Home Sales Slow, the Federal Budget Deficit Widens: October 21 – 25

Home sales and durable goods orders each mellowed in September. Here are the five things we learned from U.S. economic data released during the week ending October 25.

#1Existing home sales pulled back in September. The National Association of Realtors reports that sales of previously owned homes slowed 2.2 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.38 million units. Sales declined in all four Census regions: Midwest (-3.1 percent), Northeast (-2.8 percent), South (-2.1 percent), and West (-0.9 percent). Even with the drop, existing home sales were up 3.9 percent from a year earlier, with positive 12-month comparables in three of four Census regions (sales in the Midwest matched that of a year earlier). Holding steady were inventories of unsold homes, with the 1.83 million available homes translating into a tight 4.1 month supply. The median sales price of $272,100 was up 5.9 percent from a year earlier. The press release says home prices are “rising too rapidly” because of “the housing shortage.”

#2…As had transactions of new homes. Sales of newly constructed single-family homes decreased 0.7 percent during September to a seasonally adjusted annualized rate of 701,000 units. The Census Bureau metric fell in three of four regions—West, Northeast, and South—but grew in the Midwest. Despite September’s decline, new home sales were 15.5 percent ahead of year-ago levels, with only the Midwest experiencing a negative year-to-year comparable. There was a 5.5 month supply of new homes on the market at the end of the month, equaling 321,000 units.

#3Durable goods orders fell in September. The Census Bureau estimates new orders fell 1.1 percent to a seasonally adjusted $248.2 billion. Transportation orders plummeted 2.7 percent, pulled down by slumps for civilian aircraft (-11.8 percent) and motor vehicles (-1.6 percent). Net of transportation goods, core durable goods fell 0.3 percent. Orders improved for electrical equipment/appliances (+0.9 percent), primary metals (+0.3 percent), and machinery (+0.2 percent). Declining were orders for fabricated metal orders (-1.5 percent), computer/electronics (-0.9 percent), and civilian non-aircraft capital goods (-0.5 percent).

#4Consumer sentiment stabilized in October. The Index for Consumer Sentiment, from the University of Michigan, added 3.3 points during the month to a seasonally adjusted 95.5 (1966Q1=100). This was the measure’s best reading since July, although it was a half-point below the preliminary October reading reported a few weeks ago. The advance during the month was primarily the product of an improved view of current conditions, adding 4.7 points to 113.2. The expectations index grew by a smaller 8/10ths of a point to 84.2. The press release noted fewer survey respondents included tariffs in their comments (27 percent of October survey respondents versus 36 percent in September).

#5The federal budget deficit soared in FY2019. The Bureau of the Fiscal Service reports that the U.S. government raised $3.462 trillion in revenue during the just-completed fiscal year, up 4.0 percent from FY2018. But expenses rose 8.2 percent during the same 12-month period to $4.447 trillion. The resulting budget deficit of -$984.4 billion was up 26.4 percent from a year earlier and its highest point in seven years. On the revenue side, personal tax receipts increased 2.0 percent, corporate tax collections grew 12.5 percent, and tariff duties jumped 71.4 percent. On the expense side, substantially growing line items included those tied to the military, education, health and human services, and debt service.deficits 2005-2019 102519

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 19, 2019, First-Time Claims, seasonally adjusted): 212,000 (-6,000 vs. previous week; -6,000 vs. the same week a year earlier). 4-week moving average: 215,000 (-0.1% vs. the same week a year earlier).
FHFA House Price Index (August 2019, Purchase-Only Index, seasonally adjusted): +0.2% vs. July 2019, +4.6% vs. August 2018.

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

Leading Indicators Suggest Modest Growth: August 19 – 23

Leading economic measures rebounded in July. Here are the five things we learned from U.S. economic data released during the week ending August 23.

#1Forward-looking economic indicators brightened a bit in July. The Conference Board’s Leading Economic Index (LEI) jumped by a half-point to a reading of 112.2. This followed two monthly declines and left the LEI up a somewhat modest 1.6 percent over the past year. Only five of the LEI’s ten components made positive contributions to the index, led by housing building permits and jobless claims. A warning sign: manufacturing-related components pulled down the LEI. The coincident index added 2/10ths of a point to 106.2, up 1.8 percent from July 2018. Three of four coincident index components made positive contributions, led by nonfarm payrolls. The lagging index jumped by 7/10ths of a point to 108.5, leaving the measure up 3.5 percent over the past year. Four of seven lagging index components made positive contributions, led by the average duration of unemployment. The press release said the U.S. economy would likely expand “at a moderate pace” during the second half of 2019.

#2Existing sales improved in July. Sales of previously owned homes gained 2.5 percent during the month to a seasonally adjusted annualized rate of 5.42 million units. The National Association of Realtors’ measure was 0.6 percent ahead of its year-ago mark. Sales improved in three Census regions—the West, South, and Midwest—when compared to June but were only up in the South and Midwest when compared to a year earlier. Inventories tightened in July as the count of homes on the market slipped 1.6 percent to 1.89 million units. This was the equivalent to a 4.2 month supply. The median sales price of homes sold has risen 4.3 percent over the past year to $280,800.

#3But sales of new homes fell during the same month. The Census Bureau estimates new home sales slumped 12.8 percent in July to a seasonally adjusted annualized rate of 635,000 units. This placed the annualized sales pace 4.3 percent below that of July 2018. New home sales fell in three of four Census regions during the month, with Northeast being the exception. Compared to a year earlier, however, sales have grown in the West, South, and Northeast. There was a 6.4 month supply of new homes on the market at the end of July with an inventory of 337,000 units (+1.2 percent versus June 2019 and +7.3 percent versus July 2018).

#4Jobless claims remained near multidecade lows in mid-August. The Department of Labor reports that the seasonally adjusted count of first-time claims made for unemployment insurance benefits dropped by 15,000 to 209,000. This was 2.3 percent below that of a year earlier and continued a remarkable streak for the proxy of layoff activity of sub-300,000 claims going back five years (except for a handful of weeks). The 4-week moving average of first-time claims edged up by 500 to 214,500 (-0.7 percent versus the same week a year earlier). 1,704,365 people were receiving some form of unemployment insurance during the week ending August 3rd, essentially matching the count from the same week a year earlier.

#5Internet retailers continued to grab market share during Q2. The Census Bureau indicates that sales at U.S. e-commerce retailers grew 4.2 percent during the three months from April to June to a seasonally adjusted $146.2 billion. Total retail sales were $1.362 trillion over the same period (up only 1.6 percent from the prior quarter), meaning internet retailers owned 10.7 percent of all sales during the quarter. E-commerce sales have risen 13.3 percent over the past year with the four-quarter comparable for all retail sales at 3.2 percent.

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

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

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.