Data Points to Firm Economic Growth as 2017 Ends: December 18 – 22

Data points to solid business conditions during the final months of 2017. Here are the five things we learned from U.S. economic data released during the week ending December 22.  

#1Even with a small downward revision, Q3 was the best quarter for the U.S. economy more than 2.5 years. The Bureau of Economic Analysis’ third estimate of Q3 Gross Domestic Product (GDP) shows the U.S. economy expanded 3.2 percent during the three month period of July, August, and September. This was down 1/10th of a percentage point from the previous estimate reported a month earlier and followed a GDP gain of 3.1 percent during the Q2. Positive contributors to Q3 GDP growth were personal spending (adding 149-basis points to GDP growth), the change in private inventories (+79-basis points), fixed nonresidential investment (+40-basis points), net exports (+36-basis points), and government expenditures (+12-basis point). Fixed residential investment was an 18-basis point drag on Q3 GDP growth. Corporate profits grew 4.3 percent during Q3 and have increased 5.3 percent over the past year.GDP contributors Q32017-122217.png

#2Indicators suggest solid economic growth during the current quarter. The Chicago Fed National Activity Index (CFNAI), an assemblage of 85 economic measures, fell by 61-basis points to a reading of +0.15. Even with the decline, this was the CFNAI’s third consecutive month with a positive reading, indicative of economic growth greater than the historical average. Forty-two of the 85 tracked measures made a positive contribution to the CFNAI, with three of four major categories of indicators making a positive contribution to the CFNAI: employment (11-basis point positive contribution), sales/orders/inventories (five-basis point positive contribution), and production (five-basis point contribution, which was sharply down from its October contribution of 66-basis points). Indicators related to personal consumption/housing were a six-basis point drag on the CFNAI. The CFNAI’s three-month moving average added ten basis points to +0.41, its highest reading since April 2014.

The Conference Board’s Leading Economic Index (LEI) added a half point during November to a reading of 130.9 (2010=100), which was a robust 5.5 percent above its November 2016 mark. Six of the ten components to the LEI made positive contributions to the index, led by manufacturing orders, consumers’ expectations for the economy, and the interest rate spread. The coincident index gained 3/10ths of a point to 116.5, up 2.1 percent from a year earlier. All four components of the coincident index made positive contributions; including, nonfarm payrolls and personal income net of transfer payments. The lagging index eked out a 1/10th of a point increase to 125.6 (+2.5 percent versus November 2016). Only two of the index’s seven components made positive contributions: average duration of unemployment and ratio of outstanding consumer installment credit to personal income. The press release says the LEI suggests “that solid economic growth will continue into the first half of 2018.”

#3Consumer spending strengthened in November. The Bureau of Economic Analysis estimates personal consumption expenditures (PCE) were at a seasonally adjusted annualized rate (SAAR) of $13.6 trillion, a 0.6 percent increase from October. After adjustments for inflation, PCE gained 0.4 percent during November after holding steady in October and a 0.6 percent gain in September. Real PCE has grown 2.7 percent over the past year. Real spending on goods rose 0.5 percent, with bumps of 0.2 percent and 0.7 percent, respectively, for durable and nondurable goods. Spending on services gained 0.4 percent during the month. Personal income increased 0.3 percent during November, while disposable income grew 0.4 percent. After adjusted the latter for inflation, real disposable income inched up 0.1 percent during November and has increased 1.9 percent since November 2016. Following recent trends, the savings rate fell 3/10ths of a percentage point to +2.9 percent, its lowest reading in ten years.

#4Sales of both existing and new homes zoomed to post-recession highs in November. The National Association of Realtors reports that existing home sales jumped 5.6 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.81 million units. This was 3.8 percent ahead of the sales of a year earlier and the strongest sales pace for previously owned homes since December 2006. Sales grew during the month in the Midwest (+8.4 percent), South (+8.3 percent), and Northeast (+6.7 percent), but slowed 2.3 percent in the West. Sales also up from a year earlier in three of four Census regions: Midwest (+6.8 percent), South (+4.0 percent), and West (+2.5 percent). Already tight inventories constricted even further during November, falling 7.2 percent for the month to 1.67 million homes for sale. This was the equivalent to a 3.4 month supply. As a result, the median sales price of $248,000 was up 5.8 percent from that of a year earlier. NAR’s press release credits “[f]aster economic growth in recent quarters, the booming stock market and continuous job gains” for the sales surge.

Meanwhile, new home sales surged 17.5 percent during November to a seasonally adjusted annualized rate (SAAR) of 733,000 units per the Census Bureau. This was a 26.6 percent increase from the same month a year earlier and the best annualized sales pace since July 2007. Sales increased during the month in all four Census regions: West (+31.1 percent), South (+14.9 percent), Northeast (+9.5 percent), and Midwest (+6.9 percent). Three of four Census regions enjoyed positive 12-month comparables, with the lone exception being flat sales versus a year earlier in the Midwest. Homebuilders held inventory levels of unsold homes firm with 283,000 units available for sale at the end of November, the equivalent to a 4.6 month supply.

#5Consumer confidence faded a bit in December. The Index of Consumer Sentiment from the University of Michigan shed 2.6 points during December to a seasonally adjusted 95.9 (1966Q1=100). While was the measure’s lowest point since September, it left the index’s average for all of 2017 the best for a year since 2000. The current conditions index edged up 3/10ths of a point to 113.8 (December 2016: 111.9) while the expectations index shed 4.6 points to 84.3 (December 2016 89.5). The press release points out that the decline in the headline index was primarily the result falling sentiment among lower-income households. Further, it also noted that the survey results suggest real personal spending will grow 2.6 percent in 2018. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 16, 2017, First-Time Claims, seasonally adjusted): 245,000 (+20,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 236,000 (-8.3% vs. the same week a year earlier).
Durable Goods (November 2017, New Orders, seasonally adjusted):$241.4 billion (+1.3% vs. October 2017).
Housing Starts (November 2017, Housing Units Started, seasonally adjusted annualized rate): 1.297 million (+3.3% vs. October 2017, +12.9% vs. November 2016).
Housing Market Index (December 2017, Index (>50=good housing market), seasonally adjusted): 74 (vs. November 2017: 69; December 2016: 69).
FHFA Housing Market Index (October 2017, Purchase-Only Index, seasonally adjusted): +0.5% vs. September 2017; +6.6% vs October 2016.
State Employment (November 2017, Nonfarm Payrolls):  Vs. October 2017: payrolls grew in 6 states and were essentially unchanged in 44 states and the District of Columbia.  Vs. November 2016: payrolls grew in 27 states and were essentially unchanged in 23 states and the District of Columbia.

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

Business Activity Builds Momentum: November 20 – 24

Business activity appears to be firming during the final months of 2017. Here are the five things we learned from U.S. economic data released during the week ending November 24.

#1Forward-looking economic data suggest robust economic growth in the coming months. The Conference Board Leading Economic Index (LEI) jumped by 1.5 points during October to a reading of 130.4 (2010=100). This was up a sharp 5.2 percent from a year earlier. Nine of the ten components of the LEI made a positive contribution during the month, led by jobless claims, building permits, and new orders for manufactured goods. The coincident index added 4/10ths of a point to 116.2, +1.9 percent versus October 2017. All four components of the coincident index made positive contributions, including industrial production and nonfarm payrolls. The lagging economic index added 3/10ths of a point to 125.5, up 2.5 percent from October 2016. Four of seven index components made positive contributions; including, the average duration of unemployment and the change in prices for services. The press release said that “[t]he growth of the LEI, coupled with widespread strengths among its components, suggests that solid growth in the US economy will continue through the holiday season and into the new year.”

#2Economic activity picked up during October. The Chicago Fed National Activity Index (CFNAI) gained 29-basis points to +0.65. This was the best reading for the index of 85 economic indicators since January 2012. The CFNAI is set so that a reading of 0.00 indicates economic growth at the historical average. Forty-three of the 85 indicators improved during the month, but only one of the four major categories of indicators gained during the month: production-related indicators made a +0.53 contribution, up from +0.18 in September. Indicators related to employment (off two-points to +0.11), sales/orders inventories (off three basis points to +0.05), and consumption/housing (off two-basis points to -0.04) all made smaller contributors than they had during September. The CFNAI’s three-month moving average jumped by 27-basis points to +0.28, its highest reading since April 2014.CFNAI-2011-2017-112417

#3Existing home sales gained in October. Sales of previously owned homes grew 2.0 percent during the month to a seasonally adjusted annualized rate (SAAR) to 5.48 million units, according to the National Association of Realtors. While this was off 0.9 percent from the sales pace of a year earlier, existing home sales have remained within a tight mid-five million range for the past year. Sales grew in all four Census regions during the month, but the 12-month sales comparable was only positive in the West. Holding back sales was the continued relative lack of homes on the market. Just 1.80 million homes were available for sale at the end of October, down 3.2 percent from September, 10.4 percent from a year earlier, and represented only a 3.9 month supply. The press release noted that homes typically stayed on the market for 34 days in October, down from 41 days during October 2016. As a result, the median sales price rose 5.5 percent over the past year to $247,000.

#4Durable goods orders fell during October. The Census Bureau estimates new orders for manufactured durable goods were at a seasonally adjusted $236.0 billion during the month, down 1.2 percent from September. Much of the decline reflects the 18.6 percent drop in new orders for civilian aircraft and the 11.3 percent slump in new orders for defense aircraft. Overall transportation orders fell 4.3 percent (new orders for motor vehicles grew 1.7 percent during the month). Net of transportation goods, new durable goods gained 0.4 percent during October to $158.9 billion. New orders grew during the month for primary metals (+1.3 percent), electrical equipment/appliances (+0.8 percent), machinery (+0.6 percent), computers/electronics (+0.4 percent). Orders for fabricated metal products fell 0.9 percent while those of civilian, non-aircraft capital orders (a proxy of business investment) dropped 0.5 percent. Shipments of durable goods edged up 0.1 percent to $241.0 billion (its fifth gain in six months). The dollar value of unfilled orders was essentially unchanged at $1.135 trillion while inventories increased for the 15th time in 16 months (+0.1 percent to $404.1 billion). 

#5Consumer sentiment softened slightly but remained firm during November. The University of Michigan’s Index of Consumer Sentiment lost 2.2 points during the month to a seasonally adjusted reading of 98.5 (1966Q1=100). Despite declining from October, this reading was a 7/10ths of a point improvement from the preliminary November number reported a few weeks earlier and a 4.7 point increase over the past year. Both the current and expected conditions indices slipped from their October marks: the former lost 3.0 points to 113.5 (November 2016: 107.3) while the latter decreased by 1.6 points to 88.9 (November 2016: 85.2). The statement released with the report notes that “consumers have voiced greater certainty about their expectations for income, employment, and inflation” and that the data is consistent with “an expected gain of 2.7% in real consumption expenditures in 2018.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 18, 2017, First-Time Claims, seasonally adjusted): 239,000 (-13,000 vs. previous week; -9,000 vs. the same week a year earlier). 4-week moving average: 239,750 (-3.9% vs. the same week a year earlier).
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The opinions expressed here are not necessarily those of Kevin’s current and previous employers. No endorsements are implied.

The U.S. Economy Expanded During the Summer, Held Firm in September: October 23 – 27

GDP enjoyed a second consecutive quarter of robust growth during the summer. Here are the five things we learned from U.S. economic data released during the week ending October 27.  

#1The U.S. economy expanded solidly during Q3. The Gross Domestic Product (GDP) grew a seasonally adjusted annualized rate (SAAR) of 3.0 percent during the months of July, August, and September. This follows the Bureau of Economic Analysis’ estimate of GDP growing 3.1 percent during Q2, marking the two best consecutive quarters of economic growth since the second and third quarters of 2014. Positive contributors to Q3 economic growth were consumption (adding 162-basis points to GDP growth), the change in private inventory accumulation (+73-basis points), business fixed investment (+49-basis points), exports (+28-basis points), imports (+12-basis points), and federal government expenditures (+8-basis points). Dragging down Q3 GDP growth were residential fixed investment (cost 24-basis points in GDP growth) and state/local government expenditures (-9-basis points). The BEA report did not contain any comment on whether the recent hurricanes had hindered overall economic growth. The BEA will revise its estimate of Q3 GDP growth twice over the next two months.GDP Growth 2010-2017 102717

#2Economic activity appears to have improved in September. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic indicators, jumped by 54-basis points to a reading of +0.17. (A reading of 0.00 would have indicated economic growth at the historical average.) This was the measure’s best reading since June. Fifty-four of the CFNAI’s components improved from the August’ readings, with all four major categories of components advancing during the month. Among the big 4 categories, the largest surge came from those related to production with its contribution to CFNAI rising from -0.33 in August to +0.10 in September. Much smaller improvements came with components related to employment (up five-basis points to +0.06), personal consumption/housing (up four-basis points to -0.07), and sales/orders/inventories (up a basis point to +0.07). The CFNAI’s three-month moving average—which smooths out some of the month-to-month volatility in the index—held steady at a reading of -0.16.

#3Durable goods orders grew in September. The Census Bureau tells us that new orders for manufactured durable goods blossomed 2.2 percent during the month to a seasonally adjusted $238.7 billion. Some of the gain comes from a sharp 31.5 percent increase in new orders for civilian aircraft. Transportation goods gained 5.1 percent for the month, also reflecting smaller increased orders for defense aircraft (+0.7 percent) and motor vehicles (+0.1 percent). Net of transportation goods, core durable goods orders increased 0.7 percent during September, matching its August gain and just below its July increase of 0.8 percent. Rising during the month were new orders for communications equipment (+4.8 percent) and fabricated metal products (+1.7 percent). New orders fell for computers/related products (-5.5 percent), machinery (-0.2 percent), and primary metals (-0.1 percent). Durable goods shipments grew for the fourth time in five months with a 1.0 percent bounce to $240.5 billion. Net of transportation goods, durable goods shipments increased 1.2 percent. Growing for the first time in three months was the value of unfilled orders (+0.2 percent) while durable goods orders inventories expanded for the 14th time in fifteen months (+0.5 percent).

#4New home sales jumped during September. Per the Census Bureau, new home sales rose 18.9 percent during the month to a seasonally adjusted annualized rate (SAAR) of 667,000 units. This was the fastest pace of new home sales since right before the start of the last recession in October 2007. Sales jumped by double-digit percentages in three of four Census regions: Northeast (+33.3 percent), South (+25.8 percent), and Midwest (+10.6 percent). Sales grew by a more modest 2.9 percent in the West. New home sales were 17.0 percent above their September 2016 pace. There were 279,000 new homes available for sale at the end of September, matching the count from the prior month but up 15.3 percent from a year earlier. This translated into a 5.0-month supply (its lowest point since March). 

#5Consumer sentiment surged to a 17 year high in October. The University of Michigan’s Index of Consumer jumped 5.6 points during the month to a seasonally adjusted 100.7. This was up 13.5 points from the same month a year earlier and the measure’s best reading since November 2000. Indices for both current and expectations both rose from their September mark, with the former up 4.8 points to 116.5 and the latter adding 6.1 points to 90.5. The current conditions index has not been this high since May 2000 while the expectations index hit its best reading since January 2015. The press statement noted that more than half of survey respondents “expected good times during the year ahead and anticipated the expansion to continue uninterrupted over the next five years.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 21, 2017, First-Time Claims, seasonally adjusted): 233,000 (+10,000 vs. previous week; -22,000 vs. the same week a year earlier). 4-week moving average: 239,500 (-5.0% vs. the same week a year earlier).
Pending Home Sales (September 2017, Index (2001=100), seasonally adjusted): 106.0 (unchanged vs. August 2017; -3.5% vs. September 2016).
FHFA House Price (August 2017, Purchase-Only Index, seasonally adjusted): +0.7% vs. July 2017; +6.6% vs. August 2016).

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