GDP Jumped Again in Q3, New Home Sales Slowed in September: October 22 – 26

The U.S. economy chugged along during Q3, albeit at a slower pace than before.  Here are the five things we learned from U.S. economic data released during the week ending October 26.

#1GDP moderated during Q3, propped up in part by inventory gains. The Bureau of Economic Analysis’ first estimate of third-quarter 2018 Gross Domestic Product (GDP) finds the U.S. economy expanded 3.5 percent on a seasonally adjusted annualized basis between July and September. While down from Q2’s 4.2 percent increase, this was the second best quarter for GDP since Q2 2014. The biggest positive contributor to Q3 GDP growth was personal consumption, which added 269-basis points to the final figure. The second largest contributor was the $113.1 billion increase in private inventories, which swelled GDP by 207-basis points. (The large impact of the expansion in inventories may signal a slower GDP growth rate in Q4 as business burn through these stockpiles.) Rising government expenditures contributed 56-basis points to GDP growth while business investment (fixed nonresidential investment) added 12-basis points. Trade became a significant drag on economic growth as falling exports and rising imports led to net exports having a negative GDP contribution of -0.45. Housing also continued to flag with a third straight quarterly negative contribution (-0.16). The BEA will revise its Q3 GDP estimate twice over the next two months.GDP-2015-8 102618

#2Economic growth slowed specifically in September. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators, lost ten basis points during the month to a reading of +0.17 (the fourth straight month in which the CFNAI came in with a positive reading). Even though the CFNAI’s three-month moving average slipped by six-basis points to +0.21, the moving average’s continued positive reading was indicative of economic growth above the historical average. Forty-six of the 85 tracked indicators made positive contributions to the CFNAI while 36 indicators advanced during the month. Three of four major categories of indicators made positive contributions to the CFNAI: production (+0.11), employment (+0.07), and sales/orders/inventories (+0.05). Indicators related to consumption/housing had a negative contribution of -0.05.

#3Durable goods flew in September because of defense aircraft orders. The Census Bureau estimates new orders for manufactured durable goods jumped 0.8 percent during the month to a seasonally adjusted $262.1 billion, its third gain in four months. Leading the way was a 1.9 percent gain in orders for transportation goods, boosted by a 119.1 percent surge in orders for defense aircraft and a 1.3 percent rise in orders for motor vehicles. Durable goods orders net of transportation equipment inched up by only 0.1 percent. Rising during the month were orders for machinery (+0.8 percent), and primary metals (+0.1 percent) while orders fell for fabricated metal products (-0.7 percent), electrical equipment/appliances (-0.5 percent), computers (-0.4 percent), and communications equipment (-0.1 percent). Also slumping was a proxy for business investment as non-aircraft civilian capital goods orders slipped 0.1 percent.

#4New home sales slumped again in September. Sales of single-family homes fell 5.5 percent during the month to a seasonally adjusted annualized rate (SAAR) of 553,000 units, per the Census Bureau. Sales declined in three of four Census regions: Northeast (-40.6 percent), West (-12.0 percent), and South (-1.5 percent). Transactions increased by 6.9 percent in the Midwest. Sales were off 13.2 percent from a year earlier, with deals down in the Northeast (-51.3 percent), West (-15.8 percent), and South (-11.4 percent). Again, the Midwest was the exception with a positive 12-month comparable of +4.1 percent. Inventories of new homes continued to grow, with a 2.8 percent increase to 327,000 units (+16.8 percent versus September 2017). This was the equivalent to a 7.1 month supply.

#5Consumer sentiment flagged ever so slightly in October. The University of Michigan’s Index of Consumer Sentiment pulled back by 1.5 points during the month to a seasonally adjusted 98.6 (1966Q1=100). While 4/10ths of a point of drop from the preliminary October reading reported a few weeks ago and 2.1 points below the year-ago reading, the sentiment measure remained near its post-recession highs. The current conditions index shed 2.1 points during the month to 113.1 (October 2017: 116.5) while the expectations index’s decline was smaller, losing 1.2 points to 89.3 (October 2017: 90.5). Partisanship continued to have a significant influence on one’s sentiment—the headline index for those identifying as Republican was 126.4, compared to 81.0 for those identifying as a Democrat and 96.2 for those who view themselves of politically independent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 20, 2018, First-Time Claims, seasonally adjusted): 215,000 (+5,000 vs. previous week; -19,000 vs. the same week a year earlier). 4-week moving average: 211,750 (-11.7% vs. the same week a year earlier).
FHFA House Price Index (August 2018, Purchase-Only Index, seasonally adjusted): +03% vs. July 2018, +6.1% vs. August 2017.
Beige Book

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

GDP Bloomed During the Spring, Home Sales Sputtered: July 23 -27

GDP grew at its fastest pace in nearly four years this past spring. Here are the five things we learned from U.S. economic data released during the week ending July 27.

#1Q2 was a good quarter for economic growth. The Bureau of Economic Analysis’ first estimate of second quarter 2018 gross domestic product (GDP) shows 4.1 percent growth on a seasonally adjusted annualized basis. This was the best quarter for GDP since the third quarter of 2014 and up from a revised 2.2 percent annualized growth rate during Q1. Most GDP components made positive contributions during Q1, led by a surge in personal consumption expenditures (adding 269-basis points to GDP growth during the quarter), net exports (+106-basis points, although some of this is believed the result of exporters moving soybeans and other goods out of the U.S. before trade tariffs take effect), nonresidential fixed investment (+94-basis points), and government expenditures (+37-basis points). Drags on Q2 GDP included a contraction in private inventories (costing one full percentage point in GDP growth) and tepid growth in fixed residential investment (i.e., housing, costing four-basis points). The BEA will revise its estimate of Q2 GDP twice over the next two months.GDP Contributors 072718

#2Economic activity accelerated during June. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic measures, surged by 88-basis points during the month to a reading of +0.43. The three-month moving average, which the Federal Reserve Bank of Chicago views as a “more consistent view of national economic growth,” added six basis points to a reading of +0.16. The CFNAI is indexed so that a 0.00 reading reflects economic growth at its historical average. Hence, a positive CFNAI indicates above average economic growth. Forty-five of the 85 economic indicators made positive contributions to the CFNAI during the month. Rebounding strongly from May were indicators related to production, the contribution from which surging from -0.56 to +0.36. Also showing improvement were the components tied to sales/orders/inventories, growing by three-basis points to +0.06. Slipping slightly were indicators linked to employment (off three-basis points to +0.08) and personal consumption/housing (down two-basis points to -0.06).

#3Home sales slowed in June. Sales of previously owned homes declined 0.6 percent during the month to a seasonally adjusted annualized rate of 5.38 million units. This was the third consecutive monthly decline for the National Association of Realtors’ data series, leaving existing home sales 2.2 percent under its year-ago reading. Sales slumped during the month in the West (-2.6 percent) and South (-2.2 percent) but improved in both the Northeast (+5.9 percent) and Midwest (+0.8 percent). Among the four Census regions, only in the South were existing home sales up over the past year. Inventories loosened a bit, growing 4.3 percent to a still tight 1.95 million units (the equivalent to a 4.3 month supply). The median sales price of $276,900 was up 5.2 percent from a year earlier. The press release blames softening sales on a lack of inventory of homes that is keeping home prices “elevated.”

New home sales fell 5.3 percent during June to a seasonally adjusted annualized rate of 631,000 units, per the Census Bureau. Even with the decline, new home sales have grown 2.4 percent over the past year. New home sales slowed in three of four Census regions during the month, with the Northeast being the exception. Homebuilders had 301,000 homes available for sale at the end of June, up 1.7 percent from May and 10.3 percent from a year earlier. This was the equivalent to a 5.7 month supply.

#4Durable goods orders rebounded during June. The Census Bureau estimates new orders for manufactured goods soared 1.0 percent during the month to a seasonally adjusted $251.9 billion. New orders for transportation goods jumped 2.2 percent, led by a 20.2 percent bounce in defense aircraft orders, a 4.3 percent gain in civilian aircraft orders, and a 4.4 percent increase in motor vehicle orders. Net of transportation goods, core durable goods orders grew 0.4 percent. Increasing during the month were new orders for electrical equipment/appliances (+1.5 percent), computers/electronics (+0.6 percent), machinery (+0.2 percent), and fabricated metal products (+0.1 percent). Meanwhile, new orders for primary metals slowed 0.4 percent. New orders for nondefense capital goods net of aircraft—a proxy for business investment—increased 0.6 percent during the month.

#5Consumer sentiment held steady in July. The University of Michigan reports that its Index of Consumer Sentiment slipped by 3/10ths of a point to a seasonally adjusted reading of 97.9 (1966Q1=100). Note that this was an 8/10ths of a point improvement from the preliminary July reading published a few weeks ago and a 4.5 point gain from the same month a year earlier. The current conditions index shed 2.1 points during the month to a reading of 114.4 (July 2017: 113.4) while the expectations index added 7/10ths of a point to 87.3 (July 2017: 80.5). The press release noted that Americans remained confident “due to favorable job and income prospects” even as they expect “higher inflation and higher interest rates.” A potential warning sign is the growing percentage of survey respondents expressing concerns about the impact trade tariffs may have on business conditions and their personal finances. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 21, 2018, First-Time Claims, seasonally adjusted): 217,000 (+9,000 vs. previous week; -25,000 vs. the same week a year earlier). 4-week moving average: 218,000 (-10.7% vs. the same week a year earlier).
FHFA House Price Index (May 2018, Purchase-Only Index, seasonally adjusted): +0.2% vs. April 2018, +6.4% vs. May 2017.
Bankruptcy Filings (June 2018, 12-month Bankruptcy Filings): 775,578 (-2.6% vs. 12-month period ending June 30 2017).

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

 

Economic Growth Continued, Housing Slowed a Bit: May 21 – 25

Home sales edged down in April. Here are the five things we learned from U.S. economic data released during the week ending May 25.

#1Sales of previously owned homes slowed in April. The National Association of Realtors reports that existing home sales declined 2.5 percent to a seasonally adjusted annualized rate of 5.46 million units. This was 1.4 percent below the year-ago sales pace. Sales failed to grow in any of the four Census regions, with declines in three of the regions: Northeast (-4.4 percent), West (-3.3 percent), and South (-2.9 percent). Over the past year, sales increased only in the South (+2.2 percent). Tight inventories remained the primary culprit, although the number of homes available for sales expanded 9.8 percent during April to 1.80 million units. This was nevertheless 6.3 percent fewer than the number of homes available for sale a year ago and translated into a mere 4.0 month supply. As a result, the median price of homes sold has risen 5.3 percent over the past year to $257,900. The press release warns that “[t]he current pace of price appreciation far above incomes is not sustainable in the long run.”

#2…As did those of new homes. Sales of new single-family homes slipped 1.5 percent during April to 662,000 on a seasonally adjusted annualized basis, per the Census Bureau. Even with April’s drop, new home sales tracked 11.6 percent ahead of its year-ago pace. Much of the decline occurred in the West, where new home sales slumped 7.9 percent during the month. Sales improved 11.1 percent in the Northeast and 0.3 percent in the South. All four Census regions enjoyed positive year-to-year new home sales gains. There were 300,000 new homes available for sale at the end of April, up 0.7 percent for the month and 12.4 percent from a year earlier. This was the equivalent to a 5.4 month supply. 

#3Economic growth appears to have been solid in April. The Chicago Fed National Activity Index (CFNAI) added two-basis points during the month to a seasonally adjusted +0.34. The CFNAI is a weighted index of 85 economic indicators adjusted such that a reading of 0.00 is indicative of the U.S. economy expanding at its historical rate. Fifty of the 85 indicators made positive contributions to the CFNAI. Among the four major categories of CFNAI components, two made positive contributions: those related to production (up eight basis points to +0.27) and employment (up six basis points to +0.10). The other two major groupings of components made smaller contributions: sales/orders/inventories (down six basis points to +0.02) and personal consumption/housing (down seven basis points to -0.05). The CFNAI’s three-month moving average rose by 23 basis points to +0.46, its best reading since last November.

#4Outside of civilian aircraft, durable goods orders rose in April. The Census Bureau reports that new orders for manufactured durable goods were at a seasonally adjusted $248.5 billion, down 1.7 percent from March. Much of the decline can be tied to the 29.0 percent drop in new orders for civilian aircraft, which had pulled down transportation goods orders 6.1 percent during the month. Net of transportation goods, new orders jumped 0.9 percent to $161.4 billion. Rising during the month were new orders for electrical equipment/appliances (+2.6 percent), fabricated metals (+2.0 percent), motor vehicles (+1.8 percent), primary metals (+1.3 percent), and computers/electronics (+1.1 percent). Durable goods shipments slipped 0.1 percent during March to $246.7 billion but jumped 1.0 percent after netting out transportation goods.

#5Consumer sentiment slightly eased in May. The University of Michigan Index of Consumer Sentiment lost 8/10ths of a point to 98.0. The same measure of consumer confidence was at 97.1 a year earlier. The current conditions index pulled back by 3.1 points to 111.8 (May 2017: 111.7) while the expectations index moved up by 7/10ths of a point to 89.1 (May 2017: 87.7). The press release stated that the survey results suggest real personal consumption will rise 2.6 percent over the next year. The Conference Board will publish its May consumer confidence survey results during the upcoming week.

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 19, 2018, First-Time Claims, seasonally adjusted): 234,000 (+11,000 vs. previous week; -3,000 vs. the same week a year earlier). 4-week moving average: 219,750 (-7.9% vs. the same week a year earlier).
FHFA House Price Index (March 2018, Purchase-Only Index, seasonally adjusted): +0.1% vs. February 2018, +6.7% vs. March 2017.
FOMC Minutes

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