Q4 GDP Revised Upward, Consumer Confidence Further Firms. What We Learned During the Week of March 27 – 31

The U.S. economy ended 2016 a bit stronger than previously thought, while consumer sentiment continued to brighten for many Americans during March. Here are the 5 things we learned from U.S. economic data released during the week ending March 31.

#1The “final” revision to Q4 2016 GDP indicates a slightly healthier economy that previously believed. The Bureau of Economic Analysis now places the seasonally adjusted annualized growth rate of the Gross Domestic Product (GDP) at a solid, if not particularly great, +2.1 percent. This was an improvement from the 1.9 percent increase previously reported over the past two months, mainly the result of higher estimates for personal spending and private inventory accumulation. What did not change was that the GDP components that positively contributed to economic growth during the quarter were personal consumption expenditures (adding 240-basis points to GDP growth), the change in private inventories (+101-basis points), residential fixed investment (+35-basis points), nonresidential fixed investment (+11-basis points), and government expenditures (+3-basis points). Holding back GDP growth were a rise in imports (costing 127-basis points in GDP growth) and a decline in exports (costing 55-basis points in GDP growth). Meanwhile, corporate profits inched up 0.5 percent during Q4 to a seasonally adjusted annualized rate of $2.150 trillion (+9.3 percent vs. Q4 2015). We will get the first estimate of Q1 2017 GDP on April 28.

#2“Real” personal spending slipped for a second straight month. The Bureau of Economic Analysis reports that personal consumption expenditures (PCE) adjusted for inflation (using 2009 chained dollars) inched down 0.1 percent during February, leaving the measure of consumer spending 2.6 percent above that of a year earlier. Real spending on goods increased 0.1 percent during the month, with expenditures on durable goods off 0.1 percent and that on nondurables up 0.1 percent. Moderate winter weather lowered demand for utilities, which led to a 0.1 percent decline in spending on services. Over the past year, real spending on goods has grown 4.4 percent while that on services was up 1.8 percent. Without price adjustments, personal spending increased 0.1 percent during the month, funded by a 0.4 percent increase in nominal personal income. Disposable personal income grew 0.3 percent, with the gain shrinking to 0.2 percent after adjustments for inflation. Real disposable income was 2.3 percent above that of February 2016. The saving rate grew by 2/10ths of a percentage point to +5.6 percent. Finally, inflation moves ever slowly closer to the Federal Reserve’s two percent target rate. The PCE deflator, a measure of inflation, grew 0.1 percent during February and was up 2.1 percent from a year earlier. Net of energy and food, the PCE deflator increased 0.2 percent during February with a 12-month comparable of +1.8 percent.GDP-Growth-2013-2016-033117

#3Consumers grew more confident during March. The Conference Board’s Consumer Confidence Index surged 9.5 points during the month to a seasonally adjusted reading of 125.6 (1985 = 100). This was measure’s best reading in more than 16 years. Survey respondents’ views of both current and future business conditions improved significantly from February, with the present conditions index adding 9.7 points to 143.1 and the expectations index rising by 9.9 points to 143.1. A closer glance at the data finds 32.2 percent of respondents characterizing current business conditions as “good” (versus 12.9 percent saying they were “bad”) while 31.7 percent claimed that jobs were “plentiful” (versus 19.5 percent saying they were “hard to get”). The press release noted that “consumers feel current economic conditions have improved over the recent period, and their renewed optimism suggests the possibility of some upside to the prospects for economic growth in the coming months.”

While the University of Michigan’s Index of Consumer Sentiment added 6/10ths of a point to a seasonally adjusted reading of 96.9 (1966Q1 = 100), the press release noted a sharp partisan divide in views of economic conditions. “Democrats expect an imminent recession, higher unemployment, lower income gains, and more rapid inflation, while Republicans anticipate a new era of robust growth in incomes, job prospects and lower inflation.” Only a quarter of Democrats expect their personal finances will improve over the next five years, compared to 83 percent of Republicans who are anticipating the same. Two-thirds of Democrats expect “renewed economy-wide downturns” while only 13 percent of Republicans fear of the same. During the month, the current conditions index added 1.7 points to a reading of 113.2 (+7.2 percent versus March 2016) while the expectations index held steady at 86.5 (+6.1 percent versus March 2016).

#4Pending home sales sharply increased in February. The National Association of Realtors’ Pending Home Sales Index jumped 5.5 percent during the month to a reading of 112.3 (2001 = 100). This was up 2.6 percent from a year earlier and the second-highest reading since 2006 (the highest reading having occurred last April). The index, which measures the number of contracts signed to purchase a previously owned home, grew during the month in all four Census regions: Midwest (+11.4 percent), South (+4.3 percent), Northeast (+3.4 percent), and West (+3.1 percent). The press release links the rise in the index to “[t]he stock market’s continued rise and steady hiring in most markets,” along with moderate winter weather bringing homebuyers into the market.

#5Agricultural prices rose in February. The U.S. Department of Agriculture reports that its prices received by farmers index increased 6.1 percent during the month to a reading of 91.7 (2011 = 100). This was 0.9 percent below the February 2016 reading. Crop prices jumped 10.0 percent during the month, led by significant prices increases for vegetables/melons, fruit/tree nuts, and grains/oilseed. The measure has risen 3.5 percent over the past year. Prices for livestock production slipped 0.5 percent during February and was 3.2 percent below their year ago readings. Prices fell for poultry/eggs and dairy but increased for meat animals.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 25, 2017, First-Time Claims, seasonally adjusted): 258,000 (-3,000 vs. previous week; -17,000 vs. the same week a year earlier). 4-week moving average: 254,250 (-5.1% vs. the same week a year earlier).

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

Home Sales Stay Strong, But Tight Supplies Restrain the Market. What We Learned During the Week of March 20 – 24

Both existing and new home sales stayed near their post-recession highs in February while aircraft carried the day for durable goods orders. Here are the 5 things we learned from U.S. economic data released during the week ending March 24.

#1Rising prices and tight supplies weighed a bit on February existing home sales. The National Association of Realtors reports that sales of previously owned homes slowed 3.7 percent during February to a seasonally adjusted annualized rate of 5.48 million units. Even with the month-to-month slowdown in transactions, sales were 5.4 percent above their February 2016 pace and near their post-recession peak. Sales declined during the month in three of four Census regions: Northeast (-13.8 percent), Midwest (-7.0 percent), and West (-3.1 percent). Sales edged up 1.3 percent in the South during February. All four Census regions enjoyed positive 12-month comparables, with sales up 9.6 percent in the West, 5.9 percent in the South, 2.6 percent in the Midwest, and 1.5 percent in the Northeast. While inventories of unsold homes grew 4.2 percent to 1.75 million units, this was not only 6.2 percent below February 2016 inventories but also represented a ludicrously tight 3.8-month supply. Thus, it is not a surprise that the median sales price of $228,400 was up 7.7 percent from the same time a year ago. NAR’s press release stressed that that foot traffic of prospective buyers was high, but warned that a tight supply of affordable homes was “pushing up price growth and pressuring the budgets of prospective buyers.”

#2Meanwhile, new home sales heat up to their fastest pace since last summer. The Census Bureau estimates new home sales grew 6.1 percent during February to a seasonally adjusted annualized rate of 592,000 units. This was 12.8 percent above February 2016 new home sales and represented the best month for new home sales since last July. Sales grew during the month in three of four Census regions: Midwest (+30.9 percent), West (+7.5 percent), and South (+3.6 percent). There were 266,000 new homes available for sale at the end of February, up 1.5 percent from January and 9.9 percent from February 2016. This represented a still tight 5.4-month supply.Tight-Home-Supplies-032417

#3Durable goods orders jumped in February, but core business investment did not. Per the Census Bureau, new durable goods orders increased 1.7 percent during the month to a seasonally adjusted $235.4 billion. Durable goods orders during the first two months of 2017 totaled $430.5 billion, 1.6 percent above that for the same two months a year earlier. The headline number for February wwss pulled up by a 47.6 percent gain in orders for civilian aircraft. Aircraft orders tend to move sharply up and down each month…in fact, defense aircraft orders fell 12.8 percent during February. Overall transportation goods orders increased 4.3 percent during the month (motor vehicles & parts: -0.8%). Net of transportation goods, durable goods orders rose 0.4 percent during the month with orders during the first two months of 2017, 2.7 percent above that of the first two months of 2016. Orders increased in February for primary metals (+2.3 percent), electrical equipment/appliances (+2.2 percent), computers (+1.6 percent), and machinery (+0.1 percent). Falling during the month were orders for communications equipment (-3.8 percent) and fabricated metal products (-0.4 percent). Also declining were new orders for nondefense, non-aircraft capital goods (a proxy for business investment), slipping 0.1 percent during February. Orders for these goods during the first two months of 2017 were 1.3 percent above that for the first two months of 2016.

#4At least according to one measure, economic activity had improved to its fastest rate in more than two years. The Chicago Fed National Activity Index (CFNAI) jumped 36-basis points during February to a reading of +0.34. The measure is an average of 85 economic indicators, 55 of which had made a positive contribution to the CFNAI during February. All four broad categories of indicators showed improvement from their January readings, led by employment-related indicators (gaining 15-basis points to a contribution of +0.21). Also improving during the month were indicators related to sales/orders/inventories (up nine-basis points to +0.08), personal consumption/housing (up eight-basis points to -0.03), and production-related indicators (up five-basis points to +0.09). The CFNAI’s three-month moving average hit its highest reading since December 2014 with an 18-basis point gain to +0.25. A moving average for the moving average above a reading of 0.00 is indicative of economic growth greater than its historical average.

#5February’s gains in payrolls occurred largely in 11 states. The Bureau of Labor Statistics reports that 11 states enjoyed “statistically significant” nonfarm payroll increases during February, led by Illinois (+25,600), Ohio (+15,200), and New Jersey (+12,600). Payrolls essentially held the same in the other 39 states and the District of Columbia. Versus a year earlier, payrolls were up 31 states (led by California, Florida, and Texas), down in two states (Wyoming and Alaska), and held steady in 17 states and in the District of Columbia.  Meanwhile, the unemployment rate fell in ten states during February, with the largest month-to-month declines in West Virginia (down 4/10ths of a point to 5.2 percent), Mississippi (down 3/10ths of a point to 5.2 percent), Oregon (down 3/10ths of a point to 4.0 percent), and Maine (down 3/10ths of a point to 3.2 percent). The only state with a statistically significant increase in its unemployment rate during the month was Massachusetts (up 2/10ths of a point to 3.4 percent).

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 18, 2017, First-Time Claims, seasonally adjusted): 258,000 (+15,000 vs. previous week; -8,000 vs. the same week a year earlier). 4-week moving average: 240,000 (-8.1% vs. the same week a year earlier).
FHFA House Price Index (January 2017, Purchase-Only Index, seasonally adjusted): Unchanged vs. December 2016, +5.7% vs. January 2016.

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

More Homes Featured Sold Signs in January: What We Learned During the Week of February 20 – 24, 2017

Home sales held firm in January, but overall economic activity may have slightly softened. Here are the 5 things we learned from U.S. economic data released during the week ending February 24.

#1Existing home sales hit another post-recession high in January. The National Association of Realtors reports that sales of previously owned homes increased 3.3% during the month to a seasonally adjusted annualized rate of 5.69 million homes (+3.8% vs. January 2016). Existing home sales have not been this strong since February 2007. Sales grew in the same 3 of 4 Census regions on both a month-to-month and year-to-year basis. Sales only slowed in the Midwest (-1.5% vs. December 2016, -0.8% vs. January 2016). As has been the trend in recent years, inventories of previously owned homes remained very tight during the month with only 1.69 million homes available for sale. While inventories had grown 2.4% during the month, it was off 7.1% from January 2016 and the equivalent to a ridiculously tight 3.6 month supply of homes. The median sales price blossomed 7.1% over the past year to $228,900. The press release links the robust housing market to “strong hiring and improved consumer confidence at the end of last year” but also warns tight inventories were “deteriorating affordability conditions.”home-sales-jan17-022517

#2New home sales rebounded in January. The Census Bureau estimates new home sales grew 3.7% during the month to a seasonally adjusted annualized rate of 555,000 units. This had followed a 7.0% drop in December and left new home sales 5.5% above its January 2016 sales pace. Sales grew during the month in 3 of 4 Census regions: Northeast (+15.8%), Midwest (+14.8%), and the South (+4.3%). Sales slowed 4.4% in the West. 3 of 4 regions also had positive 12-month comparables, with the negative outlier being in the South (-1.0% vs. January 2016). Inventories of new homes have been gradually growing in recent months, expanding 3.5% in January to 265,000 units (+10.9% vs. January 2016). This was equivalent to 5.7 month supply. The median sales price of $312,900 was 7.5% above that of a year earlier.

#3It appears the rate of economic growth slowed during January. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic measures, was at -0.05 during January, down 23-basis points from the previous month. An index reading of 0.00 indicates economic growth at its historic rate, so January’s slightly negative CFNAI reading signified slower than normal growth. Among the 4 major categories of components to CFNAI, those associated with production made the biggest negative contribution to the overall index. Production-related indicators made a contribution to CFNAI of -0.07, down 25-basis points from its December 2016 contribution. Indicators tied to personal consumption and housing cost 5-basis points to the CFNAI, down from a -0.03 contribution a month earlier. Meanwhile, making small positive contributions to the CFNAI were those associated with employment (+0.06, up 7-basis points from a month earlier) and sales/orders/inventories (+0.02, down 2-basis points from December). The 3-month moving average slipped by a basis point to -0.03. A year earlier, this moving average was at -0.19.

#4Consumer sentiment slipped but remained solid in February. The Index of Consumer Sentiment from the University of Michigan lost 2.2 points during the month to a seasonally adjusted 96.3 (1966Q1 = 100). This was up 6/10ths of a point from the preliminary February reading reported several weeks ago and up 4.6 points from a year earlier. February’s decline was the product of lowered expectations for the future—the expectations index shed 3.8 points to a reading of 86.5 (February 2016: 81.9). The current conditions index edged up 2/10ths of a point to 111.5 (February 2016: 106.8). The press release noted that the 3-month moving average was at its highest point “in more than a decade” but also said that there was a significant partisan split in results with Democrats expecting a recession and Republicans anticipating “renewed robust economic growth.”

#5First-time jobless claims remain at 40+ year lows. Per the Department of Labor, there were 244,000 first-time claims made for unemployment insurance benefits during the week of February 18. This was up 6,000 from the previous week but 20,000 under the year ago count. The 4-week moving average of jobless claims of 241,000 was 9.8% below the moving average of a year earlier and its lowest point since July 21, 1973. In all, 2.508,785 people were receiving some form of unemployment insurance benefits during the week ending February 4 (-7.4% vs. a year earlier).

Other U.S. economic data released over the past week:
FHFA House Price Index (December 2016, Purchase-Only Index, seasonally adjusted): +0.4% vs. November 2016, +6.2% vs. December 2015.
FOMC meeting minutes

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