Economic Activity Grew, Sentiment Did Not: December 24 – 28

Economic activity was above average in November, but consumers were less cheery about the future as 2018 ended. Here are the five things we learned from U.S. economic data released during the week ending December 28.

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

#1Economic activity picked up in November. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic measures, rose from showing average economic growth (with a reading of 0.00) in October to indicating above-average growth with a reading of +0.22 in November. Forty-eight of 85 economic measures made a positive contribution to the CFNAI while the other 37 made negative contributions. Among the four major categories of economic indicators, those associated with production and sales/orders/production had greater positive contributions in November, with the former up 17-basis points to a +0.08 contribution and the latter up 11-basis points to +0.09. Making smaller contributions were economic indicators associated with employment (down five basis points to +0.10) and consumption/housing (off a basis point to a negative contribution of -0.05). The CFNAI’s three-month moving average lost 11-basis points during the month to a reading of +0.12. This reading is consistent with above average economic growth.

#2Consumer confidence mellowed in December. The Conference Board’s Consumer Confidence Index shed 8.3 points during the month to fall to a seasonally adjusted reading of 128.1 (1986=100). Most of the decline came from consumers’ lowered enthusiasm for the future as the expectations index lost 13.2 points to 99.1. The drop in the present conditions index was far more modest as it lost 1.1 points to 171.6. The former was pulled down by fewer survey respondents anticipating business conditions will improve over the next six months (18.3 percent of respondents) and there to be more jobs available in the near future (16.6 percent). The press release noted that overall sentiment was “ending 2018 on a strong note” but also stated that the lowered expectations reflected “an increasing concern that the pace of economic growth will begin moderating in the first half of 2019.”

#3Home purchase contract signing activity slipped again. The Pending Home Sales Index (PHSI) from the National Association of Realtors lost 7/10ths in November to a seasonally adjusted 101.4 (2001=100), its lowest mark since 2014. While the measure of contracts signed to purchase a previously owned home declined on a national basis, it managed to increase in both the Northeast (up 2.5 points to 95.1) and West (up 2.4 points to 87.2). The index fell both the South (down 3.2 points to 115.7) and Midwest (off 2.3 points to 98.1). The PHSI has slumped 7.7 percent over the past year (the 11th consecutive month with year-to-year declines), with negative 12-month comparables in all four Census regions. The press release laid the blame for the slower activity on lower home affordability (home prices and interest rates) and warned the partial government shutdown could harm the housing market (due to the shutdown’s starving off the availability of flood insurance).

#4One measure of home prices signals a cooling. The purchase-only House Price Index (HPI) from the Federal Housing Finance Agency (FHFA), the regulator of Fannie Mae and Freddie Mac, grew 0.3 percent on a seasonally adjusted basis during October. While this was larger than September’s 0.2 percent gain, it was under the 0.4 percent increase experienced each month from April through July. The HPI, which tracks the prices of previously owned homes purchased with a conforming mortgage, grew in seven of nine tracked Census regions, led by the Pacific (+1.4 percent), West North Central (+1.1 percent), and East North Central (+0.7 percent). Home prices fell in both the South Atlantic (-0.6 percent) and Middle Atlantic (-0.2 percent). The HPI has risen 5.7 percent over the past year, the smallest 12-month comparable since the Spring of 2016.

#5…As does another. The 20-city Case-Shiller Home Price Index increased 0.4 percent on a seasonally adjusted basis in October after having risen 0.7 percent during the prior month. Home prices have risen 5.0 percent over the past year, down from a +5.2 percent 12-month comparable reported a month earlier. The index rose in 18 of the 20 tracked metropolitan areas, led by a 0.8 percent jump in Las Vegas and 0.7 percent increases in Atlanta, Boston, New York, and Phoenix. Home prices dropped in San Francisco (-0.6 percent) and Seattle (-0.3 percent). All 20-tracked metro areas enjoyed positive 12-month comparables, with the largest year-to-year percentage price gains in Las Vegas (+12.8 percent), San Francisco (+7.9 percent), Phoenix (+7.7 percent), and Seattle (+7.3 percent).

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 22, 2018, First-Time Claims, seasonally adjusted): 216,000 (+2,000 vs. previous week; +26,000 vs. the same week a year earlier). 4-week moving average: 218,000 (-8.0% vs. the same week a year earlier).

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

Consumer Spending Bounced Back: November 26 – 30

Personal spending and overall economic activity were resilient in October.  Here are the five things we learned from U.S. economic data released during the week ending November 30.

#1Consumers continued spending in October. The Census Bureau reports that real personal consumption expenditures (PCE) grew 0.4 percent on a seasonally adjusted basis during the month, up from a 0.1 percent gain in September. Spending on goods advanced 0.3 percent, with gains for durable and nondurable goods of 0.4 percent and 0.3 percent, respectively. Spending on services expanded 0.5 percent during October. Without adjustments for inflation, PCE rose 0.6 percent, funded by 0.5 percent growth in both nominal personal income and nominal disposable income. With inflation adjustments, real disposable income increased 0.3 percent. Over the past year, real PCE has grown 2.9 percent, funded by a 2.8 percent rise in real disposable income. October’s savings rate of +6.2 percent was 1/10th of a percentage point below that of the prior month.Income and Spending 113018

#2The second estimate of Q3 GDP growth matched that of the first. The Bureau of Economic Analysis estimates Gross Domestic Product (GDP) increased at a seasonally adjusted annualized rate of 3.5 percent, matching the prior month’s published estimate of economic growth. This report reflects larger than previously believed levels of nonresidential fixed investment and private inventory accumulation counterbalanced by lower levels of consumer spending and exports. The contributors to Q3 GDP growth were, in declining order, consumption, private inventory accumulation, government expenditures, and nonresidential fixed investment. Drags on Q3 economic growth were imports, exports, and residential fixed investment. This report also features the first estimate of Q3 corporate profits, which increased 3.4 percent to a seasonally adjusted annualized rate of $2.318 trillion (+10.3 percent from a year earlier).

#3Economic growth picked up slightly in October. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators indexed such that a reading of 0.00 indicates economic growth at the historical average, grew by ten-basis points during the month to a seasonally adjusted +0.24. Fifty of the 85 indicators made positive contributions to the CFNAI, with 51 indicators gaining from their September readings. Among the four major categories of indicators, only those tied to employment made a larger positive contribution to the headline index (rising from a +0.05 to +0.19 contribution). Slumping slightly during the month were indicators linked to production (from a +0.09 to +0.05 ) and personal consumption/housing (from -0.04 to -0.05). Indicators tied to sales/orders/inventories made the same +0.04 contribution that they had made in September.

#4New home sales sank in October. The Census Bureau places new home sales at a seasonally adjusted annualized rate of 544,000 units, down 8.9 percent for the month, 12.0 percent under the year-ago pace, and its worst month since March 2016. Sales fell in all four Census regions, with drops of 22.1 percent in the Midwest, 18.5 percent in the Northeast, 7.7 percent in the South, and 3.2 percent in the West. Further, only the West did not have a negative double-digit percentage 12-month comparable, albeit with a modest 1.3 percent gain. Inventories of unsold new homes grew 4.3 percent to 336,000 units (+17.5 percent versus October 2017), the equivalent to a 7.4 month supply (the most since February 2011).

#5Contract signing activity for home purchases fell in October. The Pending Home Sales Index (PHSI) from the National Association of Realtors lost 2.7 points during the month to a seasonally adjusted 102.1 (2001=100). The measure fell in three of four Census regions: West (-8.9 percent), Midwest (-1.8 percent), and South (-1.1 percent). Contract signing activity edged up 0.7 percent in the Northeast. The PHSI has fallen 6.7 percent over the past year (this was the 10th consecutive month with a negative 12-month comparable), with declines in all four Census regions: West (-15.3 percent), Midwest (-4.9 percent), South (-4.6 percent), and Northeast (-2.9 percent).

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 24, 2018, First-Time Claims, seasonally adjusted): 234,000 (+10,000 vs. previous week; -4,000 vs. the same week a year earlier). 4-week moving average: 223,250 (-7.5% vs. the same week a year earlier).
Agricultural Prices (October 2018, Prices Received by Farmers): -3.5% vs. September 2018, -3.0% vs. October 2017.
FHFA House Price Index (September 2018, Purchase-Only Index, seasonally adjusted): +0.2% vs. August 2018, +6.0% vs. September 2017.
Case Shiller Home Price Index (September 2018, 20-City Index, seasonally adjusted): +0.3% vs. August 2018, +5.1% vs. September 2017.
FOMC Minutes

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

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.