GDP Growth Downshifted in Q1: Week of April 23 – 27

Slower growth in consumer spending pulls back economic expansion during early 2018. Here are the five things we learned from U.S. economic data released during the week ending April 27.

#1The U.S. economic growth decelerated during Q1. The Bureau of Economic Analysis’ advance estimate of Gross Domestic Product (GDP) had the U.S. economy expanding at a seasonally adjusted annualized rate (SAAR) of +2.3 percent. While this was the 16th consecutive quarter of GDP growth, it was the most modest pace of economic expansion in a year. The biggest culprit was a slowdown in the growth rate of consumer spending, which contributed only 73-basis points to Q1 GDP growth after having added 275-basis points during the final three months of 2017. Most other GDP components made positive contributions: fixed nonresidential investment (+0.76), change in private inventories (+0.43), net exports (+0.20), and government expenditures (+0.20). The only component that did not make a positive contribution was fixed residential investment, which had made neither a positive or negative contribution. The BEA will release its estimate of Q1 GDP growth twice over the next two months.2018 Q1 GDP contributors-042718

#2Economic indicators point to the economy expanding at a slower rate in March. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic indicators, shed 88-basis points during the month to a reading of +0.10. Forty-four of the 85 economic indicators made positive contributions to the CFNAI. Only two of the four major categories of economic indicators made net positive contributions (those associated with production and sales/orders/inventories) while measures tied to employment and personal consumption/housing pulled down the headline index. Experiencing a far less significant decline was the CFNAI’s three-month moving average, losing four basis points to +0.27. A reading above 0.00 is indicators of economic growth greater than the historical average.

#3Sales of both existing and new homes increased in March. Sales of previously owned homes grew 1.1 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.60 million units, per the National Association of Realtors. This was 1.2 percent below the year-ago sales pace. Sales grew in the Northeast (+6.3 percent) and Midwest (+5.7 percent) but slowed in the West (-3.1 percent) and South (-0.4 percent). Inventories remained extraordinarily tight but improved during the month—the 1.67 million homes available for sale at the end of March was a 5.7 percent gain from the prior month but still 5.7 percent fewer than that of a year earlier and translated into a mere 3.6 month supply. The median sales price of $250,400 represented a 5.8 percent increase over the previous year. Despite the upturn in home sales activity, the press release noted the “woefully low” supply of homes that was causing prices to rise “above what some would-be buyers can afford.”

The Census Bureau estimates the seasonally adjusted annualized sales pace of new home sales was at 694,000 in March, up 4.0 percent for the month and 8.8 percent over the past year. Virtually all of the month-to-month gain occurred in the West, where new home sales surged 28.3 percent. The 301,000 new homes available for sale at the end of March matched that of February, was 13.2 percent larger than that of a year earlier and was the equivalent to a 5.2 month supply. The median sales price of new homes was $337,200 in March, up 4.8 percent from the same month a year earlier.

#4Two surveys paint slightly different (if still solid) pictures of consumer sentiment. The Conference Board’s Consumer Sentiment Index added 1.7 points during April to a seasonally adjusted 128.7 (1985=100), leaving the measure near its post-recession high achieved in February. The present conditions index added 1.5 points to 159.6 while the expectations index gained 1.9 points to 108.1. 35.2 percent of survey respondents characterized current business conditions as “good” while only 11.3 percent saw them as “bad.” Similarly, 38.1 percent of consumer perceive the availability of jobs as being “plentiful” while 15.2 percent see them as “hard to get.” The press release noted that only six percent of consumers were “expecting their incomes to decline over the coming months,” the lowest percentage saying so since December 2000.

Losing pace was the Index of Consumer Sentiment, as measured by the University of Michigan. The index shed 2.6 points during April to a seasonally adjusted 98.8 (1966Q1=100). This was a full point improvement from the preliminary April reading reported a few weeks earlier and left the measure 1.8 points ahead of its year-ago mark. The current conditions index dropped 6.3 points to 114.9 while the expectations index pulled back by 4/10ths of a point to 88.4. The press release noted the survey respondents mostly had positive opinions about the recently enacted tax reform policies but were more pessimistic about the effects of recently proposed import tariffs.

#5A surge in aircraft orders led to a jump in durable goods orders in March. The Census Bureau reports that new orders for manufactured durable goods surged 2.6 percent during the month to a seasonally adjusted $254.9 billion. This was the fourth increase in durable orders over the past five months. Civilian aircraft orders swelled 44.5 percent during March, leading to a 7.6 percent increase in overall transportation goods orders. Net of transportation goods, however, new orders were unchanged for the month. Also gaining during the month were new orders for primary metals (+1.4 percent), computer/electronic products (+1.3 percent), and electrical equipment/appliances (+0.1 percent). Falling were new orders for machinery (-1.7 percent) and nondefense capital goods net of aircraft (-0.1 percent). The latter is a proxy for business investment and has declined in three of the past four months.

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 21, 2018, First-Time Claims, seasonally adjusted): 209,000 (-24,000 vs. previous week; -43,000 vs. the same week a year earlier, and the fewest since December 1969). 4-week moving average: 229,250 (-6.0% vs. the same week a year earlier).
Case-Shiller Home Price Index (February 2018, 20-City Index, seasonally adjusted):  +0.7% vs. January 2018, +6.8% vs. February 2017.
FHFA House Price Index (February 2018, Purchase-Only Index, seasonally adjusted): +0.6% vs. January 2018, +7.2% vs. February 2017.
Agricultural Prices (March 2018, Prices Received by Farmers (Index (2011=100)): 94.9 (+4.5% vs. February 2018, +0.9%).

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.

Small Q4 GDP Revision, Consumers Take a Rest: February 26 – March 2

A modest downward revision to Q4 GDP growth while consumers slowed down in January. Here are the five things we learned from U.S. economic data released during the week ending March 2.

#1The U.S. economy grew at a slightly slower pace during Q4 than previously believed. The Bureau of Economic Analysis’ (BEA) second estimate of October-December 2017 Gross Domestic Product (GDP) has the U.S. economy expanding at a 2.5 percent seasonally adjusted annualized rate. This was just below the 2.6 percent gain reported a month ago and reaffirms the final three months of 2017 served as the slowest quarter of economic expansion since Q1 2017. GDP grew 2.3 percent for all of 2017, an improvement over the 1.5 percent growth rate for 2016 but below 2015’s 2.9 percent gain. The positive contributors to Q4 economic growth were personal spending (adding 258-basis points to GDP growth), exports (+84-basis points), nonresidential fixed investment (+82-basis points), government expenditures (+49-basis points), and residential fixed investment (+47-basis points). A 14 percent gain in imports produced a 197-basis point drag on Q4 GDP growth. BEA will revise its estimate of Q4 GDP growth once again later this month.GDP 2014-2017 030218

#2Consumers slowed down their spending in January, opting to put away more money. The Bureau of Economic Analysis (BEA) estimates “real” personal consumption expenditures (PCE) slipped 0.1 percent on a seasonally adjusted basis following gains of 0.2 percent and 0.5 percent during the two previous months. Pulling down the inflation-adjusted measure of spending was a sharp 1.6 percent decline in spending on durable goods. Nondurable goods spending was unchanged during the month while that on services eked out a 0.1 percent gain. Over the past year, real PCE has grown 2.7 percent, led by a 7.1 percent increase in durable goods spending, along with gains for nondurables and services of 2.9 percent and 2.0 percent, respectively. January’s pause in spending occurred even as real disposable personal income jumped 0.6 percent, in part reflecting the lowered federal tax withholding. Real disposable personal income has risen 2.3 percent over the past 12 months. Instead of driving more spending, the increased disposable income appears to have gone into the bank as the savings rate jumped by 7/10ths of a percentage point to +3.2 percent (its highest point since last August).

#3Durable goods orders declined in January. New orders for manufactured durable goods dropped 3.7 percent during the month to a seasonally adjusted $239.7 billion, per the Census Bureau. Plummeting were new orders for civilian aircraft (-26.4 percent) and defense aircraft (-45.6 percent), pulling down transportation goods orders 10.0 percent (motor vehicles orders edged up 0.1 percent). Net of transportation goods, new orders decreased 0.3 percent in January following gains of 0.7 percent and 0.4 percent in December and November, respectively. Rising during the month were orders for computers/electronic products (+0.6 percent) and fabricated metal products (+0.5 percent) while orders for primary metals (-0.9 percent), electrical equipment/appliances (-0.8 percent), and machinery (-0.4 percent). Orders for nondefense capital goods net of aircraft (a proxy of business investment) slowed for a second straight month with a 0.2 percent drop. Durable goods shipments grew for the eighth time in nine months (+0.2 percent) to $247.0 billion. Unfilled orders contracted for the fourth consecutive month with a 0.3 percent decrease to $1.141 trillion while inventories expanded for the 18th time in 19 months with a 0.3 percent increase to $408.5 billion.

#4Consumer confidence rises in February. The Conference Board’s Consumer Confidence Index jumped 6.5 points to a seasonally adjusted 130.8 (1985=100), the sentiment measure’s highest reading since November 2000. Improving during the month were measures for both current conditions (up 7.7 points to 154.7) and expected conditions (adding 5.7 points to 109.7). 35.8 percent of survey respondents characterize current business conditions as “good” versus only 10.8 percent seeing them as “bad.” 25.8 percent of respondents expect conditions will improve over the next six months versus a mere 9.4 percent expecting a deterioration. The press release said that “consumers remain quite confident that the economy will continue expanding at a strong pace in the months ahead.”

The Index of Consumer Sentiment from the University of Michigan jumped four full points to a seasonally adjusted reading of 99.7 (1966Q1=100), its second best reading since 2004. The same measure was at 96.3 a year earlier. The current conditions index added 4.4 points to 114.9 (February 2017: 111.5) while the expectations index added 3.7 points to 90.0 (February 2017: 86.5). The press release tied the strong sentiment to Americans’ “favorable assessments of jobs, wages, and higher after-tax pay.” Further, the group indicates that current levels of optimism suggest real personal spending will grow 2.9 percent during 2018.

#5New home sales slumped for a second straight month. The Census Bureau reports that new home sales fell 7.8 percent in January to a seasonally adjusted annualized rate (SAAR) of 593,000 units. This left new home sales 1.0 percent below its year-ago pace. Sales plummeted during the month in the Northeast (-33.3 percent) and the South (-14.2 percent) but gained in the Midwest (+15.4 percent) and West (+1.0 percent). Inventories of unsold new homes improved, growing 2.4 percent during the month to 301,000 homes. This was 15.3 percent above the year-ago inventory and translated into a 6.1 month supply. The median sales price of new homes sold has grown 2.5 percent over the past year to $323,000 

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 24, 2018, First-Time Claims, seasonally adjusted): 210,000 (-10,000 vs. previous week; -17,000 vs. the same week a year earlier). 4-week moving average: 220,500 (-8.0% vs. the same week a year earlier).
Chicago Fed National Activity Index (January 2018, Index (0.00=U.S. expanding at its historical rate, seasonally adjusted): +0.12 (down 2-basis points vs. December 2017, up 31-basis points vs. January 2017).
Pending Home Sales (January 2018, Index (2001=100), seasonally adjusted): 104.1 (vs. December 2017: 109.8, vs. January 2017: 108.7).
Vehicle Sales (February 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 17.08 million vehicles (-0.5% vs. January 2018, -2.1% vs. February 2017).
Construction Spending (January 2018, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.263 trillion (essentially unchanged vs. December 2017, +3.2% vs. January 2017).
ISM Report on Business—Manufacturing (February 2018, Purchasing Managers Index (>50=expanding Manufacturing Activity): 60.8 (vs. January 2018: 59.1, February 2017: 57.7).
FHFA House Price Index (December 2017, Purchase-Only Index, seasonally adjusted): +0.3% vs. November 2017, +6.5% vs. December 2016.
Case-Shiller Home Price Index (December 2017, 20-City Index, seasonally adjusted): +0.6% vs. November 2017, +6.3% vs. December 2016).
Agricultural Prices (February 2017, Prices Received by Farmers): -6.2% vs. December 2017, +0.2% vs. January 2017.

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