A Robust Start to the Holiday Shopping Season: December 16 – 20

Consumer spending and sentiment were solid in November. Here are the five things we learned from U.S. economic data released during the week ending December 20.

#1Consumer spending signaled strength in November. The Bureau of Economic Analysis estimates real personal consumption expenditures (PCE) grew 0.3 percent on a seasonally adjusted basis during the month, its largest increase since July. Spending on goods increased 0.5, split between gains for durables and nondurables of +1.2 percent and 0.1 percent, respectively. (It is worth noting that just last week, Census Bureau data pointed to modest retail sales during the same month.) Expenditures on services crept up 0.2 percent. Nominal (not inflation-adjusted) PCE rose 0.4 percent in November, funded by 0.5 percent gains for both nominal personal income and nominal disposable income. Real disposable income expanded 0.4 percent. The savings rate edged up 1/10th of a point to 7.9 percent. Over the past year, real personal spending has risen 2.4 percent funded by a 3.1 percent jump in real disposable income.

#2Manufacturing output grew for the second time in five months in November. The Federal Reserve estimates manufacturing production jumped 1.1 percent during the month. Output of durable goods surged 2.2 percent, boosted by a post-GM strike rise in automobile manufacturing and sizable increases for both primary metals and computers/electronics. Nondurable goods output grew 0.1 percent. Overall industrial production gained 1.1 percent. Mining output slipped 0.2 percent as gas/oil drilling slowed. Cold weather in parts of the U.S. led to a 2.9 percent rise in utility output. Even with their November gains, both overall industrial production and manufacturing output have declined 0.8 percent over the past year.

#3The latest revision to Q3 GDP has the U.S. economy growing at a moderate rate. The third estimate of Q3 Gross Domestic Product keeps the seasonally adjusted annualized growth rate at a good but not great +2.1 percent. The Bureau of Economic Analysis’ revision reflects higher than previously believed levels of consumer spending and business investment, offset by lower levels of inventory accumulation. The only sectors of the economy making positive contributions to GDP growth were consumer spending, government spending, fixed residential investment, and exports. The same report finds corporate profits slipping 0.2 percent during the quarter. We will see our first snapshot of Q4 GDP on January 30.

#4Employers continued having difficulty finding people to fill open jobs. The Bureau of Labor Statistics reports that there were a seasonally adjusted 7.267 million open jobs at the end of October, up 235,000 for the month but off by 326,000 from a year earlier (but still near a record high for the data series). (By comparison, the BLS estimates that there were “only” 5.855 million unemployed adults during the same month.) Private-sector employers had 5.515 million open jobs, down 6.2 percent versus October 2018. Employers were unable to fill these jobs as hiring declined by 213,000 to 5.764 million (-1.9 percent versus October 2018). 5.636 million people departed their jobs, down 162,000 from September but essentially matching that of a year earlier. This included a small rise in workers voluntarily quitting their jobs (up 41,000 to 3.512 million, +1.2 percent versus October 2018). Meanwhile, the count of layoffs plummeted by 198,000 to 1.769 million (-4.6 percent versus October 2018).

#5Consumer confidence ends 2019 on a high note. The December Index of Consumer Sentiment reading of 99.3 (seasonally adjusted), essentially matched the preliminary mark reported a few weeks earlier and was up by 2.5 points from November and a full point over the previous year. The University of Michigan also notes that its current conditions index jumped 3.9 points to 115.5 (December 2018: 116.1) while the expectations index added 1.6 points to 88.9 (December 2018: 87.0). The press release stated that the impeachment hearings “had a barely noticeable impact on economic expectations,” with only two percent of survey respondents mentioning it.

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 14, 2019, First-Time Claims, seasonally adjusted): 234,000 (-18,000 vs. previous week; +14,000 vs. the same week a year earlier). 4-week moving average: 225,500 (+0.7% vs. the same week a year earlier).
Leading Indicators (November 2019, Index (2016=100)): 111.6 (Unchanged vs. October 2019, +0.1% vs. November 2018).
Existing Home Sales (November 2019, Sales, seasonally adjusted annualized rate): 5.35 million (-1.7% vs. October 2019, +2.7% vs. November 2018).
Housing Starts (November 2019, Housing Starts, seasonally adjusted annualized rate): 1.365 million units (+3.2% vs. October 2019, +13.6% vs. November 2018).
Housing Market Index (December 2019, Index (>50=Greater Percentage of Homebuilders View the Housing Market as Being “Good” versus Being “Poor,” seasonally adjusted): 76 (vs. November 2019: 71, vs. December 2018: 56).
State Employment (November 2019, Nonfarm Payrolls, seasonally adjusted): Vs. October 2019: Payrolls grew in 6 states, decreased in 1 state, and were essentially unchanged in 43 states and the District of Columbia. Vs. November 2018: Payrolls grew in 25 states and were essentially unchanged in 25 states and the District of Columbia.

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

Consumers Check Their Spending: November 25 – 29

Personal spending and overall economic activity chilled in the fall weather. Here are the five things we learned from U.S. economic data released during the week ending November 29.

#1Personal spending reflected caution in October. The Bureau of Economic Analysis indicates real personal consumption expenditures (PCE) increased 0.1 percent on a seasonally adjusted basis during the month, its smallest increase since February. Real spending on goods slumped 0.2 percent, pulled down by a 0.8 percent drop for durable goods. Expenditures on both nondurable goods and services each grew 0.2 percent. Nominal (not inflation-adjusted) PCE rose 0.3 percent, even as nominal personal income held steady and nominal personal income slipped 0.1 percent. Real disposable income dropped 0.3 percent. As a result, the savings rate shed 3/10ths of a point to +7.8 percent, its lowest point since July. Over the past year, real PCE has risen 2.3 percent, while real disposable income has grown 2.8 percent.Real Personal Consumption Expenditures: January - October 2019

#2The U.S. economy grew more robustly in Q3 than previously thought. The Bureau of Economic Analysis’ second estimate of Q3 Gross Domestic Product (GDP) now places the quarter’s economic expansion at a seasonally adjusted annualized rate (SAAR) +2.1 percent, up from the previously reported 1.9 percent gain. The upward revision was due to higher than previously reported levels of private inventory accumulation, business investment, and personal spending. Of the major components of the economy, only those tied to personal spending, government spending, fixed residential investment, and private inventory accumulation led to GDP growth. The same report finds Q3 corporate profits were soft, edging up by a mere 0.2 percent during the quarter and off 0.8 percent from a year earlier. The BEA will update its Q3 GDP and corporate profits data once again on December 20. 

#3…But the rate of economic expansion appears to have decelerated sharply in October. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic data points, lost 36-basis points during the month to a reading of -0.71. The CFNAI’s three-month moving average, which removes some of the month-to-month volatility, fell to its lowest mark since May with a ten-basis point loss to -0.31. The negative reading does not imply the U.S. economy contracted during the month, however, as the moving average remained above -0.70 (the marker for negative growth). Still, only 27 of the 85 economic indicators made a positive contribution to the CFNAI, while the other 58 measures had a negative impact. Indicators linked to production and employment had the most substantial negative impact on the CFNAI in October.

#4Durable goods orders showed some life in October. The Census Bureau estimates new orders for manufactured durable goods grew 0.6 percent during the month to a seasonally adjusted $248.7 billion. Transportation goods orders rose 0.7 percent, boosted by increases for both defense (+18.1 percent) and civilian (+10.7 percent) aircraft. Net of transportation goods, core durable goods orders gained 0.6 percent. Rising were orders for fabricated metal products (+1.8 percent), machinery (+1.3 percent), and computers/electronics (+0.7 percent). Orders slowed for electrical equipment/appliances (-1.7 percent) and primary metals (-1.4 percent). Signaling some vigor was business investment as civilian capital goods orders net of aircraft grew 1.2 percent in October.

#5New home sales slipped in October. The Census Bureau reports sales of new single-family homes decreased 0.7 percent during the month to a seasonally adjusted annualized rate of 733,000 units. Even with the decline, new home sales were 31.6 percent ahead of their year-ago pace. Sales grew during the month in two Census regions—West (+7.1 percent) and Midwest (+4.2 percent)—but slowed in the Northeast (-18.2 percent) and South (-3.3 percent). There were 322,000 new homes available for sale at the end of the month, up a modest 0.3 percent from September but off 3.3 percent from a year earlier. This was equivalent to a 5.3 month supply of homes on the market (versus a 7.2 month supply a year earlier).

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 23, 2019, First-Time Claims, seasonally adjusted): 213,000 (-15,000 vs. previous week; -21,000 vs. the same week a year earlier). 4-week moving average: 219,750 (-2.1% vs. the same week a year earlier).
Consumer Confidence Index (November 2019, Index (1985=100), seasonally adjusted): 125.5 (vs. October 2019: 126.1).
Pending Home Sales (October 2019, Index (2001=100), seasonally adjusted): 106.7 (vs. September 2019: 108.6; vs. October 2018: 102.2).
FHFA House Price Index (September 2019, Purchase-Only Index, seasonally adjusted): +0.6% vs. August 2019, +5.1% vs. September 2018.
Agricultural Prices (October 2019, Prices Received by Farmers): -2.6% vs. September 2019, -0.6% vs. October 2018.
Beige Book

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

Job Creation and Economic Expansion Trudge Along: October 28 – November 1

October employment and Q3 GDP data show growth, albeit at a tempered rate. Here are the five things we learned from U.S. economic data released during the week ending November 1.

#1Job creation slowed in October, hurt by a now-settled strike. The Bureau of Labor Statistics estimates nonfarm payrolls grew by a seasonally adjusted 128,000 during the month, down from the 180,000 created jobs in September. This report also includes substantial upward revisions to August and September payrolls totaling a combined 95,000 jobs. Weighing on the headline October number was the 41,600 decline in motor vehicle manufacturing jobs resulting from the now-settled General Motors strike. Private-sector employers added 131,000 workers, split between 157,000 added in the service sector and a drop in 26,000 jobs in the goods-producing side of the economy. Among the industries adding the most positions during the month were leisure/hospitality (+61,000), health care/social assistance (+34,200), and professional/business services (+22,000). Average weekly earnings of $969.39 represented a 2.7 percent gain over the past year.

A separate survey of households places the unemployment rate of 3.6 percent, up 1/10th of a point from September but still near a 50-year low. 325,000 people entered the labor force, leading to the labor force participation rate edging up 1/10th of a point to 63.3 percent. The same measure for adults aged 25 to 54 added 2/10ths of a point to 82.8 percent, its highest reading since August 2009. The median length of unemployment slipped 1/10th of a week to 9.3 weeks (October 2018: 9.4 weeks), but the count of part-time workers seeking a full-time job grew by 88,000 to 4.438 million (October 2018: 4.630 million). The U-6 series—the broadest measure of labor underutilization—inched up by 1/10th of a percentage point to 7.0 percent (October 2018: 7.5 percent).Unemployment Rate 2004-2019 110119

#2Economic growth slowed slightly during the summer. The Bureau of Economic Analysis’ first estimate of Gross Domestic Product (GDP) says the U.S. economy expanded at a seasonally adjusted annualized rate of 1.9 percent, just below Q2’s 2.0 percent growth rate. Pulling down Q3 economic activity were smaller increases in personal spending, government expenditures, and business investment. Contributing to Q3 GDP growth were, in declining order, personal spending (adding 193 basis points to GDP growth), government spending (+35 basis points), and residential fixed investment (+18 basis points). Dragging down economic activity, however, were business investment (costing 22 basis points in GDP growth), net exports (-8 basis points), and the change in private inventories (-5 basis points). The BEA will revise its Q3 GDP estimate twice over the next two months. 

#3A third (and probably final) rate cut by the Fed in 2019. The policy statement released following the past week’s Federal Open Market Committee meeting continued to characterize economic activity growing “at a moderate rate” and that the labor market “remains strong.” It also retained the observation that consumer spending was growing “at a strong pace” but also noted that exports and business investment were “weak.” As a result, a divided FOMC voted to cut the fed funds target rate by a quarter-point to a range between 1.5 and 1.75 percent. But it appears that the committee believes this is the final rate cut for now. Why? The statement no longer includes the line that the Fed would “act as appropriate to sustain” the economic expansion. Instead, it now says the FOMC would “continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.”

#4Personal spending grew moderately in September. The Bureau of Economic Analysis indicates that real personal consumption expenditures (PCE) increased 0.2 percent on a seasonally adjusted basis during the month, matching August’s gain. Spending on goods grew 0.4 percent, split between a 0.6 percent rise for durable goods and a 0.3 percent bounce for nondurables. Spending on services edged up 0.1 percent. Nominal PCE also grew 0.2 during September, funded by 0.3 percent increases for nominal personal income and both nominal and real disposable income. The savings rate rose by 2/10ths of a percentage point to +8.3 percent. Over the past year, real PCE has risen 2.6 percent, funded by 3.5 percent growth in real disposable income.

#5Manufacturing activity slowed in October. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, added a half-point during the month to a reading of 48.3. This was the third straight month in which the PMI was below 50.0, indicating a contraction in manufacturing sector economic activity. Three of five PMI components improved during the month: inventories (up 2.0 points), new orders (up 1.8 points), and employment (up 1.4 points). Losing ground were components tied to supplier deliveries (off 1.6 points) and production (off 1.1 points). Only five of 18-tracked manufacturing industries expanded in October, led by furniture, printing, and food/beverage/tobacco. The press release noted that “global trade remains the most significant cross-industry issue.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 26, 2019, First-Time Claims, seasonally adjusted): 218,000 (-5,000 vs. previous week; -1,000 vs. the same week a year earlier). 4-week moving average: 214,750 (-0.6% vs. the same week a year earlier).
Chicago Fed National Activity Index (September 2019, Index (0.00=Historical Economic Growth), seasonally adjusted): -0.45 (vs. August 2019: +0.15; September 2018: +0.06).
Conference Board Consumer Confidence (October 2019, Index (1985=100), seasonally adjusted): 125.9 (vs. September 2019: 126.3).
Construction Spending (September 2019, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.294 trillion (+0.5% vs. August 2019, -2.0% vs. September 2018.
Bankruptcies (12-month Period Ending September 30, 2019, Number of Business and Nonbusiness Filings): 776,674 (+0.4% vs. 12-month period ending September 30, 2018).
Case-Shiller Home Price Index (August 2019, 20-City Index, seasonally adjusted): Unchanged vs. July 2019, +2.0% vs. August 2018.
Agricultural Prices (September 2019, Prices Received by Farmers, not seasonally adjusted): -3.9% vs. August 2019, -1.6% vs. September 2018.

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