Inventories and Prices Impair Home Sales: August 21 – 25

Tight inventories were hampering home sales in July. Here are the five things we learned from U.S. economic data released during the week ending August 25.

#1Existing home sales slipped in July as inventories remained tight. The National Association of Realtors tells us that existing home sales slowed 1.3 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.44 million units. This was 2.1 percent above the annualized sales rate of a year earlier. Sales grew during July in two Census regions—West (+5.0 percent) and South (+2.2 percent)—but fell in both the Northeast (-14.5 percent) and Midwest (-5.3 percent). Two regions also have positive 12-month sales comparables: West (+5.0 percent) and South (+3.6 percent). Inventories of unsold homes remained very tight, with only 1.92 million homes available for sale at the end of July. This was down 1.0 percent from June, 9.0 percent from a year earlier, and the equivalent to a mere 4.2 month supply. NAR’s press release notes that “the negative effect of not enough inventory to choose from and its pressure on overall affordability [have] put the brakes on what should’ve been a higher sales pace.”Existing and New Home Sales July17-082517.png

#2New home sales also dropped during July. Per the Census Bureau, sales of new single-family homes were at a seasonally adjusted annualized rate (SAAR) of 571,000 units. This was down 9.4 percent from June and off 8.9 percent from the same month a year earlier. Sales fell in three in four Census regions: Northeast (-23.8 percent), West (-21.3 percent), and South (-4.1 percent). New home sales increased 6.2 percent in the Midwest. Similarly, three of four Census regions have experienced year-to-year sales declines, including the Northeast (-13.5 percent), Midwest (-12.7 percent), and South (-11.7 percent). New home sales were 1.7 percent above their July 2016 rate. Inventories of new homes grew 1.5 percent to a seasonally adjusted 276,000 units. This translated into a 5.8 month supply of new homes on the market. As a result, the median sales price of new homes sold during the month—$313,700—was 6.3 percent above that of a year earlier.

#3The pace of economic expansion slowed during July. The Chicago Fed National Activity Index (CFNAI) shed 17-basis points during the month to slip to a negative -0.01 reading. This was the third time over the past five months in which the CFNAI was negative, indicative of the U.S. economy growing slower than its historical average. The CFNAI is a weighted average of 85 economic measures. During July, 42 of the measures made a positive contribution to the CFNAI during July. Among the four broad categories of economic measures, only those related to employment made a positive contribution (adding nine basis points to the index). Weighing on the index were components associated with consumption/housing (costing six basis points), production (costing two basis points), and sales/orders/inventories (costing a basis point). The CFNAI’s three-month moving average, with smooths some of the month-to-month volatility in the index, lost 14-basis points during the month to -0.05. This was the moving average’s lowest reading since March.

#4A sharp decline in airplane orders weighed heavily on durable goods orders in July. New orders for manufactured durable goods slumped 6.8 percent to a seasonally adjusted $229.2 billion, according to the Census Bureau. This was the largest decline in durable goods orders in almost three years. The drop was partially the product of new orders for civilian aircraft tumbling 70.7 percent (note that aircraft order data tend to be very volatile month-to-month), contributing to 19.0 percent decrease in transportation goods orders (also not helping was a 1.2 percent fall in new orders for motor vehicles). Net of transportation goods, new durable goods orders gained 0.5 percent to $154.8 billion. Rising during the month were orders for electrical equipment/appliances (+2.6 percent), computers/electronics (+1.6 percent), and fabricated metal products (+1.0 percent). New orders fell, however, for machinery (-1.4 percent). A proxy for core business investment—civilian non-aircraft capital goods orders—gained 0.4 percent. Shipments grew for a third straight month (+0.4 percent), unfilled order lost ground for the third time in four months (-0.3 percent), and inventories expanded for the 12th time in 13 months (+0.3 percent).

#5Home prices continue to rise far more quickly than the general rate of inflation. The Federal Housing Finance Agency’s purchase-only Home Price Index edged up 0.1 percent during June and has risen by 6.5 percent over the past year. The measure of prices of homes that have been purchased at least twice (hence a repeat purchase index) gained in five of nine Census regions during the month, led by the East South Central (+1.3 percent) and Pacific (+0.7 percent) regions. Prices held firm in the Middle Atlantic but fell in three regions: West South Central (-0.5 percent), South Atlantic (-0.2 percent), and East North Central (-0.1 percent). All nine Census regions have positive 12-month comparables, with prices growing by the largest percentage over the past year in the Pacific (+9.8 percent), Mountain (+7.9 percent), East South Central (+7.1 percent) regions.

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 19, 2017, First-Time Claims, seasonally adjusted): 234,000 (+2,000 vs. previous week; -26,000 vs. the same week a year earlier). 4-week moving average: 237,750 (-9.4% vs. the same week a year earlier).
Mortgage Delinquencies (2017 Q2, Delinquency Rate of Outstanding Mortgages, seasonally adjusted): 4.24% (vs. 2017Q1: 4.71%, vs. 2016Q2: 4.66%).
Temporary and Contract Workers (2017Q2, Average Number of Temporary and Contract Workers per week): 3.13 million workers (+1.9% vs. 2017Q1, -1.4% vs. 2016Q2).

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

Retail Sales Jumped, Factory Output Slowed in July: August 14 – 18

The summer of 2017 is shaping up better for retail sales than previously believed. Here are the five things we learned from U.S. economic data released during the week ending August 18.

#1Retail sales heated up in July (and the picture in June was better than previously reported). The Census Bureau tells us that retail/food services sales totaled a seasonally adjusted $478.9 billion, up 0.6 percent from May and 4.2 percent from a year earlier. The same report presented a significant upward revision to its estimate for June, raising the previously reported 0.2 percent sales decline to a 0.3 percent rise. After removing the impact of sales at auto dealers/parts stores (+1.2 percent) and gas stations (-0.4 percent), retail sales increased 0.5 percent during July. Most retail segments enjoyed sales gains during the month, led by home materials/garden stores (+1.2 percent), non-luxury department stores (+1.0 percent), furniture retailers (+0.4 percent), bars/restaurants (+0.3 percent), and sporting goods/hobby retailers (+0.3 percent). Sales slumped 0.5 percent at electronics/appliance stores and 0.2 percent at apparel retailers during July. Nonstore retailers (including web retailers) sales continued to blossom, with sales rising 1.3 percent for the month and 11.5 percent from the same month a year earlier.July17 Retail Sales-081817

#2Factory output slowed in July. The Federal Reserve’s industrial production report finds manufacturing output slipped 0.1 percent during the month, leaving factory output up a modest 1.2 percent from a year earlier. Durable goods production declined 0.5 percent while that of nondurables advanced 0.4 percent. The former was pulled down by a sharp 3.5 percent drop in motor vehicle production, along with decreases in output greater than one percent for both furniture and primary metals. Production increases greater than one percent of both apparel and chemicals led the growth in nondurables output. Overall industrial production grew 0.2 percent, putting it 2.2 percent its July 2016 level. Greater oil and gas extraction led to a 0.5 gain in mining output (+10.2 percent versus July 2016) while higher demand for electricity due to warm summer weather pushed up the production at utilities by 1.6 percent (-0.6 percent versus July 2016). Capacity utilization held steady during the month at 76.7 percent, which remained 3.2 percentage points below the measure’s long-run average.

#3Forward-looking indicators point towards continued economic growth during the remainder of the year. The Conference Board’s Leading Economic Index (LEI) added 4/10ths of a point during July to a seasonally adjusted 128.3 (2010=100). The measure has grown 3.9 percent over the past year. Eight of ten components of the LEI made positive contributions, led by the interest rate spread, new manufacturing orders, and consumers’ expectations for future business conditions. The coincident index added 3/10ths of a point to 115.7, up 1.9 percent from a year earlier. All four components of the coincident index made positive contributions, including nonfarm payrolls and industrial production. The lagging index eked out a 1/10th of a point gain to 124.8, up 2.5 percent over the past year. Three of the lagging index’s seven components made positive contributions, led by the prime interest rate charged by banks. The press release said the results imply “the U.S. economy may experience further improvements in economic activity in the second half of the year.”

#4Housing starts slowed during July. Per the Census Bureau, housing starts declined 4.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.155 million units. This was off 5.6 percent from a year earlier. Most of the decline during July came from a sharp 17.1 percent in multi-family units (5+ units) in starts (-35.2 percent from the same month a year ago). Single-family home starts slipped 0.5 percent during July but nevertheless remained 10.9 percent above the July 2016 pace. Looking towards the future, there were 1.223 million issued building permits (SAAR), down 4.1 percent from June but up 4.1 percent from the same month a year ago. While the SAAR for single-family home issued permits held firm during July, they declined 12.1 percent for multi-family home permits. Housing completions slowed 6.2 percent during July to a SAAR of 1.175 million units. This was up 8.2 percent from the July 2016 pace.

#5And yet, homebuilders grew more optimistic during August. The Housing Market Index (HMI) from the National Association of Home Builders (NAHB) added four points during the month to a seasonally adjusted reading of 68. This was up nine points from a year earlier and represented the 38th consecutive month in which the homebuilder sentiment measure was above a reading of 50, meaning more builders saw the housing market as “good” versus being “poor.” The index grew in all four Census regions: South (up seven points to 70), West (up five points to 79), Northeast (up three points to 51), and Midwest (up a point to 65). All growing during the month were indices for sales of single-family homes (up four points to 74), expected sales of single-family homes (up five points to 78), and the traffic of prospective buyers (up a point to 49). The NAHB attributes builders’ more positive outlook to “ongoing job and economic growth, attractive mortgage rates, and growing consumer confidence.” 

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 12, 2017, First-Time Claims, seasonally adjusted): 232,000 (-10,000 vs. previous week; -29,000 vs. the same week a year earlier). 4-week moving average: 240,500 (-8.7% vs. the same week a year earlier).
Business Inventories (June 2017, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.869 trillion (+0.5% vs. May 2017, +2.8% vs. June 2016).
University of Michigan Consumer Sentiment (August 2017-preliminary, Index of Consumer Sentiment (1966Q1=100, seasonally adjusted): 97.6 (vs. July 2017: 93.4, vs. August 2016: 89.8).
Treasury International Capital Flows (June 2017, Net Purchases of U.S. Securities by Foreign Investors, not seasonally adjusted: +$35.3 billion (vs. May 2017: +$95.5 billion, vs. June 2016: -$1.6 billion).
FOMC Minutes

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

Economic Activity Gained During Q2, The Fed Holds Firm: July 24 – 28

Q2 had more than twice the rate of GDP growth than there was during the first three months of 2017. Here are the five things we learned from U.S. economic data released during the week ending July 28.

#1Economic growth picked up during Q2. The Bureau of Economic Analysis indicates that Gross Domestic Product (GDP) grew 2.6 percent on a seasonally adjusted annualized rate (SAAR), up from a 1.2 percent annualized growth rate during Q1. This was the fastest pace of economic growth since the third quarter of last year and the second-best growth rate in two years. By far the biggest contributor to Q2 economic growth was consumer expenditures. The 2.8 percent annualized gain in personal consumption expenditures was responsible for 193-basis points in economic growth. Smaller contributions to economic expansion came from nonresidential fixed investment, net exports, and government expenditures. Dragging down GDP growth were residential fixed investment (housing) and the change in private business inventories. The same report contained the annual revisions to previously reported GDP growth rates, with the U.S. economy now believed to have grown 2.6 percent, 2.9 percent, and 1.9 percent in 2014, 2015, and 2016, respectively. This represented an upward revision for 2014 and 2015, but a downgrade for 2016. BEA will update its Q2 GDP estimate twice over the next two months.GDP Growth 2012-2017-0722817

#2The Fed leaves its short-term interest rate target alone. The policy statement released following last week’s meeting of the Federal Open Market Committee (FOMC) notes that the “labor market has continued to strengthen and that economic activity has been rising moderately so far this year.” Further, while spending at households and business was growing, inflationary pressures had cooled below its two-percent target rate. As a result, the FOMC members voted unanimously to keep the fed funds target rate at a range between 1.00 and 1.25 percent following the quarter point hike at the previous meeting. The statement also said that the Federal Reserve would continue its policy to reinvest principal payments made on its agency debt and mortgage-back securities holdings “for the time being.” The words in the quotes are read by some to suggest that the policy will be rolled back as soon as the next FOMC meeting in September.

#3Existing home sales cooled slightly in June while those of new homes crept up. The National Association of Realtors tells us that sales of previously owned homes decreased 1.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.52 million units. The SAAR has been within a tight range of 5.3 and 5.7 million units over the past year. Sales slowed during June in three of four Census regions: South (-4.7 percent), Northeast (-2.6 percent), and West (-0.8 percent). Existing home sales grew 3.1 percent during the month in the Midwest. Even with the decline, existing home sales were up 0.7 percent over the past year, although only two regions (West and Northeast) have positive 12-month comparables. Inventories remained very tight: the 1.96 million homes available for sale at the end of June was off 0.5 percent from May, 7.1 percent below the year ago count, and was the equivalent of a mere 4.3 month supply. As a result tight supply of homes for sale, the median sales price of $263,800 was 6.5 percent above that of a year earlier.

Per the Census Bureau, new home sales edged up 0.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 610,000 units, up 9.1 percent from a year earlier. New home sales gained in both the West (+12.5 percent) and Midwest (+10.0 percent), fell in the South (-6.1 percent), and held steady in the Northeast. Three of four Census regions have positive 12-month sales comparables: Northeast, West, and South. The count of new homes available for sale increased 1.1 percent to 272,000. Even though this was 11.9 percent above the number of homes on the market back in June 2016, it reflected a still tight 5.4 month supply.

#4Durable goods orders rose in June as aircraft orders surged. The Census Bureau reports that new orders for durable manufactured goods totaled $245.6 billion, up 6.5 percent from May after two monthly declines. Orders for transportation goods jumped 19.0 percent as civilian aircraft orders blossomed by 131.2 percent (aircraft orders tend to be volatile month-to-month). Motor vehicle orders slipped 0.2 percent during June. Net of transportation goods, durable goods orders grew 0.2 percent during the month. Increasing during the month were new orders for communications equipment (+1.6 percent), fabricated metal products (+0.7 percent), machinery (+0.2 percent), and primary metals (+0.1 percent). Falling were new orders for electrical equipment/appliances (-1.7 percent), computers (-0.2 percent), and non-aircraft civilian capital goods (-0.1 percent).

#5Two surveys show consumers are more confident about current business conditions than they have been in more than a decade. The Conference Board Consumer Confidence Index added 3.8 points in July to a seasonally adjusted reading of 121.1 (1985 = 100), its first increase in four months. Views improved for both current and expectation business conditions. The present situation index grew by 3.9 points to 147.8 (a 16-year high) while the expectations index added 3.7 points to 103.3. A third of survey respondents characterized current business conditions as “good” while only 13.5 percent saw them as “bad.” Similarly, 34.1 percent said that jobs were “plentiful” while 18.0 percent stated that they were “hard to get.” The press release noted that “consumers foresee the current economic expansion continuing well into the second half of this year.”

The Index of Consumer Sentiment from the University of Michigan declined 1.7 points in July to a seasonally adjusted reading of 93.4 (1966Q1 = 100). The same measure was at 90.0 a year earlier, but the index has lost 5.1 points since its postrecession peak in January. The index for current business conditions added 9/10ths of a point to 113.4, its highest reading since July 2005 (July 206: 109.0). The expectations index shed 3.4 points during the month to 80.5 (July 2016: 77.8). There were great differences in expectations by survey respondents’ political views: the expectations index for Republicans was 108.7 while that for Democrats was at 63.7. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 22, 2017, First-Time Claims, seasonally adjusted): 244,000 (+10,000 vs. previous week; -19,000 vs. the same week a year earlier). 4-week moving average: 244,000 (-5.6% vs. the same week a year earlier).
Chicago Fed National Activity Index (June 2017, Index (0.00=U.S. Economy Growing at its Historical Average, not seasonally adjusted): +0.13 (vs. May 2017: -0.30; vs. June 2016: +0.03).
Case-Shiller Home Price Index (May 2017, 20-City Index, seasonally adjusted): +0.1 vs. April 2017, +5.7% vs. May 2016.
FHFA House Price Index (May 2017, Purchase-Only Index, seasonally adjusted): +0.4% vs. April 2017, +6.9% vs. May 2016.

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