as opposed to “bad”) and places the sentiment measure ahead of its 12-month average of 68.6. While the HMI improved in the Midwest, it lost ground in the both in the South and West and was unchanged in the Northeast. The index measuring current sales of single-family homes added two points (to 76) while measures of expected sales over the next six months (77) and traffic of prospective buyers (51) matched their April readings. The press release notes that demand for homes should remain strong due to “[t]ight housing inventory, employment gains and demographic tailwinds.”

#5Forward-looking indicators suggest continued economic growth for the remainder of 2018. The Conference Board’s Leading Economic Index added 4/10ths of a point in April to a reading of 109.4 (2016=100). The LEI has increased 6.4 percent over the past year. Eight of the ten components to the LEI made positive contributions, led by the interest rate spread and the average number of hours worked in manufacturing. The coincident index gained by 3/10ths of a point to 103.5 (+2.2 percent versus April 2017), with all four components of the coincident index making positive contributions in April. Also adding 3/10ths of a point was the lagging index, with the 104.7 reading being 2.5 percent ahead of that from a year earlier. The press release stated that the leading indicators data “suggest solid growth should continue in the second half of 2018.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 12, 2018, First-Time Claims, seasonally adjusted): 222,000 (+11,000 vs. previous week; -16,000 vs. the same week a year earlier). 4-week moving average: 213.250 (-12.0% vs. the same week a year earlier).
State Employment (April 2018, Nonfarm Payrolls, seasonally adjusted): 3 states experienced significant increases in payrolls vs. March 2018. 28 states experienced significant payrolls increases vs. April 2017 while 1 experienced a significant decline.
Business Inventories (March 2018, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.930 trillion (Unchanged vs. February 2018, +3.8% vs. March 2017).
Treasury International Capital Flows (March 2018, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$18.6 billion (vs. February 2018: -$57.7 billion, vs. March 2017: -$35.5 billion).

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

Q4 GDP Revised Up, Consumer Spending Paused: March 26 – 30

Q4 GDP was revised upward, but consumer spending has been sluggish during the first two months of 2018. Here are the five things we learned from U.S. economic data released during the week ending March 30.

#1A new estimate finds that the U.S. economy expanded during Q4 more quickly than previously reported. The Bureau of Economic Analysis’ third estimate of Gross Domestic Product (GDP) finds the U.S. economic swelled 2.9 percent on a seasonally adjusted annualized rate (SAAR) during the final three months of 2017. This was up from the 2.5 percent annualized growth rate reported a month earlier. With the upward revision, BEA now estimates the U.S. economy expanded 2.3 percent for all of 2017, which was an improvement from the 1.5 percent growth rate in 2016 but below 2015’s 2.9 percent gain. The latest revision to Q4 GDP was the result of higher than previously believed levels of personal spending and private inventory investment. Positive contributors to GDP growth during the quarter were personal spending, fixed investment, and government spending, while net exports and private inventory accumulation were both drags on economic growth. Corporate profits slipped 0.1 percent during Q4 following a 4.3 percent bump during Q3.Gross Domestic Product 2000-2017-033018

#2The U.S. economy gained momentum in February. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators, surged by 86-basis points during the month to a seasonally adjusted reading of +0.88. This was the CFNAI’s best reading since last October. Much of the gain came from production-related economic indicators, which made a +0.50 contribution to the CFNAI (a big improvement from January when the same measures had made a negative -0.15 contribution). Also making positive contributions during the month were indicators tied to employment (+0.31) and sales/orders/inventories (+0.09). Dragging down the CFNAI were indicators related to consumption/housing (-0.02). In all, 63 of the 85 economic indicators made positive contributions to the CFNAI. The CFNAI’s 3-month moving average gained by 21-basis points to +0.37. Since the CFNAI is indexed such that a reading of 0.00 means the U.S. economy is growing at its historical level, the +0.37 moving average indicates the U.S. economy is expanding at an above average rate.

#3Personal spending failed to grow for a second consecutive month. The Bureau of Economic Analysis finds real personal consumption expenditures (PCE) were unchanged during February after having contracted 0.2 percent during January. Even with the recent lack of increases, real PCE has increased 2.8 percent over the past year, matching January’s 12-month comparable. Real spending on services and goods also was steady during February, with the latter split between a 0.6 percent increase in spending on durable goods and a 0.3 percent contraction for nondurables. Over the past year, spending on goods has grown 4.3 percent while that on services was 2.1 percent ahead of year-ago levels. Real disposable personal income gained 0.2 percent during February, slower than January’s 0.6 percent advance. Over the past year, real disposable income has increased 2.1 percent. The gap between spending and income has been covered by a slowdown in savings, although this has recovered in recent months. The personal savings rate was at +3.4 percent in February, up 2/10ths of a percentage point from January. Finally, the Federal Reserve’s preferred gauge of inflation continues to gradually creep up. The PCE deflator has grown 1.8 percent over the past year while the core measure (which removes the impact of energy and food) gained 1.6 percent over the same 12 months.

#4Two measures of consumer sentiment moved in opposite directions during March, although both indicate that Americans remain optimistic. The Conference Board’s Consumer Confidence Index shed 2.3 points during the month to a seasonally adjusted reading of 127.7 (1985=100). Despite losing a step during the month, the measure remained 2.8 points ahead of its year-ago reading and stayed close to the 18-year high achieved in February. The present conditions index lost 1.3 points during March to a reading of 159.9 while the expectations index shed three full points to 106.2. 37.9 percent of survey respondents described current business conditions as “good” versus 13.4 percent seeing them as “bad.” Similarly, 39.9 percent of consumer saw the number of available jobs as “plentiful” while only 14.9 percent viewed them as “hard to get.” The press release noted that the results suggest “suggest further strong [economic] growth in the months ahead.”

The University of Michigan’s Index of Consumer Sentiment added 1.7 points during March to a seasonally adjusted 101.5 (1966Q1=100). While this was a small pullback from the preliminary March reading reported a few weeks earlier, this final reading represented a 14-year high point for the sentiment measure and a 4.5 point improvement over the previous year. The current conditions index jumped 6.3 points to a record-high of 121.2 (March 2017: 113.2) while the expectations index slipped 1.2 points to 88.8 (March 2017: 86.5). The press release indicates that the index readings suggest a real growth rate in real personal spending of 2.6 percent from mid-2018 to mid-2019.

#5Pending home sales picked up in February. The National Association of Realtors says that its measure of contract signings to purchase a previously owned home gained 3.1 percent during the month to a seasonally adjusted index reading of 107.5 (2001=100). Even with the gain, this was 4.1 percent under the year-ago contract signing pace. The index improved during February in all four Census regions, led by a 10.3 percent bounce in the Northeast. The Pending Home Sales Index also grew 3.0 percent in the South, 0.7 percent in the Midwest and 0.4 percent in the West. All four regions had negative 12-month comparables, spanning from a 9.5 percent drop in the Midwest to a 1.5 percent year-to-year slowdown in the South. The press release notes that the “minuscule” number of homes on the market and “its adverse effect on affordability” as weighing on the housing market.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 24, 2018, First-Time Claims, seasonally adjusted): 215,000 (-12,000 vs. previous week; -38,000 vs. the same week a year earlier). 4-week moving average: 224,500 (-11.1% vs. the same week a year earlier).
Case-Shiller House Price Index (January 2018, 20-City Index, seasonally adjusted): +0.8% vs. December 2017, +6.4% vs. January 2017.
Agricultural Prices (February 2018, Prices Received by Farmers (Index (2011=100)): 90.8 (+5.7% vs. January 2018, -0.2% vs. February 2017). 

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

Q4 GDP Growth Just Misses the Mark: January 22 – 26

GDP growth decelerated a bit as 2017 wrapped up, but economic activity was solid in December. Here are the five things we learned from U.S. economic data released during the week ending January 26.  

#1U.S. economic expansion slowed slightly during the fourth quarter. The Bureau of Economic Analysis reports the Gross Domestic Product (GDP) expanded 2.6 percent on a seasonally adjusted annualized rate (SAAR) during the final three months of 2017. This was down from GDP growth rates of 3.2 percent and 3.1 percent during the third and second quarters of the year, respectively. GDP grew 2.3 percent for all of 2017, an improvement from the 1.5 percent gain in 2016 but below the 2014 and 2015 increases of 2.6 percent and 2.9 percent, respectively. The most significant drag on Q4 GDP growth was the 13.9 percent jump in imports, which had cost 196-basis points in GDP growth alone. A contraction in private sector inventories took away another 67-basis points in GDP growth. Contributing to economic expansion during the quarter were personal consumption (adding 258-basis points to GDP growth), fixed nonresidential investment (adding 84-basis points), exports (82-basis points), government expenditures (adding 50-basis point), and fixed residential investment (adding 42-basis points). The BEA will revise its estimate of Q4 GDP growth twice over the next two months.GDP growth 2010-2017 012618

#2December economic activity measures point to strengthening during the month. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators set to equal 0.00 when the U.S. economy is expanding at its historical average, added 16-basis points during December to a seasonally adjusted 0.27. This was the third month of the past four in which the CFNAI had a positive reading. Forty-three of the 85 index components made positive contributions to the CFNAI. Two of the four major groupings of index components improved from their November readings: production/income (up 27-basis points to +0.25) and sales/orders/inventories (up four basis points to +0.08). Losing ground were CFNAI components tied to employment (down 11-basis points to +0.01) and consumption/housing (off four-basis points to -0.07). The three-month moving average for the CFNAI (which removes some of the month-to-month volatility) slipped by a single basis point to +0.42, the third straight month in which it was positive.

The Conference Board’s Leading Economic Index (LEI) grew by 6/10ths of a basis point to 107.0 (2016=100), with the forward-looking measure of activity having increased 5.7 percent over the past year. Seven of the ten components of the LEI made a positive contribution to the LEI. All four components of the coincident index made a positive contribution, resulting in the measure of contemporaneous economic activity to grow 3/10ths of a point to 102.8 (+2.1 percent versus December 2016). The lagging index was at 104.0, up 7/10ths of a point for the month and 2.7 percent from a year earlier as five of seven index components made positive contributions. The press release points out that the strength in the leading index came from “new orders in manufacturing, consumers’ outlook on the economy, improving stock markets and financial conditions.”

#3Tight inventories continued to rein in existing home sales. The National Association of Realtors reports sales of previously owned homes slumped 3.6 percent during December to a seasonally adjusted annualized rate (SAAR) of 5.57 million units. This was 1.1 percent above the December 2016 sales pace. Sales fell in all four Census regions: Northeast (-7.5 percent), Midwest (-6.3 percent), South (-1.7 percent), and West (-1.6 percent). Versus a year earlier, sales have risen in the South and Midwest but were off in the Northeast and West. Inventories contracted further during the month, shrinking 11.4 percent during the month to 1.48 million units. This was the equivalent to an extraordinarily tight 3.2 month supply. As a result, the median sales price of $246,800 was up 5.8 percent from the same month a year earlier. The press release noted that tight inventories and declining housing affordability “ultimately muted what should have been a stronger sales pace.”

#4New homes market gave back some of their November sales gains. New home sales sank 9.3 percent during December to a seasonally adjusted annualized rate of 625,000 units, per the Census Bureau. Even with the decline, sales remained 14.1 percent above that of a year earlier. Like with existing home sales above, new home sales slowed during the month in all four Census regions: Midwest (-10.0 percent), South (-9.8 percent), West (-9.5 percent), and Northeast (-2.4 percent). The inventory of unsold new homes inched up by 10,000 units to 295,000 homes, an increase of 15.2 percent from a year earlier and the equivalent to a 5.7 month supply. The median sales price of $335,400 represented a 2.6 percent gain over the past year.

#5Orders for durable goods jumped in December. The Census Bureau estimates new orders for manufactured durable goods grew for the fourth time in five months, growing 2.9 percent during the month to a seasonally adjusted $249.4 billion. Higher orders for transportation goods surged 7.4 percent, led by increased orders for defense aircraft (+55.3 percent), civilian aircraft (+15.9 percent), and motor vehicles (+0.4 percent). Net of transportation goods, core durable goods orders rose 0.6 percent, capturing order gains for primary metals (+1.4 percent), fabricated metals (+0.9 percent), and machinery (+0.6 percent). Orders declined for electrical equipment/appliances (-0.9 percent) and computers/electronics (-0.2 percent). Durable goods shipments increased for the seventh time in eight months (+0.6 percent to $246.8 billion). Unfilled orders gained 0.6 percent to $1.144 trillion (its fourth consecutive increase) while durable goods inventories expanded for the 17th time in 18 months (+0.3 percent to $406.5 billion). 

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 20, 2018, First-Time Claims, seasonally adjusted): 233,000 (+17,000 vs. previous week; -19,000 vs. the same week a year earlier). 4-week moving average: 240,000 (-1.9% vs. the same week a year earlier).
State Employment (December 2017, Nonfarm Payroll Employment, seasonally adjusted): Vs. November 2017: 10 states had significant payroll increases, 3 states had significant payroll decreases. Vs. December 2016: 25 states had significant payroll increases.
FHFA House Price Index (November 2017, Purchase-Only Index, seasonally adjusted): +0.4% vs. October 2017, +6.5% vs. November 2016.

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