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.

Economic Activity Eased During the End of Summer: September 25 – 29

Personal spending and overall economic activity both slowed in August. Here are the five things we learned from U.S. economic data released during the week ending September 29.

#1Personal spending paused in August. “Real” personal consumption expenditures (PCE) slipped 0.1 percent on a seasonally adjusted basis during the month, the first monthly decline in the inflation-adjusted measure of consumer spending since January. Real spending on goods fell 0.5 percent (also its largest drop since January), as spending on durable goods dropped 1.0 percent while that on nondurables slowed 0.2 percent. Real spending on services edged up 0.1 percent. Over the past year, real PCE has grown 2.5 percent, with 12-month comparables of +3.1 percent and +2.2 percent for spending on goods and services, respectively. The same Bureau of Economic Analysis report finds nominal (not adjusted for inflation) personal income had increased 0.2 percent during August while nominal disposable income grew 0.1 percent and real disposable income slipped 0.1 percent. Real disposable income has risen 1.2 percent over the past year. The personal saving rate was at +3.6 percent, matching July’s rate. The report’s closely watched measure of inflation—the PCE deflator—grew 0.2 percent during the month and had increased 1.2 percent over the past year. Net of energy and food, the core PCE deflator inched up 0.1 percent during the month and had risen 1.3 percent since August 2016. Both 12-month comparables were well below the Federal Reserve’s two-percent interest rate target.Change in Personal Consumption Expenditures 2016-7 092917

#2There was another small upward revision to Q2 economic growth. The Bureau of Economic Analysis upgraded its estimate of second-quarter 2017 growth in the Gross Domestic Product (GDP) from a 3.0 percent seasonally adjusted annualized gain to a 3.1 percent increase (the original Q3 estimate had a 2.6 percent increase). The small upward revision was the result of higher than previously believed levels of private sector inventory accumulation. This was the fastest month of economic growth since the first quarter of 2015. Positive contributors to Q3 GDP growth were personal consumption expenditures (PCE, adding 224-basis points to GDP growth), nonresidential fixed investment (+54 basis points), exports (+21-basis points), federal government spending (+13-basis points), and the change in private inventories (+12-basis points). Dragging down GDP growth were fixed residential investment (housing, costing 30-basis points in GDP growth), imports (-22-basis points), and state/local government expenditures (-16-basis points). Corporate profits from current production edged up 0.7 percent during the quarter to a SAAR of $2.123 trillion.

#3However, economic data suggest economic growth slowed in August. The Chicago Fed National Activity Index (CFNAI) fell by 34-basis points to a reading of -0.31. The CFNAI is a weighted index of 85 economic measures indexed so that a reading of 0.00 would be indicative of economic growth at the historical average. Hence, August’s reading is consistent with below average economic activity. This was the CFNAI’s lowest reading since May 2016. Only 35 of the 85 index components made a positive contribution to the CFNAI, but 45 components improved from their July’s readings. Among the four broad categories of components, two made negative contributions to the CFNAI: those associated with production (-0.36 contribution) and personal consumption/housing (-0.06). Boosting the CFNAI were components tied to sales/orders/inventories (+0.06) and employment (+0.05). The CFNAI’s three-month moving average was negative for the first time since March as it shed four-basis points to a reading of -0.04.

#4Consumer sentiment chilled in the autumn air of September. The Conference Board Consumer Confidence Index inched back 6/10ths of a point to a seasonally adjusted reading of 119.8 (1985=100). The index of current conditions fell back by 2.3 points to 146.1 while the expectations index added a half point to 102.2. A slightly smaller percentage of survey respondents characterized current business conditions as being “good” (33.9 percent, off 6/10th of a percentage point) while a few more said that they were “bad” (up 6/10ths of a percentage point to 13.8 percent). Twice as many respondents expected business conditions would improve over the next six months than believe they will deteriorate (19.8 percent versus 9.9 percent). The press release noted that sentiment weakened in both hurricane impacted Texas and Florida, but also that the overall results indicate “the economy will continue expanding at its current pace.”

The Index of Consumer Sentiment from the University of Michigan lost 1.7 points to a seasonally adjusted reading of 95.1 (1966Q1=100). Whereas the measure remained 3.9 points above its September 2016 reading, it has stayed within a tight four-point range since February. The current conditions index added 8/10ths of a point to 111.7 (September 2016: 104.2) while the expectations index shed 3.3 points to 84.4 (September 2016: 82.7). The press release stated that confidence has remained resilient despite “a long list of issues that could have derailed the overall level of consumer confidence, including the unprecedented partisan divide, North Korea, Charlottesville, and the hurricanes.” The release also noted that the results were consistent with consumer spending growing “2.6% in 2017 and in the 1st half of 2018.”

#5Durable goods orders rebounded in August. The Census Bureau estimates new orders for manufactured durable goods grew 1.7 percent during the month to a seasonally adjusted $232.8 billion. Nearly every month, the headline number is heavily influenced by transportation goods orders (and, specifically, aircraft orders), which tend to be quite volatile month-to-month. New orders for civilian aircraft surged 44.8 percent, leading to a 4.9 percent overall gain in transportation goods (new orders for automobiles increased 1.5 percent). Net of transportation goods, new orders grew 0.2 percent during the month, which included gains for communications equipment (+4.0 percent), machinery (+0.3 percent), primary metals (+0.3 percent). On the flipside, orders fell for computers (-1.3 percent), fabricated metal products (-0.4 percent), and electrical equipment/appliances (-0.1 percent). New orders for non-defense durable goods gained 2.2 percent during August while those of non-defense, non-aircraft capital goods (a proxy for business investment) rose 0.4 percent. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 23, 2017, First-Time Claims, seasonally adjusted): 272,000 (+12,000 vs. previous week; +19,000 vs. the same week a year earlier). 4-week moving average: 277,750 (+8.9% vs. the same week a year earlier).
New Home Sales (August 2017, New Residential Sales, seasonally adjusted annualized rate): 560,000 (-3.4% vs. July 2017, -1.2% vs. August 2016).
Pending Home Sales (August 2017, Index (2001=100), seasonally adjusted): 106.3 (-2.6% vs. July 2017, -2.6% vs. August 2016).
Agricultural Prices (August 2017, Prices Received by Farmers (Index: 2011=100)): 93.4 (-2.0% vs. July 2017, +4.1% vs. August 2016).

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

Inventories and Prices Impair Home Sales: August 21 – 25

Tight inventories were hampering home sales in July. Here are the five things we learned from U.S. economic data released during the week ending August 25.

#1Existing home sales slipped in July as inventories remained tight. The National Association of Realtors tells us that existing home sales slowed 1.3 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.44 million units. This was 2.1 percent above the annualized sales rate of a year earlier. Sales grew during July in two Census regions—West (+5.0 percent) and South (+2.2 percent)—but fell in both the Northeast (-14.5 percent) and Midwest (-5.3 percent). Two regions also have positive 12-month sales comparables: West (+5.0 percent) and South (+3.6 percent). Inventories of unsold homes remained very tight, with only 1.92 million homes available for sale at the end of July. This was down 1.0 percent from June, 9.0 percent from a year earlier, and the equivalent to a mere 4.2 month supply. NAR’s press release notes that “the negative effect of not enough inventory to choose from and its pressure on overall affordability [have] put the brakes on what should’ve been a higher sales pace.”Existing and New Home Sales July17-082517.png

#2New home sales also dropped during July. Per the Census Bureau, sales of new single-family homes were at a seasonally adjusted annualized rate (SAAR) of 571,000 units. This was down 9.4 percent from June and off 8.9 percent from the same month a year earlier. Sales fell in three in four Census regions: Northeast (-23.8 percent), West (-21.3 percent), and South (-4.1 percent). New home sales increased 6.2 percent in the Midwest. Similarly, three of four Census regions have experienced year-to-year sales declines, including the Northeast (-13.5 percent), Midwest (-12.7 percent), and South (-11.7 percent). New home sales were 1.7 percent above their July 2016 rate. Inventories of new homes grew 1.5 percent to a seasonally adjusted 276,000 units. This translated into a 5.8 month supply of new homes on the market. As a result, the median sales price of new homes sold during the month—$313,700—was 6.3 percent above that of a year earlier.

#3The pace of economic expansion slowed during July. The Chicago Fed National Activity Index (CFNAI) shed 17-basis points during the month to slip to a negative -0.01 reading. This was the third time over the past five months in which the CFNAI was negative, indicative of the U.S. economy growing slower than its historical average. The CFNAI is a weighted average of 85 economic measures. During July, 42 of the measures made a positive contribution to the CFNAI during July. Among the four broad categories of economic measures, only those related to employment made a positive contribution (adding nine basis points to the index). Weighing on the index were components associated with consumption/housing (costing six basis points), production (costing two basis points), and sales/orders/inventories (costing a basis point). The CFNAI’s three-month moving average, with smooths some of the month-to-month volatility in the index, lost 14-basis points during the month to -0.05. This was the moving average’s lowest reading since March.

#4A sharp decline in airplane orders weighed heavily on durable goods orders in July. New orders for manufactured durable goods slumped 6.8 percent to a seasonally adjusted $229.2 billion, according to the Census Bureau. This was the largest decline in durable goods orders in almost three years. The drop was partially the product of new orders for civilian aircraft tumbling 70.7 percent (note that aircraft order data tend to be very volatile month-to-month), contributing to 19.0 percent decrease in transportation goods orders (also not helping was a 1.2 percent fall in new orders for motor vehicles). Net of transportation goods, new durable goods orders gained 0.5 percent to $154.8 billion. Rising during the month were orders for electrical equipment/appliances (+2.6 percent), computers/electronics (+1.6 percent), and fabricated metal products (+1.0 percent). New orders fell, however, for machinery (-1.4 percent). A proxy for core business investment—civilian non-aircraft capital goods orders—gained 0.4 percent. Shipments grew for a third straight month (+0.4 percent), unfilled order lost ground for the third time in four months (-0.3 percent), and inventories expanded for the 12th time in 13 months (+0.3 percent).

#5Home prices continue to rise far more quickly than the general rate of inflation. The Federal Housing Finance Agency’s purchase-only Home Price Index edged up 0.1 percent during June and has risen by 6.5 percent over the past year. The measure of prices of homes that have been purchased at least twice (hence a repeat purchase index) gained in five of nine Census regions during the month, led by the East South Central (+1.3 percent) and Pacific (+0.7 percent) regions. Prices held firm in the Middle Atlantic but fell in three regions: West South Central (-0.5 percent), South Atlantic (-0.2 percent), and East North Central (-0.1 percent). All nine Census regions have positive 12-month comparables, with prices growing by the largest percentage over the past year in the Pacific (+9.8 percent), Mountain (+7.9 percent), East South Central (+7.1 percent) regions.

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 19, 2017, First-Time Claims, seasonally adjusted): 234,000 (+2,000 vs. previous week; -26,000 vs. the same week a year earlier). 4-week moving average: 237,750 (-9.4% vs. the same week a year earlier).
Mortgage Delinquencies (2017 Q2, Delinquency Rate of Outstanding Mortgages, seasonally adjusted): 4.24% (vs. 2017Q1: 4.71%, vs. 2016Q2: 4.66%).
Temporary and Contract Workers (2017Q2, Average Number of Temporary and Contract Workers per week): 3.13 million workers (+1.9% vs. 2017Q1, -1.4% vs. 2016Q2).

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