Retail Sales Up, Industrial Production Down: January 13 – 17

Retail sales ended 2019 on a positive note while job openings fell sharply. Here are the five things we learned from U.S. economic data released during the week ending January 17.

#1Holiday retail sales were decent. The Census Bureau estimates retail and food services sales grew 0.3 percent in December to a seasonally adjusted $529.6 billion. Sales slowed 1.3 percent at auto dealers/parts stores but rose 2.8 percent at gas stations. Net of sales at auto dealers/parts stores and gas stations, core retail sales bloomed 0.5 percent in December and were 5.7 percent of the year-ago pace. A quick look at combined November-December sales—a proxy for the recent holiday season—finds core retail sales were a solid 4.2 percent ahead of that of the prior year. In December, sales rose at retailers focused on apparel (+1.6 percent), building materials (+1.4 percent), sporting goods/hobbies (+0.9 percent), groceries (+0.4 percent), and furniture (+0.1 percent). Restaurant sales eked out a 0.2 percent improvement. Sales fell 0.8 percent at department stores.

#2Industrial production slowed for the third time in four months in December. The Federal Reserve estimates industrial production dropped a seasonally adjusted 0.3 percent, following a 0.8 percent increase in November and two consecutive 0.5 percent decreases in September and October. The headline index drop occurred despite a 0.2 percent improvement in manufacturing output (following a 1.0 percent bounce in November). Durable goods production slowed 0.2 percent (including a 4.6 percent slump in motor vehicle/parts output). In contrast, the output of nondurables expanded by 0.6 percent. Mining output advanced for the first time since August with a 1.3 percent gain while utilities production fell 5.6 percent due to moderate winter weather. Industrial production was 1.0 percent below that of a year earlier while manufacturing output was 1.3 percent behind the year-ago pace. 

#3Job openings shrank in November. The Bureau of Labor Statistics states that there were a seasonally adjusted 6.800 million job openings at the end of the month, down 561,000 from October and 10.8 percent from the year earlier. Even with the decline, there were more job openings than the number of unemployed adults (5.753 million). Private-sector job openings were off 12.7 percent from the same month a year earlier, with sizable year-to-year percentage declines in retail (-32.5 percent), construction (-23.3 percent), manufacturing (-22.6 percent), financial activities (-11.7 percent), accommodations/food services (-9.5 percent), and professional/business services (-7.8 percent). The number of job hires grew by 39,000 in November to 5.821 million, which matched the November 2018 count. 5.648 million people left their jobs in November, down a mere 4,000 from October and up a modest 0.9 percent from a year earlier. 3.536 million people quit their jobs during the month (+39,000 vs. October 2019 and +4.6 percent vs. November 2018) while the number of people laid off declined 46,000 to 1.749 million (-7.4 percent vs. November 2018).

#4Inflation took a holiday in December. The Bureau of Labor Statistics indicates that the Consumer Price Index (CPI) increased 0.2 percent on a seasonally adjusted basis during the month, down from gains of 0.4 percent and 0.3 percent in October and November, respectively. Food CPI grew 0.2 percent while energy CPI jumped 1.4 percent, the latter growing due to gasoline prices jumping 2.8 percent. Net of food and energy, core CPI increased 0.1 percent, its smallest gain since September. Rising were prices for medical care commodities (+1.5 percent) and services (+0.4 percent), apparel (+0.4 percent), shelter (+0.2 percent), and new vehicles (+0.1 percent). Prices fell for used cars/trucks (-0.8 percent) and transportation services (-0.3 percent). Both headline and core CPI have risen 2.3 percent over the past year.

Final demand Producer Price Index (PPI) inched up a seasonally adjusted 0.1 percent in December after holding steady during the prior month. The core measure of wholesale prices, which nets out of food, energy, and trade services, had a matching 0.1 percent increase. PPI for goods grew 0.3 percent. Prices jumped 1.5 percent for wholesale energy (gasoline: +3.7 percent) but fell 0.3 percent for wholesale food. PPI for final demand services held steady in December even as trade services PPI (measuring retailer and wholesaler margins) decreased 0.3 percent. Over the past year, final demand PPI has risen a modest 1.3 percent. In contrast, the 12-month comparable for the core measure has gained 1.5 percent.

#5Housing starts rose to a 13-year high in December. The Census Bureau reports housing starts jumped 16.9 percent during the month to a seasonally adjusted annualized rate of 1.375 million units. This was 40.8 percent ahead of the year-ago starts rate and the measure’s highest mark since October 2006. Starts surged for both single-family (+11.2 percent vs. November 2019, +29.6 percent vs. December 2018) and multi-family units (+32.0 percent vs. November 2019, +74.6 percent vs. December 2018). Looking towards the future, the annualized count of issue housing permits declined 3.9 percent in December to 1.416 million (+5.8 percent vs. December 2018). The annualized count of housing completions grew 5.1 percent during the month to 1.277 million homes, up 19.6 percent from the same month a year earlier. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 11, 2020, First-Time Claims, seasonally adjusted): 204,000 (-10,000 vs. previous week; -13,000 vs. the same week a year earlier). 4-week moving average: 216,250 -3.0% vs. the same week a year earlier).
Import Prices (December 2019, All Imports, not seasonally adjusted): +0.3% vs. November 2019, +0.5% vs. December 2018. Nonfuel Imports: Unchanged vs. November 2019, -1.4% vs. December 2018.
Export Prices (December 2019, All Exports, not seasonally adjusted): -0.2% vs. November 2019, -0.7% vs. December 2018. Non-Agricultural Exports: -0.1% vs. November 2019, -0.6% vs. December 2018.
University of Michigan Surveys of Consumers (January 2020-preliminary, Index of Consumer Sentiment (1966Q1=100), seasonally adjusted):  99.1 (vs. December 2019: 99.3, January 2019: 91.2.
Housing Market Index (January 2020, Index (>50=More homebuilders view the housing market as “good” versus “poor,” seasonally adjusted): 75 (vs. December 2019: 76, January 2019: 58).
Small Business Optimism Index (December 2019, Index (1986=100), seasonally adjusted): 102.7 (vs. November 2019: 104.7, vs. December 2018: 104.4).
Business Inventories (November 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.037 trillion (-0.2% vs. October 2019, +2.8% vs. November 2018.
Treasury International Capital Flows (November 2019, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$7.3 billion (vs. October 2019: +$4.3 billion, November 2018: -$3.0 billion.
Beige Book

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Economic Data Sends Mixed Messages: November 18 – 22

While leading indicators suggest economic weakness, both housing and sentiment gained momentum. Here are the five things we learned from U.S. economic data released during the week ending November 22.

#1Forward-looking economic indicators remained sluggish in October. The Conference Board’s Leading Economic Index (LEI) pulled back for a third consecutive month with a 1/10th of a point decline to 111.7 (2016=100). The LEI has remained within a small range over the past year. Only five of ten LEI components made positive contributions, led by building permits while manufacturing index components dragged down the measure. The coincident index held steady at a reading of 106.5, up 1.4 percent from a year earlier. Three of four coincident index components made positive contributions, led by personal income. The lagging index inched up 1/10th of a point to a reading of 108.1, with three of seven index components making a positive contribution (led by the length of unemployment). The press release says the results suggest “the economy will end the year on a weak note, at just below two percent growth.”

#2Previously home sales bounced back in October. Existing home sales, as measured by the National Association of Realtors, increased 1.9 percent during the month to a seasonally adjusted annualized rate of 5.46 million units. Sales expanded in the South (+4.4 percent) and Midwest (+1.6 percent) but slowed in the Northeast (-1.4 percent) and West (-0.9 percent). Sales have risen 4.6 percent over the past year, with three of four Census regions enjoying positive 12-month comparables. Sales matched that of a year earlier in the Northeast. The supply of homes tightened further, falling 2.7 percent to 1.77 million units, the equivalent to a 3.9 month supply. The median sales price of $270,900 was up 6.2 percent from a year earlier. The press release attributes the improvement in sales to “[h]istorically-low interest rates, continuing job expansion, higher weekly earnings and low mortgage rates.”

#3Housing starts rebounded in October. The Census Bureau reports that housing starts gained 3.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.314 million units. Starts were 8.5 percent ahead of their year-ago mark. Single-family home starts grew 2.0 percent in October while those of multi-family units rose 6.5 percent. Permit activity presents a positive outlook—the number of issues permits increased 5.0 percent during the month to an annualized 1.391 million permits. This was up 14.1 percent from a year earlier. The annualized count of completed homes surged 10.3 percent in October to 1.256 million homes (+12.4 percent versus October 2019).

#4Sentiment among homebuilders remained solid in November. The National Association of Home Builders’ Housing Market Index (HMI) came in at a seasonally adjusted reading of 70. The measure was off a point from October but up ten points from a year earlier. Further, the HMI has been above a reading of 50—indicative of more homebuilders seeing the housing market as “good” as opposed to being “poor”—for 65 straight months. The HMI grew three in four Census regions: Northeast (up three points to 63), West (up two points to 85), and Midwest (up a point to Midwest). The HMI shed two points in the South to a reading of 74. The press release notes that builders report “ongoing positive conditions,” boosted by low interest rates and a robust labor market.

#5Consumer confidence rose to its highest level since the summer. The University of Michigan’s Index of Consumer Sentiment added 1.3 points in November to a seasonally adjusted reading of 96.8 (1966Q1=100). Even with the increase, the measure was off 7/10ths of a point from a year earlier. While the current conditions index shed 1.6 points during the month to 111.6 (November 2018: 111.6), the expectations index improved by 3.1 points to 87.3 (November 2018: 88.1). The press release points out that the headline index has been above a reading of 95.0 in 30 of the past 35 months, a show of strength not seen since a period between 1998 and 2000.

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 16, 2019, First-Time Claims, seasonally adjusted): 227,000 (Unchanged vs. previous week; +3,000 vs. the same week a year earlier). 4-week moving average: 221,000 (+0.1% vs. the same week a year earlier).
State Employment (October 2019, Nonfarm Payrolls, seasonally adjusted): vs. September 2019: up in 4 states, down in 1 state, and essentially unchanged in 45 states and the District of Columbia. Vs. October 2018: Up in 27 states and essentially unchanged in 23 states and the District of Columbia.
Treasury International Capital Flows (September 2019, Net Foreign Purchases of Domestic Securities, not seasonally adjusted): +15.4 billion (vs. August 2019: -$42.0 billion, vs. September 2018: +$8.5 billion.
FOMC Minutes

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

Fed Cuts Again, Unclear on Next Steps: September 16 – 20

The Federal Reserve cuts its short-term interest rate target and sent a mixed message on what may be next. Here are the five things we learned from U.S. economic data released during the week ending September 20.

#1A divided Fed lowered its short-term interest rate target. In the statement released following this past week’s meeting of the Federal Open Market Committee (FOMC) noted that the U.S. economy was “rising at a moderate rate,” the “labor market remains strong,” and household spending was robust. But the statement also indicated that both business investment and exports “have weakened” and inflation remains below the Fed’s two-percent target. As a result, the FOMC voted to cut the fed funds target rate by a quarter-percent point to a range of 1.75 percent and 2.00 percent because “of the implications of global developments for the economic outlook as well as muted inflation pressures.” The decision was not unanimous: two voting members wanted to leave the fed funds target rate unchanged while one member sought a half-point rate cut.

Looking at economic forecasts by FOMC members released in conjunction with the policy statement, it is clear that there is even more disagreement on what is next. Seven voting members anticipate at least one more rate cut before the end of 2019, while five members expect this past week’s rate cut would be the final cut of the year and five had not expected even this rate cut. The same forecasts have the U.S. economy expanding at 2.0 percent next year with an unemployment rate of 3.7 percent and inflation just below the Fed’s target at 1.9 percent.FOMC Fed Funds Forecast 092019

#2Forward-looking economic measures suggest slowing growth. The Conference Board’s Leading Economic Index (LEI) held steady in August at a reading of 112.1, following a 4/10ths of a point increase during the prior month. The LEI has grown a modest 1.1 percent over the past year. Five of the ten LEI components made positive contributions, led by housing building permits. The coincident index added 3/10ths of a point to 106.4 (+1.6 percent versus August 2018). All four components of the coincident index made positive contributions, led by industrial production. The lagging index shed 3/10ths of a point to 108.2 (+3.0 percent versus August 2018) as only three of seven components made a positive contribution. The press release said that the leading index was “consistent with a slow but still expanding economy, which has been primarily driven by strong consumer spending and robust job growth.”

#3Manufacturing production rebounded in August. The Federal Reserve tells us that manufacturing output grew a seasonally adjusted 0.5 percent during the month following a 0.4 percent pullback in July. Output for durable and nondurable goods each rose 0.5 percent, with the former boosted by higher than one-percent gains for machinery, primary metals, and nonmetallic mineral goods. Plastics/rubber products and chemicals lifted the nondurables figure. Overall industrial production grew 0.6 percent in August after having had slipped 0.1 percent during the prior month. Mining output jumped 1.4 percent following a 1.5 percent decline in July (caused by a temporary slowdown in oil extraction resulting from Hurricane Barry). Production at utilities grew 0.6 percent in August. Even with its expansion in August, manufacturing output was 0.4 percent smaller than that of a year earlier while the 12-month comparable for overall industrial production was a modest +0.4 percent.

#4Existing home sales edged up in August. Sales of previously owned homes gained 1.3 percent in August to a seasonally adjusted annualized rate (SAAR) of 5.49 million units (up 2.6 percent from August 2018). The National Association of Realtors’ measure grew in three of four Census regions—Northeast (+7.6 percent), Midwest (+3.1 percent), and South (+0.9 percent)—but fell 3.4 percent in the West. Home sales in four Census regions had positive 12-month comparables. Inventories of unsold homes remained tight, falling 2.1 percent during the month to 1.86 million houses (-2.6 percent versus August 2018). This was the equivalent to a 4.1 month supply. The median sales price has grown 4.7 percent over the past year to $278,200. The press release credits the recent drop in mortgage interest rates for the rise in home sales.

#5Housing starts bloomed in August. The Census Bureau reports that housing starts rose 12.3 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.215 million units. This left the measure 6.6 percent ahead of its year-ago mark. Single-family home starts increased 4.4 percent while those of multi-family units surged 30.9 percent. Leading towards the future, the number of issued housing permits gained 7.7 percent in August to an annualized 1.419 million permits (+12.0 percent versus August 2018). The annualized count of permits for single-family homes grew 4.5 percent during the month while that for homes with five or more units jumped 14.9 percent. Housing completions gained 2.4 percent in August to an annualized 1.294 million homes, up 5.0 percent from a year earlier.

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 14, 2019, First-Time Claims, seasonally adjusted): 208,000 (+6,000 vs. previous week; -4,000 vs. the same week a year earlier). 4-week moving average: 212,250 (+0.5% vs. the same week a year earlier).
Housing Market Index (September 2019, Index (>50 = ”Good” housing market), seasonally adjusted): 68 (vs. August 2019: 67, vs. September 2018: 67).
State Employment (August 2019, Nonfarm Payrolls, seasonally adjusted):  vs. July 2019: Grew in 5 states, Decreased in 1 state, and Unchanged in 44 states and the District of Columbia.  Vs. August 2018: Grew in 26 states and Unchanged in 34 states and the District of Columbia.
Treasury International Capital (July 2019, Net Foreign Purchases of Domestic Securities, not seasonally adjusted): +$72.3 billion (vs. June 2019: +$65.3 billion, vs. July 2018: +$34.5 billion).

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