Data Points to Firm Economic Growth as 2017 Ends: December 18 – 22

Data points to solid business conditions during the final months of 2017. Here are the five things we learned from U.S. economic data released during the week ending December 22.  

#1Even with a small downward revision, Q3 was the best quarter for the U.S. economy more than 2.5 years. The Bureau of Economic Analysis’ third estimate of Q3 Gross Domestic Product (GDP) shows the U.S. economy expanded 3.2 percent during the three month period of July, August, and September. This was down 1/10th of a percentage point from the previous estimate reported a month earlier and followed a GDP gain of 3.1 percent during the Q2. Positive contributors to Q3 GDP growth were personal spending (adding 149-basis points to GDP growth), the change in private inventories (+79-basis points), fixed nonresidential investment (+40-basis points), net exports (+36-basis points), and government expenditures (+12-basis point). Fixed residential investment was an 18-basis point drag on Q3 GDP growth. Corporate profits grew 4.3 percent during Q3 and have increased 5.3 percent over the past year.GDP contributors Q32017-122217.png

#2Indicators suggest solid economic growth during the current quarter. The Chicago Fed National Activity Index (CFNAI), an assemblage of 85 economic measures, fell by 61-basis points to a reading of +0.15. Even with the decline, this was the CFNAI’s third consecutive month with a positive reading, indicative of economic growth greater than the historical average. Forty-two of the 85 tracked measures made a positive contribution to the CFNAI, with three of four major categories of indicators making a positive contribution to the CFNAI: employment (11-basis point positive contribution), sales/orders/inventories (five-basis point positive contribution), and production (five-basis point contribution, which was sharply down from its October contribution of 66-basis points). Indicators related to personal consumption/housing were a six-basis point drag on the CFNAI. The CFNAI’s three-month moving average added ten basis points to +0.41, its highest reading since April 2014.

The Conference Board’s Leading Economic Index (LEI) added a half point during November to a reading of 130.9 (2010=100), which was a robust 5.5 percent above its November 2016 mark. Six of the ten components to the LEI made positive contributions to the index, led by manufacturing orders, consumers’ expectations for the economy, and the interest rate spread. The coincident index gained 3/10ths of a point to 116.5, up 2.1 percent from a year earlier. All four components of the coincident index made positive contributions; including, nonfarm payrolls and personal income net of transfer payments. The lagging index eked out a 1/10th of a point increase to 125.6 (+2.5 percent versus November 2016). Only two of the index’s seven components made positive contributions: average duration of unemployment and ratio of outstanding consumer installment credit to personal income. The press release says the LEI suggests “that solid economic growth will continue into the first half of 2018.”

#3Consumer spending strengthened in November. The Bureau of Economic Analysis estimates personal consumption expenditures (PCE) were at a seasonally adjusted annualized rate (SAAR) of $13.6 trillion, a 0.6 percent increase from October. After adjustments for inflation, PCE gained 0.4 percent during November after holding steady in October and a 0.6 percent gain in September. Real PCE has grown 2.7 percent over the past year. Real spending on goods rose 0.5 percent, with bumps of 0.2 percent and 0.7 percent, respectively, for durable and nondurable goods. Spending on services gained 0.4 percent during the month. Personal income increased 0.3 percent during November, while disposable income grew 0.4 percent. After adjusted the latter for inflation, real disposable income inched up 0.1 percent during November and has increased 1.9 percent since November 2016. Following recent trends, the savings rate fell 3/10ths of a percentage point to +2.9 percent, its lowest reading in ten years.

#4Sales of both existing and new homes zoomed to post-recession highs in November. The National Association of Realtors reports that existing home sales jumped 5.6 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.81 million units. This was 3.8 percent ahead of the sales of a year earlier and the strongest sales pace for previously owned homes since December 2006. Sales grew during the month in the Midwest (+8.4 percent), South (+8.3 percent), and Northeast (+6.7 percent), but slowed 2.3 percent in the West. Sales also up from a year earlier in three of four Census regions: Midwest (+6.8 percent), South (+4.0 percent), and West (+2.5 percent). Already tight inventories constricted even further during November, falling 7.2 percent for the month to 1.67 million homes for sale. This was the equivalent to a 3.4 month supply. As a result, the median sales price of $248,000 was up 5.8 percent from that of a year earlier. NAR’s press release credits “[f]aster economic growth in recent quarters, the booming stock market and continuous job gains” for the sales surge.

Meanwhile, new home sales surged 17.5 percent during November to a seasonally adjusted annualized rate (SAAR) of 733,000 units per the Census Bureau. This was a 26.6 percent increase from the same month a year earlier and the best annualized sales pace since July 2007. Sales increased during the month in all four Census regions: West (+31.1 percent), South (+14.9 percent), Northeast (+9.5 percent), and Midwest (+6.9 percent). Three of four Census regions enjoyed positive 12-month comparables, with the lone exception being flat sales versus a year earlier in the Midwest. Homebuilders held inventory levels of unsold homes firm with 283,000 units available for sale at the end of November, the equivalent to a 4.6 month supply.

#5Consumer confidence faded a bit in December. The Index of Consumer Sentiment from the University of Michigan shed 2.6 points during December to a seasonally adjusted 95.9 (1966Q1=100). While was the measure’s lowest point since September, it left the index’s average for all of 2017 the best for a year since 2000. The current conditions index edged up 3/10ths of a point to 113.8 (December 2016: 111.9) while the expectations index shed 4.6 points to 84.3 (December 2016 89.5). The press release points out that the decline in the headline index was primarily the result falling sentiment among lower-income households. Further, it also noted that the survey results suggest real personal spending will grow 2.6 percent in 2018. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 16, 2017, First-Time Claims, seasonally adjusted): 245,000 (+20,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 236,000 (-8.3% vs. the same week a year earlier).
Durable Goods (November 2017, New Orders, seasonally adjusted):$241.4 billion (+1.3% vs. October 2017).
Housing Starts (November 2017, Housing Units Started, seasonally adjusted annualized rate): 1.297 million (+3.3% vs. October 2017, +12.9% vs. November 2016).
Housing Market Index (December 2017, Index (>50=good housing market), seasonally adjusted): 74 (vs. November 2017: 69; December 2016: 69).
FHFA Housing Market Index (October 2017, Purchase-Only Index, seasonally adjusted): +0.5% vs. September 2017; +6.6% vs October 2016.
State Employment (November 2017, Nonfarm Payrolls):  Vs. October 2017: payrolls grew in 6 states and were essentially unchanged in 44 states and the District of Columbia.  Vs. November 2016: payrolls grew in 27 states and were essentially unchanged in 23 states and the District of Columbia.

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

Q3 GDP Growth Revised Upward: November 27 – December 1

The U.S. economy strengthened at its fastest rate in three years during Q3. Here are the five things we learned from U.S. economic data released during the week ending December 1.

#1Economic growth was more vigorous than previously believed during Q3. The Gross Domestic Product (GDP) grew 3.3 percent on a seasonally adjusted annualized rate (SAAR) during July, August, and September. This was an upward revision from the 3.0 percent annualized gain previously reported by the Bureau of Economic Analysis and the fastest pace of GDP growth since the third quarter of 2014. The revision was the result of higher than previous levels of nonresidential (business) fixed investment, state/local government spending, and private inventory accumulation. Following the revision, the largest positive contributors to Q3 economic growth were personal spending (adding 160-basis points to GDP growth), the change in private inventories (+80-basis points), nonresidential fixed investment (+58-basis points), net exports (+43-basis points), and government expenditures (+8-basis points). The only major component of GDP dragging down Q3 economic growth was residential fixed investment, which cost 20-basis points in economic growth during the quarter. The same report shows that business profits (based on current production) jumped 4.3 percent during Q3 to an annualized rate of $2.215 trillion, up 5.4 percent from the same quarter a year earlier. The BEA will revise its Q3 GDP estimate once again later this month.GDP CONTRIBUTORS Q32017-120117

#2Consumer spending barely budged in October. The Bureau of Economic Analysis reports that personal consumption expenditures (PCE) increased 0.3 percent during the month to a seasonally adjusted annualized rate (SAAR) of $13.557 trillion, up 0.3 percent from September. But after adjusting for inflation, “real” PCE grew only 0.1 percent during October following a 0.5 percent bounce in September (although some of September’s spending surge reflected hurricane-related automobile purchases). Real spending on goods grew 0.3 percent, split between a 0.5 percent gain in spending on nondurable goods and a 0.1 percent decline in durables expenditures. Spending on services held steady during the month. Over the past year, real spending has grown 2.6 percent, with 12-month comparables for spending on goods and services of +3.9 percent and +2.0 percent, respectively. The increased spending was funded by a 0.4 percent gain in personal income and a 0.5 percent increase in disposable income. Adjusted for inflation, “real” disposable income rose 0.3 percent during the month and was increased 1.6 percent over the past year. The savings rate improved by 2/10ths of a percentage point to +3.2 percent.

#3There was a second straight sharp monthly rise in new home sales during October. The Census Bureau estimates new home sales jumped 6.2 percent to a seasonally adjusted annualized rate (SAAR) of 685,000 units. This was up a robust 18.7 percent from a year earlier. Sales grew in all four Census regions on both a month-to-month and year-to-year basis, with the latter showing double-digit percentage gain in each region. Inventories of unsold new homes at the end of October was at 282,000 units, up 1.4 percent for the month and 13.7 percent from a year earlier. Nevertheless, this reflected a tight 4.9 month supply. The median sales price of new homes—$312,800—was 3.3 percent above the October 2016 median sales price.

#4Purchasing managers indicate slightly slower growth in manufacturing during November. The Purchasing Managers Index (PMI) from the Institute for Supply Management slipped by 5/10ths of a point to a seasonally adjusted reading of 58.2. Even with the decline, this was the 15th straight month in which the measure above a reading of 50.0, which is indicative of an expanding manufacturing sector. Two of the five components of the PMI grew during the month: production (up 2.9 points to 63.9) and new orders (up 6/10ths of a point to 64.0). Dropping were measures for supplier deliveries (down 4.9 points to 56.5), inventories (down a full point to 47.0), and employment (off 1/10th of a point to 59.7). Fourteen of 18 tracked manufacturing industries expanded during the month, led by paper products, machinery, and transportation equipment. 

#5A measure of consumer sentiment hit another 17-year high. The Conference Board’s Consumer Confidence Index added 3.3 points during November to a seasonally adjusted reading of 129.5 (1985=100). This was up 20.1 points from its November 2016 reading and represented the measure’s highest point since November 2000 (132.6). The present conditions index grew by 1.9 points to 152.0 while the expectations index gained 4.3 points to 113.3. 34.9 percent of survey respondents said that current economic conditions were “good” while only 12.7 percent indicated that conditions were “bad.” Similarly, 37.1 percent of consumers report that jobs were “plentiful” while only 16.9 percent said that they were “hard to get.” The press release noted that consumers were “entering the holiday season in very high spirits and foresee the economy expanding at a healthy pace into the early months of 2018.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 25, 2017, First-Time Claims, seasonally adjusted): 238,000 (-2,000 vs. previous week; -44,000 vs. the same week a year earlier). 4-week moving average: 242,250 (-3.0% vs. the same week a year earlier).
Construction Spending (October 2017, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.242 trillion (+1.4% vs. September 2017, +2.9% vs. October 2016).
Vehicle Sales (November 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 17.48 million vehicles (-3.4% vs. October 2017, -1.3% vs. November 2016).
Pending Home Sales (October 2017, Index (2001=100), seasonally adjusted): 109.3 (+3.5% vs. September 2017, -0.6% vs. October 2016).
Beige Book
FHFA House Price Index (September 2017, Purchase-Only Index, seasonally adjusted): +0.3% vs. August 2017, +6.3% vs. September 2016.
Case-Shiller Home Price Index (September 2017, 20-City Index, seasonally adjusted): +0.5% vs. August 2017, +6.2% vs. September 2016).

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

Business Activity Builds Momentum: November 20 – 24

Business activity appears to be firming during the final months of 2017. Here are the five things we learned from U.S. economic data released during the week ending November 24.

#1Forward-looking economic data suggest robust economic growth in the coming months. The Conference Board Leading Economic Index (LEI) jumped by 1.5 points during October to a reading of 130.4 (2010=100). This was up a sharp 5.2 percent from a year earlier. Nine of the ten components of the LEI made a positive contribution during the month, led by jobless claims, building permits, and new orders for manufactured goods. The coincident index added 4/10ths of a point to 116.2, +1.9 percent versus October 2017. All four components of the coincident index made positive contributions, including industrial production and nonfarm payrolls. The lagging economic index added 3/10ths of a point to 125.5, up 2.5 percent from October 2016. Four of seven index components made positive contributions; including, the average duration of unemployment and the change in prices for services. The press release said that “[t]he growth of the LEI, coupled with widespread strengths among its components, suggests that solid growth in the US economy will continue through the holiday season and into the new year.”

#2Economic activity picked up during October. The Chicago Fed National Activity Index (CFNAI) gained 29-basis points to +0.65. This was the best reading for the index of 85 economic indicators since January 2012. The CFNAI is set so that a reading of 0.00 indicates economic growth at the historical average. Forty-three of the 85 indicators improved during the month, but only one of the four major categories of indicators gained during the month: production-related indicators made a +0.53 contribution, up from +0.18 in September. Indicators related to employment (off two-points to +0.11), sales/orders inventories (off three basis points to +0.05), and consumption/housing (off two-basis points to -0.04) all made smaller contributors than they had during September. The CFNAI’s three-month moving average jumped by 27-basis points to +0.28, its highest reading since April 2014.CFNAI-2011-2017-112417

#3Existing home sales gained in October. Sales of previously owned homes grew 2.0 percent during the month to a seasonally adjusted annualized rate (SAAR) to 5.48 million units, according to the National Association of Realtors. While this was off 0.9 percent from the sales pace of a year earlier, existing home sales have remained within a tight mid-five million range for the past year. Sales grew in all four Census regions during the month, but the 12-month sales comparable was only positive in the West. Holding back sales was the continued relative lack of homes on the market. Just 1.80 million homes were available for sale at the end of October, down 3.2 percent from September, 10.4 percent from a year earlier, and represented only a 3.9 month supply. The press release noted that homes typically stayed on the market for 34 days in October, down from 41 days during October 2016. As a result, the median sales price rose 5.5 percent over the past year to $247,000.

#4Durable goods orders fell during October. The Census Bureau estimates new orders for manufactured durable goods were at a seasonally adjusted $236.0 billion during the month, down 1.2 percent from September. Much of the decline reflects the 18.6 percent drop in new orders for civilian aircraft and the 11.3 percent slump in new orders for defense aircraft. Overall transportation orders fell 4.3 percent (new orders for motor vehicles grew 1.7 percent during the month). Net of transportation goods, new durable goods gained 0.4 percent during October to $158.9 billion. New orders grew during the month for primary metals (+1.3 percent), electrical equipment/appliances (+0.8 percent), machinery (+0.6 percent), computers/electronics (+0.4 percent). Orders for fabricated metal products fell 0.9 percent while those of civilian, non-aircraft capital orders (a proxy of business investment) dropped 0.5 percent. Shipments of durable goods edged up 0.1 percent to $241.0 billion (its fifth gain in six months). The dollar value of unfilled orders was essentially unchanged at $1.135 trillion while inventories increased for the 15th time in 16 months (+0.1 percent to $404.1 billion). 

#5Consumer sentiment softened slightly but remained firm during November. The University of Michigan’s Index of Consumer Sentiment lost 2.2 points during the month to a seasonally adjusted reading of 98.5 (1966Q1=100). Despite declining from October, this reading was a 7/10ths of a point improvement from the preliminary November number reported a few weeks earlier and a 4.7 point increase over the past year. Both the current and expected conditions indices slipped from their October marks: the former lost 3.0 points to 113.5 (November 2016: 107.3) while the latter decreased by 1.6 points to 88.9 (November 2016: 85.2). The statement released with the report notes that “consumers have voiced greater certainty about their expectations for income, employment, and inflation” and that the data is consistent with “an expected gain of 2.7% in real consumption expenditures in 2018.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 18, 2017, First-Time Claims, seasonally adjusted): 239,000 (-13,000 vs. previous week; -9,000 vs. the same week a year earlier). 4-week moving average: 239,750 (-3.9% vs. the same week a year earlier).
FOMC Minutes

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