Economic Growth Continued, Housing Slowed a Bit. What We Learned During the Week of May 21 – 25

Home sales edged down in April. Here are the five things we learned from U.S. economic data released during the week ending May 25.

#1Sales of previously owned homes slowed in April. The National Association of Realtors reports that existing home sales declined 2.5 percent to a seasonally adjusted annualized rate of 5.46 million units. This was 1.4 percent below the year-ago sales pace. Sales failed to grow in any of the four Census regions, with declines in three of the regions: Northeast (-4.4 percent), West (-3.3 percent), and South (-2.9 percent). Over the past year, sales increased only in the South (+2.2 percent). Tight inventories remained the primary culprit, although the number of homes available for sales expanded 9.8 percent during April to 1.80 million units. This was nevertheless 6.3 percent fewer than the number of homes available for sale a year ago and translated into a mere 4.0 month supply. As a result, the median price of homes sold has risen 5.3 percent over the past year to $257,900. The press release warns that “[t]he current pace of price appreciation far above incomes is not sustainable in the long run.”

#2…As did those of new homes. Sales of new single-family homes slipped 1.5 percent during April to 662,000 on a seasonally adjusted annualized basis, per the Census Bureau. Even with April’s drop, new home sales tracked 11.6 percent ahead of its year-ago pace. Much of the decline occurred in the West, where new home sales slumped 7.9 percent during the month. Sales improved 11.1 percent in the Northeast and 0.3 percent in the South. All four Census regions enjoyed positive year-to-year new home sales gains. There were 300,000 new homes available for sale at the end of April, up 0.7 percent for the month and 12.4 percent from a year earlier. This was the equivalent to a 5.4 month supply. 

#3Economic growth appears to have been solid in April. The Chicago Fed National Activity Index (CFNAI) added two-basis points during the month to a seasonally adjusted +0.34. The CFNAI is a weighted index of 85 economic indicators adjusted such that a reading of 0.00 is indicative of the U.S. economy expanding at its historical rate. Fifty of the 85 indicators made positive contributions to the CFNAI. Among the four major categories of CFNAI components, two made positive contributions: those related to production (up eight basis points to +0.27) and employment (up six basis points to +0.10). The other two major groupings of components made smaller contributions: sales/orders/inventories (down six basis points to +0.02) and personal consumption/housing (down seven basis points to -0.05). The CFNAI’s three-month moving average rose by 23 basis points to +0.46, its best reading since last November.

#4Outside of civilian aircraft, durable goods orders rose in April. The Census Bureau reports that new orders for manufactured durable goods were at a seasonally adjusted $248.5 billion, down 1.7 percent from March. Much of the decline can be tied to the 29.0 percent drop in new orders for civilian aircraft, which had pulled down transportation goods orders 6.1 percent during the month. Net of transportation goods, new orders jumped 0.9 percent to $161.4 billion. Rising during the month were new orders for electrical equipment/appliances (+2.6 percent), fabricated metals (+2.0 percent), motor vehicles (+1.8 percent), primary metals (+1.3 percent), and computers/electronics (+1.1 percent). Durable goods shipments slipped 0.1 percent during March to $246.7 billion but jumped 1.0 percent after netting out transportation goods.

#5Consumer sentiment slightly eased in May. The University of Michigan Index of Consumer Sentiment lost 8/10ths of a point to 98.0. The same measure of consumer confidence was at 97.1 a year earlier. The current conditions index pulled back by 3.1 points to 111.8 (May 2017: 111.7) while the expectations index moved up by 7/10ths of a point to 89.1 (May 2017: 87.7). The press release stated that the survey results suggest real personal consumption will rise 2.6 percent over the next year. The Conference Board will publish its May consumer confidence survey results during the upcoming week.

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 12, 2018, First-Time Claims, seasonally adjusted): 234,000 (+11,000 vs. previous week; -3,000 vs. the same week a year earlier). 4-week moving average: 219,750 (-7.9% vs. the same week a year earlier).
FHFA House Price Index (March 2018, Purchase-Only Index, seasonally adjusted): +0.1% vs. February 2018, +6.7% vs. March 2017.
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The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.

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.

The FOMC Makes Another Move, Will (Likely) Do So Twice More This Year: March 19 – 23

The Federal Reserve raised its short-term interest rate target and signals its intention to do so several more times this year. Here are the five things we learned from U.S. economic data released during the week ending March 23.

#1The Fed bumps up its short-term interest rate target…and its economic forecast. The policy statement released after this past week’s meeting of the Federal Open Market Committee (FOMC) noted that the economy was growing “at a moderate rate” and the labor market had “continued to strengthen,” featuring “strong” job gains. Nonetheless, core inflation remained under its two-percent target. As a result, the committee voted without dissent to raise the fed funds target rate by 25-basis points to a range between 1.50 and 1.75 percent. The statement continued to note that economic conditions are likely to “warrant” further hikes, but that interest rates would likely remain accommodative “for some time.”

The expectation of what “some time” may mean is presented with the updated economic forecasts of the FOMC meeting participants published in conjunction with the above policy statement. The median fed funds target rate forecast remains at 2.1 percent at the end of 2018, suggesting two more 25-basis points hikes this year. The consensus forecast places the expected fed funds target at 2.9 percent (i.e., three rate hikes) for 2019 and 3.4 percent (i.e., two rate hikes) for 2020. The same forecast has the U.S. economy growing 2.7 percent for all of 2018 (up from the prior forecast of a 2.5 percent gain) and 2.4 percent in 2019 (up from the previous forecast of 2.1 percent).Fed Funds Target Rate Forecasts 032318

#2Existing homes sales grew for the first time in three months in February. The National Association of Realtors reports that sales of previously owned homes grew 3.0 percent during the month to a seasonally adjusted annualized rate of 5.540 million units. This was 1.1 percent ahead of the year-ago sales pace. During the month, existing home sales surged 11.4 percent in the West and 6.6 percent in the South but slowed 12.3 percent in the Northeast and 2.4 percent in the Midwest. Only two regions—the South (+3.4 percent) and West (+2.4 percent)—reported positive 12-month sales comparables. While inventories of unsold homes grew 4.6 percent during February to 1.590 million units, this was the equivalent to a very tight 3.4 month supply. As a result, the median sales price of existing homes has grown 5.9 percent over the past year to $241,700. The press release noted that “the very healthy U.S. economy and labor market are creating a sizeable interest in buying a home in early 2018,” but also that “affordability continues to be a pressing issue” because of a lack of homes available on the market.

#3…But new home sales slipped again. Sales of new single-family homes inched down 0.6 percent in February to a seasonally adjusted annualized rate (SAAR) of 618,000 units. Even with the decline, the annualized rate of the Census Bureau data series was 0.5 percent above that of a year earlier. Sales during the month in the Northeast (+19.4 percent) and South (+9.0 percent) but dropped in the West (-17.6 percent) and Midwest (-3.7 percent). In comparison to February 2017, sales grew in three regions—Northeast (+8.8 percent), West (+3.1 percent), and South (+0.6 percent)—but declined 8.1 percent in the Midwest. Inventories of new homes continued their gradual expansion—the 305,000 new homes available for sale at the end of February was up 2.0 percent for the month, a 16.0 percent advance from February 2017, and represented a still relatively tight 5.9 month supply. The median sales price of new homes of $326,800 was a 9.7 percent increase from a year earlier.

#4Durable goods orders surged during February. The Census Bureau estimates the value of new durable goods orders was at a seasonally adjusted $247.7 billion. This was the third increase over the past four months and a healthy rebound from January’s 3.5 percent drop. Transportation goods orders surged 7.1 percent, in part due to a jump in increased orders for both civilian (+25.5 percent) and defense aircraft (+37.7 percent) in addition to a 1.8 percent bounce in orders for motor vehicles. Net of transportation orders, new durable goods gained 1.2 percent after pulling backing 0.2 percent in January. New orders grew for primary metals (+2.7 percent), electrical equipment/appliances (+2.6 percent), machinery (+1.6 percent), and fabricated metal products (+0.8 percent). New orders for nondefense capital goods minus aircraft (a proxy for business investment) grew 1.8 percent during February after having pulled back 0.4 percent during the prior month.

#5Forward-looking economic indicators continue to suggest solid growth in 2018. The Conference Board’s Leading Economic Index (LEI) grew by 7/10ths of a point during February to a seasonally adjusted 108.8 (2016=100). The LEI has increased for five straight months, rising 6.5 percent over the past year. Eight of the ten components to the LEI made positive contributions to the index, led by average weekly manufacturing hours, new orders for manufactured goods (per ISM), and jobless claims. The coincident economic index added 3/10ths of a point during the month to a reading of 103.3 (+2.3 percent versus February 2017), with all four components on that index making positive contributions (led by industrial production and nonfarm payrolls). The lagging economic index picked up 4/10ths of a point to 104.3 (+2.6 percent versus February 2017) as four of seven index components making positive contributions (led by the average length of unemployment). The press release notes that the six-month growth rate for the leading index had not been this high since the first quarter of 2011.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 17, 2018, First-Time Claims, seasonally adjusted): 229,000 (+3,000 vs. previous week; -32,000 vs. the same week a year earlier). 4-week moving average: 223,750 (-9.2% vs. the same week a year earlier).
State Employment (February 2018, Nonfarm Employment, seasonally adjusted): Vs. January 2018: 11 states had significant payroll increases. Vs. February 2017: 24 states had significant payroll increases.
FHFA House Price Index (January 2018, Purchase-Only Index, seasonally adjusted): +0.8% vs. December 2017, +7.3% vs. January 2017. 

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