Solid Consumer Spending, Inflation Under Target: June 24 – 28

Consumer spending held firm in May. Here are the five things we learned from U.S. economic data released during the week ending June 28.

#1Personal spending and prices grew at a moderate rate in May. The Bureau of Economic Analysis estimates real personal consumption expenditures (PCE) increased 0.2 percent on a seasonally adjusted basis during the month, matching April’s gain. Real spending on durable goods jumped 0.4 percent, boosted by a 1.6 percent bounce for durable goods (spending on nondurables slowed 0.2 percent), while services expenditures increased 0.2 percent. Nominal (not inflation adjusted) spending rose 0.4 percent in May, funded by 0.5 percent increases for both nominal personal income and nominal disposable income. After adjusting for price variations, real disposable gained 0.3 percent.  The savings rate held steady at 6.1 percent. Over the past year, real personal spending has risen 2.7 percent, while real disposable income has a 12-month comparable of +2.3 percent. The PCE deflator—a measure of inflation—gained 0.2 percent during the month, with the core measure (which nets out energy and food) also growing 0.2 percent. The year-to-year increases for both measures were below the Federal Reserve’s two-percent inflation target with gains of +1.5 percent and +1.6 percent, respectively.

#2Another revision reaffirmed Q1’s robust economic growth. The Bureau of Economic Analysis’ third estimate of Gross Domestic Product (GDP) has the U.S. economy expanding at a seasonally adjusted annualized rate of 3.1 percent. This matches the GDP estimate reported a month earlier and was just below the initial 3.2 percent estimate for Q1 economic growth indicated two months ago. Q1 GDP growth contributors (in descending order) were net exports, consumption, change in private inventories, nonresidential fixed investment, and government expenditures. The same report found that corporate profits (net of inventory valuation and capital consumption expenditures) fell 2.6 percent during the quarter. We will get our first glance of second-quarter GDP on July 26.

#3Concerns about trade tariffs weighed on consumer sentiment in June. The Consumer Confidence Index from the Conference Board fell by 9.8 points during the month to a seasonally adjusted 121.5 (1985=100), its lowest reading since September 2017. The present conditions index lost 8.1 points to a reading of 162.6 while the expectations index plummeted by 10.9 points to 94.1. Even with the pullback, a far higher percentage of survey respondents viewed current business conditions as “good” (36.7 percent) versus being “bad (10.9 percent). Consumers were less confident about the future—18.1 percent of survey respondents expect business conditions to improve over the next six months, while 13.1 percent expect them to worsen. The press release tied the pullback in sentiment to “the escalation in trade and tariff tensions.”

The University of Michigan’s Index of Consumer Sentiment declined by 1.8 points during June to a seasonally adjusted reading of 98.2. While a slight 3/10ths of a point improved from the preliminary June report published a few weeks ago, it matched its June 2018 mark. The present conditions index gained 1.9 points to 111.9 (June 2018: 116.5) while the expectations index slumped by 5.2 points to 89.3 (June 2018: 89.3). The press release noted that the decline in the headline index was about higher income survey respondents “who more frequently mentioned the negative impact of tariffs.”

#4There were more home purchase contract signings in May. The National Association of Realtors’ Pending Homes Sales Index (PHSI) ticked up 1.1 points during the month to a seasonally adjusted reading of 105.4 (2001=100). The index of contracts signed to purchase a previously owned home grew in three of four Census regions, with the West being the exception. The PHSI was off 0.7 percent from a year earlier with negative 12-month comparables in three of four Census regions (in this case, the South was the exception). The press release stated that homebuyers were “anxious” to take advantage of the recent decline in mortgage interest rates.

#5Homebuilder confidence slipped slightly in June. The National Association of Home Builders’ Housing Market Index (HMI) lost two points during the month to a seasonally adjusted reading of 64. This was the 60th consecutive month in which the HMI was above a reading of 50, indicative of more homebuilders’ seeing the housing market as being “good” versus being “poor.” The HMI improved in the Midwest, held steady in the South, but lost ground in both the Northeast and West. Also slipping in June were measures for current sales of single-family homes (71), expected home sales (70), and traffic of prospective buyers (48). The press release reports that housing demand was “sound,” but also that builders report concern about “trade issues” and rising development and construction costs.

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 22, 2019, First-Time Claims, seasonally adjusted): 227,000 (+10,000 vs. previous week; -4,000 vs. the same week a year earlier). 4-week moving average: 221,250 (+0.4% vs. the same week a year earlier).
New Home Sales (May 2019, New Home Sales, seasonally adjusted annualized rate): 626,000 (-7.8% vs. April 2019, -3.7% vs. May 2018).
FHFA House Price Index (April 2019, Purchase-Only index, seasonally adjusted): +0.4% vs. March 2019, +5.2% vs. April 2018.
Case-Shiller Home Price Index (April 2019, 20-City Index, seasonally adjusted): Unchanged vs. March 2019, +2.5% vs. April 2018.
Agricultural Prices (May 2019, Prices Received by Farmers): -1.1% vs. April 2019, -3.1% vs. May 2018.

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.

Retail and Manufacturing Fail to Impress: May 13 – 17

Retail and manufacturing each stumbled in April.  Here are the five things we learned from U.S. economic data released during the week ending May 17. 

#1Retail sales wobbled in April. The Census Bureau values retail and food services sales at a seasonally adjusted $513.4 billion, down 0.2 percent from March. Sales at auto dealers/parts stores slowed 1.1 percent but grew 1.8 percent at gas stations (thanks to higher prices at the pump). Net of both of these categories, core retail sales declined 0.2 percent in April and have risen a not particularly vigorous 3.2 percent over the past 12 months. During April, sales gained at department stores (+0.7 percent), restaurants/bars (+0.2 percent), sporting goods/hobby retailers (+0.2 percent), and grocery stores (+0.2 percent), but fell at retailers focused on building materials (-1.9 percent), electronics/appliances (-1.3 percent), apparel (-0.2 percent), and health/personal care (-0.2 percent).

#2Both manufacturing and overall industrial production faltered in April. The Federal Reserve estimates industrial production dropped for the third time in four months with a seasonally adjusted 0.5 percent decline in April that left the measure up a paltry 0.9 percent over the past year. Manufacturing output also contracted by 0.5 percent during the month (also its third decrease in four months) and off 0.2 percent from a year earlier. Durable goods production slumped 0.9 percent, with drops of at least two percent for motor vehicles, machinery, and electrical equipment/appliances. The output of nondurables slowed 0.1 percent. Warmer than average April weather led to a 3.5 percent reduction in utilities’ output while mining output rose 1.6 percent, thanks to increased oil and natural gas extraction and more coal mining. 

#3Housing starts had their best month in April since last summer. The Census Bureau places housing starts at a seasonally adjusted annualized rate of 1.205 million units, up 5.7 percent from March but still 2.5 percent under from the pace of April 2018. Starts of single-family homes rose 6.2 percent to an annualized 854,000 units (its best month since January) while multi-family unit home starts edged up 2.3 percent to 359,000 (its best since last November). Permit data suggest modest growth over the near-term, as the rate of issued housing permits eked out a 0.6 percent gain to 1.96 million permits (which was 5.0 percent below the year-ago pace). Housing completions slowed 1.4 percent during the month to an annualized 1.312 million homes (+5.5 percent versus April 2018).

#4Homebuilders grew more optimistic about the housing market in May. The National Association of Home Builders’ Housing Market Index (HMI) increased by three points to a seasonally adjusted 66. This was the 59th consecutive month in which the HMI was above a reading of 50, indicating that a higher percentage of homebuilders saw the housing market as being “good” rather than being “poor.” The index improved in three of four Census regions while holding steady in the Midwest. Also moving forward during the month were indices tracking single-family home sales (up three points to 72), expected sales of single-family homes (up a point to 72), and traffic of prospective buyers (up two points to 49). The press release noted that survey respondents had “characterize[d] sales as solid, driven by improved demand and ongoing low overall supply.”

#5Small business owner sentiment firmed in April. The National Federation of Independent Business’s Small Business Optimism Index grew for the third consecutive month with a 1.7 point gain to a seasonally adjusted 103.5 (1986=100). While off from the 104.8 reading a year earlier, the index has been above 100.0 for 29 straight months. Eight of the ten index components improved from their March readings, led by earnings trends, expected credit conditions, and plans to increase inventories. The press release noted that “[t]he ‘real’ economy is doing very well versus what we see in financial market volatility.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 11, 2019, First-Time Claims, seasonally adjusted): 212,000 -16,000 vs. previous week; -9,000 vs. the same week a year earlier). 4-week moving average: 225,000 (+5.2% vs. the same week a year earlier).
Import Prices (April 2019, All Imports, not seasonally adjusted): +0.2% vs. March 2019, -0.2% vs. April 2018. Nonfuel Imports: -0.1% vs. March 2019, -0.9% vs. April 2018.
Export Prices (April 2019, All Exports, not seasonally adjusted): +0.2% vs. March 2019, +0.3% vs. April 2018.  Nonagricultural Exports: +0.4% vs. March 2019, +0.7% vs. April 2018.
Leading Indicators (April 2019, Index (2016=100)):  112.1 (vs. March 2019: 111.9, vs. April 2018: 109.1).
University of Michigan Consumer Sentiment (May 2019-preliminary, Index of Consumer Sentiment (1966Q1=100), seasonally adjusted): 102.4 (vs. April 2019: 97.2, May 2018: 98.0).
State Employment (April 2019, Nonfarm Payrolls, seasonally adjusted): Vs. March 2019: Up in 10 states, down in 1 state, and essentially unchanged in 39 states and the District of Columbia. Vs. April 2018: Up in 29 states and essentially unchanged in 21 states and the District of Columbia.
Business Inventories (March 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.018 trillion (Unchanged vs. February 2019, +5.0% vs. March 2018).
Treasury International Capital Flows (March 2019, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): -$20.6 billion (vs. February 2019: +$52.8 billion, vs. March 2018: -$14.8 billion).

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