Inflation Solidifies and Manufacturing Rebounds: November 13 – 17

Inflation measures continued to converge towards the Fed’s target. Here are the five things we learned from U.S. economic data released during the week ending November 17.  

#1Topline consumer inflation was modest in October. The Consumer Price Index (CPI) inched up 0.1 percent during the month, per the Bureau of Labor Statistics. This followed gains of 0.4 percent and 0.5 percent during August and September, respectively. Holding down the headline index was the 1.0 percent drop in energy prices as gasoline prices declined 2.3 percent. Food CPI was unchanged for the month. Net of both energy and food, core CPI grew 0.2 percent during October and has risen 1.8 percent over the past 12 months. This was the largest 12-month comparable for core consumer prices since April as it gradually edges closer to the Federal Reserve’s two-percent target inflation rate. Used car/truck prices jumped 0.7 percent, with prices also rising for shelter (+0.3 percent), medical services (+0.3 percent), and transportation services (+0.2 percent). Falling during the month were prices for new vehicles (-0.2 percent) and apparel (-0.1 percent).CPI October 2017--111717

#2Meanwhile, wholesale prices repeated the prior month’s increase in October. The Producer Price Index (PPI) for final demand grew at a seasonally adjusted 0.4 percent rate during the month, matching September’s increase and doubling August’s rise. The Bureau of Labor Statistics’ core measure of wholesale prices (removing energy, food, and trade services) grew 0.2 percent for the third consecutive month. PPI for final demand energy was unchanged during the month (as wholesale gasoline prices fell 4.6 percent) while that for final demand food jumped 0.5 percent, its biggest single-month increase since June. PPI for core goods (net of energy and food) grew 0.3 percent, impacted by a 2.1 percent jump in the price for pharmaceutical preparations. PPI for final demand services jumped 0.5 percent, including a 1.1 percent rise in trade services PPI (largely retailer and wholesaler margins). Final demand PPI has risen 2.8 percent over the past year while the 12-month comparable for the core measure has gained 2.3 percent, the fifth time over the past seven months that it has been at or above two-percent.

#3Manufacturing output grew faster than it has in any month since April. The Federal Reserve reports manufacturing production jumped 1.3 percent on a seasonally adjusted basis during October, following a 0.4 percent gain in September. The Fed attributes much of the gain to activity returning to normal levels following disruptions caused by the hurricanes in August and September. Output of durables increased 0.4 percent (including a 1.0 percent rise in automobile production) while nondurables output surged 2.3 percent. Production grew by more than one percent for chemicals, petroleum/coal products, textiles, and apparel. Manufacturing output has gained 2.5 percent over the past year. Overall industrial production increased 0.9 percent (also its largest single-month gain since April), putting output 2.9 percent above its October 2016 mark. Output at utilities gained 2.0 percent while mining output fell 1.3 percent (later caused by temporary disruptions in oil drilling due to Hurricane Nate).

#4Retail sales expanded at a slower pace during October. Following a hurricane preparation and recovery fueled 1.9 percent surge during the previous month, retail and food services sales grew a far more modest 0.2 percent during October. The Census Bureau estimates sales were at a seasonally adjusted $486.6 billion, which was 4.6 percent ahead of its year-ago pace. Sales at auto dealers/parts stores jumped 0.7 percent while activity fell 1.2 percent at gas stations (primarily because of declining prices at the pump). Net of both, core retail sales increased 0.3 percent. Sales grew at 1.5 percent at sporting goods/hobby stores, 0.8 percent at both apparel stores and bars, 0.7 percent at both furniture and appliance/electronics retailers, and 0.6 percent at grocery stores. Sales fell 1.2 percent at building material stores and 0.3 percent at nonstore retailers.

#5Housing starts rose to their highest level in a year during October. The Census Bureau reports that housing starts grew 13.7 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.290 million units. This was the highest level of housing starts since October 2016, when starts were at an annualized rate of 1.328 million units. Starts of single-family units increased 5.3 percent during the month while multi-family units surged 37.4 percent in October. Starts grew in three of four regions with only the West experiencing a decline. Looking towards the future, the number of issued building permits rose 5.9 percent in October to a SAAR of 1.297 million permits, 0.9 percent above the year-ago rate. The annualized rate of home completions blossomed 12.6 percent during October to 1.232 million homes with a 12-month comparable of 15.5 percent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 11, 2017, First-Time Claims, seasonally adjusted): 249,000 (+10,000 vs. previous week; +10,000 vs. the same week a year earlier). 4-week moving average: 237,750 (-5.4% vs. the same week a year earlier).
Import Prices (October 2017, All Imports, not seasonally adjusted): +0.2% vs. September 2017, +2.5% vs. October 2016. Nonfuel imports: +0.2% vs. September 2017, +1.4% vs. October 2016.
Export Prices (October 2017, All Exports, not seasonally adjusted): Unchanged vs. September 2017, +2.7% vs. October 2016. Nonagricultural Exports: -0.3% vs. September 2017, +2.5% vs. October 2016.
State Employment (October 2017, Nonfarm Payrolls, seasonally adjusted): 9 states with significant month-to-month increases in payrolls and 3 states had significant month-to-month employment decreases. 27 states had significant year-to-year increases in payrolls.
Small Business Optimism (October 2017, Index (1986=100), seasonally adjusted): 103.8 (vs. September 2017: 103.0; October 2016: 94.9).
Treasury International Capital Flows (September 2017, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$60.8 billion (vs. August 2017: +$40.4 billion, vs. September 2016: -$51.4 billion).
Monthly Treasury Statement (October 2017, Budget Surplus/Deficit): -$63.2 billion (vs. October 2016: -$45.8 billion).
Business Inventories (September 2017, Manufacturers’ and trade inventories, seasonally adjusted): $1.889 trillion (unchanged vs. August 2017, +3.5% vs. September 2016).

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

Tight Inventories Continue to Slow Home Sales: October 16 – 20.

September was a mixed bag for both the housing market and manufacturing. Here are the five things we learned from U.S. economic data released during the week ending October 20.  

#1Existing homes sales grew for only the second time in six months during September. The National Association of Realtors’ measure of sales of previously owned homes increased 0.7 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.390 million units. The increase left the sales 1.5 percent below their year-ago pace, although it is worth noting that the annualized sales rate has stayed within a tight range of 5.35 and 5.70 million units over the past year. Sales grew during the month in the West and Midwest, held steady in the Northeast and slipped in the South. None of the four Census regions had positive year-to-year increases in home sales. One of the reasons for the muddled sales picture is the relatively small number of homes on the market—at the end of September, there were 1.900 million homes available for sale. While this was up 1.6 percent from August, it represented not only a 6.4 percent decline from a year early but also a very tight 4.2 month supply of homes. As a result, the median sales price of previously owned homes has grown 4.2 percent over the past year to $245,100. NAR’s press release blamed both “supply shortages” and recent hurricanes for the “muted overall activity.”

Housing Inventory 2014-17 102017

#2Housing starts slowed during September. The Census Bureau indicates that starts of privately owned housing units were at a seasonally adjusted annualized rate (SAAR) of 1.127 million units, down 4.7 percent from August but still 6.1 percent above the year-ago pace. Starts of single-family homes slowed 4.6 percent to an annualized pace of 829,000 while that of multifamily units (5+ units) dropped 6.2 percent to 286,000. Starts slowed in the Midwest (-20.2 percent), South (-9.3 percent), and the Northeast (-9.2 percent) but increased 15.7 percent in the West. Looking toward the future, the number of issued building permits fell 4.5 percent during September to a SAAR of 1.215 million. This was 4.3 percent below the year-ago annualized rate of issued permits. Issued permits for single-family units, however, increased 2.4 percent during September. Housing completions gained 1.1 percent during the month to a SAAR of 1.109 million homes. This was 10.3 percent above the completions rate during September 2016.

#3Manufacturing output eked out a small gain during September. The Federal Reserve indicates that manufacturing output grew 0.1 percent on a seasonally adjusted basis during the month, putting the measure 1.0 percent above its September 2016 reading. Output of durable jumped 1.0 percent during September while that for nondurables fell 0.9 percent. The former was boosted by increased production of nonmetallic mineral products, machinery, and electrical equipment/appliances. Most categories of nondurables suffered production declines except for food/beverages and plastics/rubber products. Overall industrial production grew 0.3 percent during September, following two monthly declines. Industrial production was 1.6 percent above that of a year earlier. Mining production increased 0.4 percent (thanks to greater oil/gas extraction) while output at utilities bounced back from August’s big decline with a 1.5 percent gain. Overall capacity utilization grew by 2/10ths of a percentage point to 76.0 percent (September 2016: 75.6 percent) while manufacturing sector factories hummed at the same level that they had in August at 75.1 percent (September 2016: 74.9 percent).

#4Forward-looking economic indicators took a step back in September, largely due to the hurricanes. The Leading Economic Index from the Conference Board shed 2/10ths of a point to a seasonally adjusted 128.6 (2010=100). The measure was nevertheless 4.0 percent above its year-ago reading. Six of the economic measures that make up the leading index improved during the month, including those for new manufacturing orders and the interest rate spread. But the huge (but short-lived) surge in initial jobless claims weighed heavily on the index. The coincident index edged up 1/10th of a point to 115.7, putting it 1.7 percent above its year-ago mark. Three of the four components of the coincident index made positive contributions: personal income, industrial production, and manufacturing/trade sales. The lagging index slipped by 1/10th of a point to 125.2 (+2.4 percent versus September 2016), with three of seven components moving forward during the month. The press release said that “the trend in the US LEI remains consistent with continuing solid growth in the US economy for the second half of the year.”

#5Employment expanded in five states while falling in six others during September. The Bureau of Labor Statistics reports that nonfarm payrolls grew significantly in five states during the month, led by California (+52,000), Washington (+13,800), and Indiana (+11,400). Payrolls contracted in six states, led by Hurricane Irma ravished Florida, where nonfarm payrolls shrank by 127,400. Other states experiencing substantial payroll declines included New York (-34,100) and Missouri (-10,500). Over the past year, 28 states saw significant expansions in nonfarm payrolls, with the biggest percentage gains in Nevada (+2.5 percent), Utah (+2.5 percent), and Maryland (+2.4 percent). No state experienced a significant year-to-year percentage decline in nonfarm payrolls over the past 12 months.

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 14, 2017, First-Time Claims, seasonally adjusted): 222,000 (-22,000 vs. previous week; -26,000 vs. the same week a year earlier). 4-week moving average: 248,250 (-1.3% vs. the same week a year earlier).
Housing Market Index (October 2017, Index (%age of homebuilders saying the housing market is “good” minus %age of homebuilders saying it is “poor.”), seasonally adjusted): 68 (vs. September 2017: 64; October 2016: 63).
Bankruptcy Filings (12-month period ending September 30, 2017, Bankruptcy Filings): 790,830 (-1.8% vs. 12-month period ending September 30, 2016).
Treasury International Capital Data (August 2017, Net Foreign Purchases of Domestic Securities, not seasonally adjusted): +$34.6 billion (vs. July 2017: +$5.1 billion; August 2016: +24.0 billion).
Beige Book

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

The Fed Is About to Normalize…Very Slowly: September 18 – 22

The Federal Reserve takes a small step forward while the housing market takes a small step backward. Here are the five things we learned from U.S. economic data released during the week ending September 22.

#1The Fed will begin the next stage of tightening next month. The policy statement released following last week’s meeting of the Federal Open Market Committee (FOMC) noted that labor market “has continued to strengthen” and that “economic activity has been rising moderately so far this year.” At the same time, inflation remained below the Federal Reserve’s two-percent target and wage pressures remained weak. The statement also noted that Hurricanes Harvey and Irma may lead to some short-term economic disruptions but “past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term.” With all of that in mind, the voting FOMC members voted to keep the fed funds target rate at a range between 1.00 and 1.25 percent. But the news from the policy statement was that the Fed would begin to normalize its balance sheet starting in October by shedding $10 billion of its holdings during the month. This is a small first move—the Fed’s balance sheet was at nearly 4.46 trillion in mid-September.

The other headline in the release comes from the updated economic forecasts from the FOMC members. The median forecast suggests that there will be one more quarter-point hike in the fed funds target rate this year (presumably at the December meeting). While was surprising to some analysts, this would be consistent with the comment above that the voting members do not believe the recent hurricanes will have a lasting detrimental impact on economic growth. In fact, the median Gross Domestic Product (GDP) forecast for 2017 increased from +2.2 percent (as reported in the previously released forecast this summer) to +2.4 percent. Holding firm was the forecasted 2017 unemployment  (4.3 percent) and inflation (+1.6 percent) rate. Looking forward, the FOMC members currently anticipate there being three rate hikes (a quarter point each) in 2018.FOMC Economic Forecast 092217

#2Existing home sales slipped for a third straight month. The National Association of Realtors reports that sales of previously owned homes decreased 1.7 percent during August to a seasonally adjusted annualized rate (SAAR) of 5.35 million units. This was the third straight monthly decline and the measure’s lowest reading in a year. The sales decline was isolated to both the South (-5.7 percent) and West (-4.8 percent) as sales grew in both the Northeast (+10.8 percent) and Midwest (+2.4 percent). The press release lays blame on “inadequate levels of available inventory and the upward pressure” and on rising home prices. There were 1.88 million homes available for sale at the end of August, down 2.1 percent from July, 6.5 percent from a year earlier, and the lowest inventory reading since March. The median sales price of homes sold has grown 5.6 percent over the past year to $253,500.

#3Housing starts also slowed a bit during August. Per the Census Bureau, housing starts slipped 0.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.180 million units (+1.4. percent versus August 2016). Single-family unit starts grew 1.6 percent during August. Starts increased in both the Midwest (+22.0 percent) and West (+4.0 percent) but lost ground in both the South (-7.9 percent) and Northeast (-5.8 percent). Looking towards the future, the SAAR of issued building permits jumped 5.7 percent during August to 1.300 million permits, although the rate of issued permits for single-family homes cooled 1.5 percent. The annualized rate of housing completions fell 10.2 percent during the month to 1.040 million units. This was 3.4 percent above the year-ago rate.

#4Homebuilder confidence remains firm if slightly nicked due to recent hurricanes. The National Association of Home Builders’ Housing Market Index shed three points during September to a seasonally adjusted reading of 64. This was the 39th straight month in which the index was above a reading of 50, indicating that a greater percentage of homebuilders see the housing market as being “good” rather than being “poor.” The index dropped by six points in the Midwest (59) and four points in the South (59) but increased in both the West (up two points to 79) and Northeast (up a point to 50). Losing four points each were measures of both current sales (70) and expected sales (73) of single-family homes. The index of traffic of prospective buyers lost one point to 47. While describing homebuilders’ confidence as being “on very firm ground,” the press release noted that Hurricanes Harvey and Irma “have intensified [builders’] concerns about the availability of labor and the cost of building materials.”

#5Forward-looking economic indicators suggest continued economic growth for the rest of the year. The Conference Board’s Leading Economic Indicators had a half point during August to a reading of 128.8 (2010=100). This was up 4.4 percent from its year-ago reading. Seven of the ten components to the leading indicators made positive contributions, led by housing building permits, the interest rate spread, and consumers’ expectations for business conditions. The coincident index was unchanged in August but was 1.9 percent above its August 2016 reading. A drop industrial production matched the positive impact of the coincident index’s three other components (nonfarm payrolls, personal income net of transfer payments, and manufacturing/trade sales). The lagging index added 4/10ths of a point to 125.2 (+2.5 percent versus August 2016). The press release noted that the data do not reflect the impact of recent hurricanes on the economy but also stated that “the underlying trends suggest that the current solid pace of growth should continue in the near term.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 16, 2017, First-Time Claims, seasonally adjusted): 259,000 (-23,000 vs. previous week; +7,000 vs. the same week a year earlier). 4-week moving average: 268,750 (+4.7% vs. the same week a year earlier).
Import Prices (August 2017, All Imports, not seasonally adjusted): +0.6% vs. July 2017, +2.1% vs. August 2016. Nonfuel Imports: +0.3% vs. July 2017, +1.0% vs. August 2016.
Export Prices (August 2017, All Exports, not seasonally adjusted): +0.6% vs. July 2017, +2.3% vs. August 2016. Nonagricultural exports: +0.7% vs. July 2017, +2.4% vs. August 2016.
Treasury International Capital (July 2017, Net Domestic Securities Purchased by Foreigners, not seasonally adjusted): vs. June 2017: +$5.1 billion, vs. July 2016: +64.9 billion.
FHFA House Price Index (July 2017, Purchase-Only Index, seasonally adjusted): +0.2% vs. June 2017, +6.3% vs. July 2016.

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