A Signal Change: June 17 – 21

The Fed sees increased business conditions uncertainty. Here are the five things we learned from U.S. economic data released during the week ending June 21.

#1The Fed held still but sent a more dovish signal. The statement released after this past week’s meeting of the Federal Open Market Committee (FOMC) noted that the U.S. economy was growing at a “moderate rate,” the labor market was “strong,” and that consumer spending had “picked up.” But the committee also saw business investment as being “soft” and that core inflation was remaining below its two-percent target rate. As a result, the FOMC voted to maintain the fed funds target rate at a range between 2.25 and 2.50 percent (one voting member desired a rate cut). Further, the statement turned dovish with language saying that uncertainties “have increased. Nevertheless, the committee believed “sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes.” Notable in the economic projections released in conjunction with the policy statement was that eight of the 17 FOMC participants expects one or two quarter-point rate cuts before 2019 ends. Only one participant anticipates a rate bump in 2019. Further, seven FOMC participants have the fed funds target rate below the current range into 2021.FOMC Projections June 2019 062119

#2Forward-looking economic indicators suggest business activity mellowed in May. The Conference Board’s Leading Economic Index (LEI) held steady at 118.1 for the month and has risen by only a half point since last December. Just five of the LEI’s ten components made a positive contribution to the measure, led by consumers’ expectations for business conditions. The coincident index added 2/10ths of a point to 105.9, up a mere 3/10ths of a point since last December. All four coincident index components made positive contributions to the measure. The lagging index pulled back by 2/10ths of a point to 107.0 (up 7/10ths of a point to 106.3), with only one of seven components improving during May (the ratio of consumer installment credit outstanding to personal income). The press release noted that the LEI’s reading “clearly points to a moderation in growth towards 2 percent by year end.”

#3Existing home sales grew for the first time in three months in May. Sales of previously owned homes increased 2.5 percent during the month to a seasonally adjusted annualized rate of 5.34 million units. Even with the gain, the National Association of Realtors’ measure of existing home sales was 1.1 percent under its year-ago pace. Sales increased in all four Census regions, led by increases of 4.7 percent and 3.4 percent in the Northeast and Midwest, respectively. The only region with a favorable 12-month comparable, however, was the South with a 1.3 percent gain. Inventories of unsold homes expanded to their largest level since last July to 1.92 million units (+4.9 percent versus April 2019 and +2.7 percent versus May 2018) but remained at a tight 4.3 month supply. The press release stated that “[t]he purchasing power to buy a home has been bolstered by falling mortgage rates, and buyers are responding.”

#4Starts of single-family homes slowed in May. The Census Bureau tells us housing starts slipped 0.9 percent during the month to a seasonally adjusted 1.269 million units, representing a 4.7 percent drop from a year earlier. While starts of multi-family units (e.g., condos) jumped 13.8 percent on both a month-to-month and year-to-year basis, they dropped for single-family homes 6.4 percent versus April 2019 and 12.5 percent versus May 2018. Looking towards future activity, permitting activity inched up during May as the annualized count of issued building permits grew 0.5 percent to 1.294 million permits (-1.5 percent versus May 2018). Permits for single-family homes rose 3.7 percent but fell a matching 3.7 percent for permits of homes with five or more units. Housing completions slumped 9.5 percent during the month to an annualized 1.213 million units, a 2.8 percent decline from a year earlier

#5Only one state enjoyed significant jobs growth in May. The Bureau of Labor Statistics reports that nonfarm payrolls grew at a statistically significant rate in only Washington state during the month while remaining “essentially” unchanged in the other 49 states and the District of Columbia. (Note a few weeks earlier, the BLS reported that nonfarm payrolls grew by a relatively modest 75,000 jobs on a seasonally adjusted basis during May.) Over the past year, nonfarm payrolls have increased in 24 states, led by Texas (+286,300), California (+282,700), and Florida (+214,500).

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 15, 2019, First-Time Claims, seasonally adjusted): 216,000 (-6,000 vs. previous week; -3,000 vs. the same week a year earlier). 4-week moving average: 218,750 (-0.5% vs. the same week a year earlier).
Housing Market Index (June 2019, Index (>50=More Homebuilders View Housing Market as “Good” than “Bad,” seasonally adjusted): 64 (May 2019: 66, June 2018: 68).
Treasury International Capital Flows (April 2019, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$36.4 billion (March 2019: -$27.8 billion, April 2018: +$22.6 billion).

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

Housing Paused in April: May 20 – 24

Home sales—and overall economic activity—were sluggish in April.  Here are the five things we learned from U.S. economic data released during the week ending May 24.

#1Existing home sales slowed in April. The National Association of Realtors tells us that sales of previously owned homes slipped 0.4 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.190 million units. Sales grew 1.8 percent in the West but had slowed 4.5 percent in the Northeast and 0.4 percent in the South while holding even in the Midwest. Existing home sales were 4.4 percent below their year-ago sales pace, with negative 12-month comparables in all four Census regions. Home supplies improved a bit (but remained tight) as the count of unsold homes grew 9.6 percent to 1.830 million units. This was up 1.7 percent from a year earlier and the equivalent to a 4.2 month supply of homes. The median sales price of $267,300 represented a 3.6 percent increase over the past year. NAR’s press release noted that “job creation is improving, causing wage growth to align with home price growth, which helps affordability and will help spur more home sales.”

#2…As did new home sales. Sales of new single-family homes dropped 6.9 percent in April to a seasonally adjusted annualized rate (SAAR) of 673,000 homes, per the Census Bureau. Even with the drop, new home sales were up 7.0 percent versus a year earlier and were near a post-recession high. Sales slumped in three of four Census regions during the month: West (-8.3 percent), Midwest (-7.4 percent), and South (-7.3 percent). All four regions enjoyed positive 12-month sales comparables. There were 332,000 unsold new homes available for sale at the end of April, down 0.9 percent from March, up 11.0 percent from a year earlier, and the equivalent to a 5.9 month supply.

#3Economic activity pulled back in April. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators indexed such that a reading 0.00 signals the U.S. economy was growing at its historical average—lost 50-basis points during the month to a reading of -0.45. Only 33 of the 85 indicators made positive contributions to the CFNAI while the other 52 made negative contributions. The contributions from three of four major categories of indicators declined during the month: production (down 40-basis points to -0.44), consumption/housing (down five basis points to a neutral contribution), and sales/orders/production (down five basis points to +0.01). Indicators tied to employment improved slightly with a one-basis point gain to +0.04. The CFNAI’s three-month moving average shed 38-basis points to -0.22, suggesting the U.S. economy was expanding at a below average rate.

#4Transportation goods—and in particular civilian craft—led to a drop in durable goods orders. The Census Bureau estimates the value of new orders of manufactured new goods slumped 2.1 percent in April to a seasonally adjusted $248.5 billion New orders for transportation goods fell 5.9 percent as civilian aircraft orders slowed 25.1 percent and motor vehicle orders declined 3.4 percent. Net of transportation goods, new orders were unchanged for the month at $163.0 billion. Rising during the month were orders for computers (+4.0 percent), electrical equipment/appliances (+0.9 percent), fabricated metal products (+0.4 percent), and machinery (+0.1 percent). New orders contracted for communications equipment (-5.5 percent) and primary metals (-0.8 percent). Also slumping was a proxy for business investment—civilian non-aircraft capital goods—as it dropped 0.9 percent.

#5Jobless claims remained relatively sparse in mid-May. The Department of Labor reports that there were a seasonally adjusted 211,000 first-time claims made for unemployment insurance benefits during the week ending May 18, down 1,000 from the prior week and 16,000 from the same week a year earlier. The four-week moving average of initial jobless claims shrank by 4,750 during the week to 220,250. While up 1.0 percent from the same week a year earlier, the measure remains close to its nearly five-decade low. 1.565 million people were receiving some form of unemployment insurance benefits during the week ending May 4, off 3.6 percent from the same week a year earlier.

Other U.S. economic data released over the past week:
FOMC Minute

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

Economic Growth Moved Forward in Q1: April 22 – 26

The U.S. economy grew faster than expected during the first three months of this year. Here are the five things we learned from U.S. economic data released during the week ending April 26.  

#1GDP rebounded in Q1. The Bureau of Economic Analysis’ initial estimate of first quarter Gross Domestic Product (GDP) has the U.S. economy expanding at a seasonally adjusted annualized rate (SAAR) of 3.2 percent. This up from Q4 2018’s 2.2 percent growth rate, but below the Q2 and Q3 paces of expansion of +4.2 percent and +3.4 percent, respectively. The biggest positive contributors to Q1 GDP were personal consumption (adding 82-basis points to the growth rate), change in private inventories (contributing 65-basis points), imports (58-basis points), exports (45-basis points), government expenditures (41-basis points), and nonresidential fixed investment (38-basis points). Dragging down Q1 GDP was residential fixed investment, which cost 11-basis points in economic growth. The BEA will revise its estimate of Q1 GDP twice over the next two months.GDP Growth 2015-2019 042619

#2Economic data suggest business activity picked up in March. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic measures, improved by 16-basis points during the month to a reading of -0.15, its best reading since last December. (The CFNAI is designed such that a 0.00 reading indicates the U.S. economy is growing at its historical average.) Thirty-seven CFNAI components made positive contributions to the headline index, with 47 others making negative contributions and one with a neutral contribution. Among the four major categories of indicators, three of four made improved contributions in March: sales/orders/inventories made a +0.05 contribution (up from +0.01 in February), employment improved by 12-basis points to -0.03, and production improved by two-basis points to -0.10. Losing a basis point was the contribution from personal consumption/housing (to -0.07). The CFNAI’s three-month moving average slumped by six basis points to -0.24, which suggests below average economic growth.

#3Existing home sales pulled back in March following February’s bounce. The National Association of Realtors indicates that sales of previously owned homes dropped 4.9 percent during March to a seasonally adjusted annualized rate of 5.21 million units. This followed an 11.2 percent sales surge in February. Sales fell in all four Census regions: Midwest (-7.9 percent), West (-6.0 percent), South (-3.4 percent), and South (-2.1 percent). Existing home sales were 5.4 percent behind their March 2018 pace, with negative 12-month comparables in all four Census regions. There were 1.68 million homes on the market at the end of March, which was the most since last November, up 2.4 percent from a year earlier, and the equivalent to a 3.9 month supply. The press release noted that sales were “underperforming in relation to the strength in the jobs markets.

#4But new home sales rose in March. The Census Bureau reports that sales of single-family homes increased 4.5 percent during the month to a seasonally adjusted annualized rate (SAAR) of 692,000 units. This was 3.0 percent ahead of the March 2018 sales pace. Sales grew during the month in three of four Census regions—Midwest (+17.6 percent), West (+6.7 percent), and South (+3.6 percent—but dropped 22.2 percent in the Northeast. There were 344,000 new homes available for sale at the end of March, up 13.2 percent from a year earlier and the equivalent to a 6.0 month supply.

#5Consumer confidence eased slightly in April. The Index of Consumer Sentiment lost 1.2 points during the month to a seasonally adjusted 97.2 (1966Q1=100), per the University of Michigan. While the measure was off 1.6 points from a year earlier, it has stayed within a relatively narrow ten-point range (91.2 to 101.4) since November 2016. Losing a full point was the current conditions index to 112.3 (April 2018: 114.9) while the expected conditions index shed 1.4 points to 87.4 (April 2018: 88.4). The press released noted that the “data indicate that inflation-adjusted personal consumption expenditures will grow by 2.5 percent in 2019.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 20, 2019, First-Time Claims, seasonally adjusted): 230,000 (+37,000 vs. previous week). 4-week moving average: 206,000
Durable Goods Orders (March 2019, New Orders for Manufactured Durable Goods, seasonally adjusted): $258.5 billion (+2.7% vs. February 2019).
Bankruptcy Filings (12-Month Period through March 31, 2019, Business and Non-Business Filings): 772,646 (-0.9% vs. March 31, 2018).- FHFA House Price Index (February 2019, Purchase-Only Index, seasonally adjusted): +0.3% vs. January 2019, +4.9% vs. February 2018.

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