Manufacturing and Retail Thrived in June: July 16 – 20

A series of economic news points to activity heating up during the first days of summer. Here are the five things we learned from U.S. economic data released during the week ending July 20.  

#1Manufacturing (and industrial production as a whole) rebounded in June. The Federal Reserve indicates manufacturing output gained 0.8 percent on a seasonally adjusted basis during the month, following a 1.0 percent pullback in May. Virtually all of June’s gain was on the durable goods side, where production swelled 1.6 percent. This included a 7.8 percent surge in automobile production (which had slumped 8.6 percent in May) and gains of at least one-percent for computers/electronics, wood products, and aerospace/transportation equipment. Nondurable output eked out a 0.1 percent increase during June. Overall industrial production grew 0.6 percent during the month following May’s 0.5 percent drop. Mining output increased 1.2 percent (with oil and gas extraction leading the way). Meanwhile, utility output slumped 1.5 percent. Over the past year, industrial production has grown 3.8 percent, with positive 12-month comparables for manufacturing (+1.9 percent), mining (+12.9 percent), and utilities (+5.0 percent).Industrial Production Manufacturing 072018

#2Retail sales remained solid as we entered the summer. The Census Bureau estimates retail and food service sales grew 0.5 percent during the month to a seasonally adjusted $506.8 billion. This was 6.6 percent ahead of the year-ago sales pace. Net of sales at auto dealers/parts stores (+0.9 percent) and gas stations (+1.0 percent, thanks to higher prices at the pump), core retail sales increased by a still decent 0.3 percent during the month and has grown 5.6 percent over the past year. The report also featured significant upward revisions to May sales, showing the headline and core sales rising 1.3 percent and 1.2 percent, respectively. Sales improved during June at retailers focused on health/personal care (+2.2 percent), building materials (+0.8 percent), and furniture (+0.6 percent). Sales also jumped 1.5 percent at restaurants/bars. But the news was not positive everywhere, with sales slumping at sporting goods/hobby stores (-3.2 percent), apparel retailers (-2.5 percent), electronics/appliance retailers (-0.4 percent), and grocery stores (-0.2 percent). 

#3Forward-looking economic indicators point to an accelerating U.S. economy in June. The Conference Board’s Leading Economic Index (LEI) added a half point to a seasonally adjusted reading of 109.8 (+5.8 percent versus June 2017). Seven of the ten components of the LEI made positive contributions during the month, led by new orders as measured by the Institute for Supply Management and the interest rate spread. The coincident index gained by 3/10ths of a point to 103.9 (+2.3 percent versus June 2017), aided by positive contributions for all four its components (including industrial production and nonfarm payrolls). The lagging index also increased by 3/10ths of a point (to a reading of 105.4, +2.7 percent versus June 2017). Four of the seven lagging index components made positive contributions, including those for the amount of outstanding commercial & industrial loans and the average length of unemployment. The press release said that the results do “not suggest any considerable growth slowdown in the short-term.”

#4Housing construction slowed in June. The Census Bureau reports that housing starts sank 12.3 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.173 million units. This represented a 4.2 percent decline from the June 2017 pace. Single-family home starts dropped 9.1 percent to 858,000 units (SAAR), just 0.2 percent under the year-ago pace while multifamily units started fell 20.2 percent to 304,000 units (-15.3 percent versus June 2017). Also declining was the annualized number of building permits, down 2.2 percent for the month to 1.301 million permits (-3.0 percent versus June 2017). The rate of housing completions held firm for the month at 1.261 million homes, which was nevertheless 2.3 percent ahead of that from a year earlier.

#5Homebuilders have remained confident this summer. The Housing Market Index (HMI) from the National Association of Home Builders held steady at a seasonally adjusted reading of 68. Not only was this the third time over the past four months in which the HMI was at 68, it also was the 49th consecutive month the index was above a reading of 50 (indicative of more homebuilders viewing the housing market as being “good” versus being “poor.” The HMI improved in the Midwest, was unchanged in the Midwest but lost ground in both the West and Northeast. The index measuring current sales of single-family homes remained at 74 while the expected sales index shed two points to 73. The index tracking the traffic of prospective buyers added two points to 52. The press release noted that even with the solid level of confidence, homebuilders are “burdened by rising construction material costs.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 14, 2018, First-Time Claims, seasonally adjusted): 207,000 (-8,000 vs. previous week; -32,000 vs. the same week a year earlier). 4-week moving average: 220,500 (-9.7% vs. the same week a year earlier).
Business Inventories (May 2018, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.937 trillion (+0.4% vs. April 2018, +4.4% vs. May 2017).
Treasury International Capital Flows (May 2018, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$20.3 billion (vs. April 2018: +$22.6 billion, vs. May 2017: +$95.5 billion).
Beige Book

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

Tight Inventories, Rising Materials Prices Weigh on Housing: June 18 – 22

Tight inventories continued to hold back the housing market during the spring. Here are the five things we learned from U.S. economic data released during the week ending June 22.

#1Existing home sales stagnated during May. Sales of previously owned homes slipped 0.4 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.430 million homes. This left the National Association of Realtors’ home sales measure down 3.0 percent from May 2017 levels. Sales grew during the month on in the Northeast (+4.6 percent) while activity fell in three of four regions versus the previous year (Sales held steady versus May 2017 levels in the South). While still very tight, the number of homes on the market grew 2.8 percent during the month to 1.85 million units. This was nevertheless 6.1 percent below the year-ago level of inventories and the equivalent to a 4.1 month supply. As a result, the median sales price for existing homes has grown 4.9 percent over the past year to $264,800. The press release notes that “[i]ncredibly low supply continues to be the primary impediment to more sales.”Existing Home Sales June 2018-062218

#2Activity in the Midwest drives a rise in housing starts. The Census Bureau reports that housing starts grew 5.0 percent during May to a seasonally adjusted annualized rate (SAAR) of 1.350 million homes. This was 20.3 percent ahead of the year-ago pace of starts. Single-family home starts grew 3.9 percent during the month to an annualized 936,000 (+18.3 percent versus May 2017) while multifamily units starts jumped 11.3 percent to an annualized 404,000 units (+27.4 percent versus May 2017). Only one region—the Midwest—enjoyed a month-to-month increase in starts. Looking toward the future, the number of issued housing permits of 1.364 million (SAAR), which was off 4.6 percent for the month but still 8.0 percent ahead of the year-ago rate. The annualized rate of housing completions grew 1.9 percent during May to 1.291 million homes. This was up 10.4 percent from the same month a year earlier. 

#3Higher raw material prices weigh on homebuilder sentiment. The National Association of Home Builders’ Housing Market Index (HMI) lost two points in June to a seasonally adjusted reading of 68. Even with the modest drop, the HMI has been above a reading of 50—where a higher percentage of homebuilders see the housing market as “good” than view it as “poor”—for 48 straight months. During the month, the HMI improved in the Northeast and West but lost ground in the Midwest and South. Indicies for both current (75) and expected sales (76) each lost a point, as did the measure tracking prospective buyers traffic (50). The press release stressed that builders remained optimistic, but also they were “increasingly concerned that tariffs placed on Canadian lumber and other imported products are hurting housing affordability.”

#4Economic indicators suggest continued economic growth for the remainder of the year. The Conference Board’s Leading Economic Index added 2/10ths of a point in May to a seasonally adjusted reading of 109.5 (2016=100). The measure has grown 6.1 percent over the past year. Seven of the LEI’s ten components made positive contributions during the month, led by new manufacturing orders, the interest rate spread, and consumers’ expectations for business conditions. The coincident index also increased by 2/10ths of a point during May with the 103.7 reading representing a 2.2 percent gain from a year earlier. Three of four coincident index components made positive contributions: nonfarm payrolls, personal income net of transfer payments, and manufacturing & trade sales. The lagging index added a half point to a reading of 105.2 (+2.7 percent versus May 2017). The press release noted that while economic growth would remain “solid,” May’s smaller increase suggests that “economic activity is not likely to accelerate.”

#5Layoff activity remained slow in mid-June. There were a seasonally adjusted 218,000 first-time claims made for unemployment insurance benefits during the week ending June 16, down 3,000 from the prior week and 26,000 for the same week a year earlier. The Department of Labor’s jobless claims data can be volatile week-to-week, so analysts frequently look at four-week moving data to spots trends. But the story is much the same—the moving average was at 221,000, which was 10.0 percent below that of a year earlier. Further, the four-week moving average has been below 300,000 for an impressive 172 consecutive weeks.

Other U.S. economic data released over the past week:
FHFA House Price Index (April 2018, Purchase-Only Index, seasonally adjusted):  +0.1% vs. March 2018, +6.4% vs. April 2017. 

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

Factories and Consumers Were Active in April: May 14 – 18

Manufacturing rebounded while retail held firm in April. Here are the five things we learned from U.S. economic data released during the week ending May 18.

#1Manufacturing output picked up in April. The Federal Reserve estimates manufacturing production gained 0.5 percent on a seasonally adjusted basis during the month after being unchanged in March. Manufacturing output has increased 1.8 percent over the past year. Durable goods production grew 0.4 percent during the month while that for nondurables expanded 0.5 percent. Leading the former were substantial increases for machinery, aerospace equipment, electrical equipment/appliances, and computers/electronics. Boosting the latter were apparel and petroleum/coal. Overall industrial production increased 0.7 percent in April, matching March’s gain and having risen 3.5 percent over the past year. Production at utilities jumped 1.8 percent during April while mining output swelled 1.1 percent (with oil/gas extraction leading the latter).Industrial Production 2016-18 051818

#2Retail sales remained stout in April even as gas prices rise. The Census Bureau reports that retail and food services sales totaled a seasonally adjusted $497.6 billion, up 0.3 percent for the month and 4.7 percent from the April 2017 sales pace. Sales at auto dealers and parts stores inched up 0.1 percent while that as gas stations rose 0.8 percent (because of higher prices at the pump). Net of both, core retail sales increased 0.3 percent during April. Reporting higher sales during the months were retailers focused on apparel (+1.4 percent), furniture (+0.8 percent), groceries (+0.5 percent), and building materials (+0.4 percent). Sales slowed at health/personal care stores (-0.4 percent), restaurants/bars (-0.3 percent), electronics/appliance retailers (-0.1 percent), and sporting goods/hobby stores (-0.1 percent). Nonstore retailers (e.g., internet retailers) saw sales grow 0.6 percent during April and rise 9.6 percent over the past year.

#3Housing starts slowed in April, with less activity for multi-family units. The Census Bureau pegs the seasonally adjusted annualized rate (SAAR) of housing starts for April at 1.287 million units, off 3.7 percent for the month but still 10.5 percent ahead of the year-ago pace. Dragging down the measure was the 12.6 percent drop in starts of multifamily units (to an annualized 374,000 units). Single-family home starts edged up 0.1 percent to an annualized 894,000 units. Looking towards future activity, there were an annualized 1.352 million issued permits to build new homes. While this represented a 1.8 percent decrease from March, it was 7.7 percent above April 2017 levels. Single-family home permits were 0.9 percent higher than that of March. Home completions increased 2.8 percent during the month to an annualized 1.257 million units (+14.8 percent versus April 2017).

#4Homebuilders remained confident about the housing market during May. The National Association of Home Builders’ Housing Market Index (HMI) added two points during the month to a seasonally adjusted reading of 70. This was the 47th consecutive month with an HMI above a reading of 50 (indicative of a greater percentage of builders viewing the housing market as “good” as opposed to “bad”) and places the sentiment measure ahead of its 12-month average of 68.6. While the HMI improved in the Midwest, it lost ground in the both in the South and West and was unchanged in the Northeast. The index measuring current sales of single-family homes added two points (to 76) while measures of expected sales over the next six months (77) and traffic of prospective buyers (51) matched their April readings. The press release notes that demand for homes should remain strong due to “[t]ight housing inventory, employment gains and demographic tailwinds.”

#5Forward-looking indicators suggest continued economic growth for the remainder of 2018. The Conference Board’s Leading Economic Index added 4/10ths of a point in April to a reading of 109.4 (2016=100). The LEI has increased 6.4 percent over the past year. Eight of the ten components to the LEI made positive contributions, led by the interest rate spread and the average number of hours worked in manufacturing. The coincident index gained by 3/10ths of a point to 103.5 (+2.2 percent versus April 2017), with all four components of the coincident index making positive contributions in April. Also adding 3/10ths of a point was the lagging index, with the 104.7 reading being 2.5 percent ahead of that from a year earlier. The press release stated that the leading indicators data “suggest solid growth should continue in the second half of 2018.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 12, 2018, First-Time Claims, seasonally adjusted): 222,000 (+11,000 vs. previous week; -16,000 vs. the same week a year earlier). 4-week moving average: 213.250 (-12.0% vs. the same week a year earlier).
State Employment (April 2018, Nonfarm Payrolls, seasonally adjusted): 3 states experienced significant increases in payrolls vs. March 2018. 28 states experienced significant payrolls increases vs. April 2017 while 1 experienced a significant decline.
Business Inventories (March 2018, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.930 trillion (Unchanged vs. February 2018, +3.8% vs. March 2017).
Treasury International Capital Flows (March 2018, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$18.6 billion (vs. February 2018: -$57.7 billion, vs. March 2017: -$35.5 billion).

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