Hitting More Speed Bumps: October 14 – 18

Last week’s data characterize an economy without much forward momentum. Here are the five things we learned from U.S. economic data released during the week ending October 18.

#1Retail sales sputtered in September. The Census Bureau places U.S. retail and food services at a seasonally adjusted $525.6 billion down 0.3 percent for the month but 4.1 percent ahead from a year earlier. This followed sales jumping 0.6 percent during August. Sales fell 0.9 percent at auto dealers and parts stores and decreased 0.7 percent at gas stations (as gas prices mellowed). Net of auto dealers/parts stores and gas stations, core retail sales held steady in September and were up 4.5 percent from a year earlier. Sales grew during the month at stores focused on apparel (+1.3 percent), health/personal care (+0.6 percent), and furniture (+0.6 percent). Sales declined at department stores (-1.4 percent), building materials/garden retailers (-1.0 percent), grocery stores (-0.1 percent), and sporting goods/hobby retailers (-0.1 percent).

#2Manufacturing output dropped in September. The Federal Reserve reports that manufacturing production slowed by a half-percentage point on a seasonally adjusted basis during the month, taking back most of August’s 0.6 percent gain. Production of durable goods fell 0.7 percent (hurt by the now tentatively settled GM strike) while nondurables output suffered a smaller 0.2 percent drop. Manufacturing production was 0.9 percent below year-ago levels. Overall industrial production fell 0.4 percent during the month and was 0.1 percent under that of a year earlier. Mining output slumped 1.3 percent as crude oil extraction and well drilling slowed. Production at utilities bloomed 1.4 percent as warm weather increased electricity demand. 

#3Forward-looking economic indicators suggest weakness in the U.S. economy. The Conference Board’s Leading Economic Index (LEI) shed 1/10th of a point during September to a reading of 111.9 (2016=100). This left the LEI up a mere 0.4 percent for the past 12 months. Five of ten LEI improved during the month, led by stock prices, but measures tied to manufacturing orders, building permits, and the interest rate spread weighed on the measure. The coincident index held steady during the month at 106.4, up 1.5 percent from September 2018. Three of four coincident index components improved during the month, led by nonfarm payrolls. The lagging index added 1/10th of a point to 108.3, leaving the measure 3.2 percent ahead of its year-ago mark, as three of seven components advanced in September. The press release noted that “[t]he LEI reflects uncertainty in the outlook and falling business expectations” and predicts slow growth into 2020.

#4 Housing starts slowed in September. The Census Bureau estimates housing starts dropped 9.4 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.256 million. Even with the decline, starts remained 1.6 percent ahead of the year-ago pace. The slump was on the multi-family unit side, where starts plummeted 28.3 percent. Single-family home starts grew 0.3 percent in September for its fourth straight monthly increase. Looking towards the future, the annualized count of issued housing permits fell 2.7 percent during the month to 1.387 million, although permits for single-family homes inched up 0.8 percent. Housing completions slumped 9.7 percent during the month to an annualized 1.139 million units.

#5…But homebuilders grew more confident in October. The National Association of Homebuilder’s Housing Market Index (HMI) added three points in October to a seasonally adjusted reading of 71, its highest mark since February 2018. The HMI has remained above a reading of 50—indicative of more homebuilders seeing the housing market as “good” versus being “poor”—for 64 consecutive months. The HMI rose in the South and West, but lost ground in the Northeast and Midwest. Rising during October were HMI components for current sales of single-family homes (up three points to 78), expected sales (up six points to 76), and traffic of prospective buyers (up four points to 54). The press release linked recent improvements in sentiment to “low mortgage rates, solid job growth and a reduction in new home inventory.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 12, 2019, First-Time Claims, seasonally adjusted): 214,000 (+4,000 vs. previous week; -1,000 vs. the same week a year earlier). 4-week moving average: 214,750 (+0.2% vs. the same week a year earlier).
State Employment (September 2019, Nonfarm Payrolls, seasonally adjusted): Vs. August 2019: Payrolls grew in 3 states, decreased in 2 states, and essentially remained the same in 45 states and the District of Columbia. Vs. September 2018: Payrolls grew in 27 states and essentially remained the same in 23 states and the District of Columbia.
Business Inventories (August 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.042 trillion (unchanged vs. July 2019, +4.2% vs. August 2018).
Treasury International Capital Flows (August 2019, Net Foreign Purchases of Domestic Securities, not seasonally adjusted): -$41.9 billion (vs. July 2019: +$72.2 billion, vs. August 2018: +$77.1 billion).
Beige Book

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.

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.