Manufacturing Faltered Again in December: December 30 – January 3

Purchasing managers report manufacturing activity slowed for a fifth straight month. Here are the five things we learned from U.S. economic data released during the week ending January 3.

#1A measure of economic activity in manufacturing fell to a more than ten-year low in December. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, shed 9/10ths of a point to a reading of 47.2. This reading was the PMI’s lowest point since June 2009 and its fifth straight month under 50.0 (the threshold between an expanding and contracting manufacturing sector). Three of five PMI components fell during the month: production (-5.9 points), employment (-1.5 points), and new orders (-0.4 points). PMI components tied to supplier deliveries (+2.6 points) and inventories (+1.0 point) each climbed. Only three manufacturing industries expanded in December: food/beverage/tobacco, miscellaneous manufacturing, and computer/electronic products. The press release noted that “global trade” remained a key focus area for many manufacturers and that sentiment was “marginally positive regarding near-term growth.”

#2Construction spending grew in November. The Census Bureau places the seasonally adjusted annualized value of construction put into place during the month at $1.324 trillion, up 0.6 percent from October and 4.1 percent from a year earlier. Despite November’s gain, construction spending during the first 11 months of 2019 was 0.8 percent under that of the first 11 months of 2018. The Census Bureau also revised estimates for September and October spending upwards. Private sector expenditures grew 0.4 percent to $985.5 billion (+1.6 percent), including a 1.9 percent bounce in private sector residential spending. Private nonresidential spending fell 1.2 percent. Public sector construction expenditures gained 0.9 percent to $338.6 billion, up 12.4 percent from a year earlier.

#3The Conference Board finds that consumer sentiment “dipped” slightly in December. The Consumer Confidence Index slipped by 3/10ths of a point to a seasonally adjusted reading of 126.5. The present conditions index added 3.4 points to 170.0, while the expectations index lost 2.9 points to 97.4. 38.7 percent of survey respondents said that business conditions were “good” while only 11.1 saw them as being “bad.” An even higher percentage of Americans see jobs as being “plentiful” (47.0 percent) versus being “hard to get” (13.1 percent). The press release cautioned that “there is little to suggest that growth, and in particular consumer spending, will gain momentum in 2020.”

#4Pending home sales rebounded in November. The National Association of Realtors’ measure of home purchase contract signings increased 1.2 percent during the month to a seasonally adjusted 108.5 (2001=100). The index jumped 5.5 percent in the West and gained 1.0 percent in the Midwest but edged down in both the South (-0.2 percent) and Northeast (-0.1 percent). The Pending Home Sales Index was 7.4 percent ahead of its year-ago reading with positive 12-month comparables in all four Census regions, including a 14.0 percent jump in the West. The press release noted November’s increase occurred despite “insufficient level of inventory” of homes for sale.

#5Two reports find home prices rose at a moderate pace in October. The Federal Housing Finance Agency’s House Price Index increased a seasonally adjusted 0.2 percent during the month. The measure, which tracks prices of homes purchased with a conforming mortgage, gained in six of nine Census regions, led by the West South Central (+0.7 percent), East South Central (+0.7 percent), Pacific (+0.6 percent), and Middle Atlantic (+0.6 percent). Over the past year, the Housing Price Index has risen 5.0 percent, with the largest 12-month comparables in the Mountain (+6.7 percent), South Atlantic (+6.1 percent), and East South Central (+5.8 percent) regions.

The 20-City Case-Shiller Home Price Index grew 0.4 percent (seasonally adjusted) in October, up from a 0.3 percent bump in September. The measure grew in 18 of the 20 tracked cities, with home prices rising 0.7 percent in Atlanta, Los Angeles, and Seattle. The index has risen 2.2 percent over the past year, with positive year-to-year comparables in 19 of 20 cities (San Francisco being the exception). The press release characterized the home price data as “reassuring.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 28, 2019, First-Time Claims, seasonally adjusted): 222,000 (-2,000 vs. previous week; -9,000 vs. the same week a year earlier). 4-week moving average: 233,250 (-5.2% vs. the same week a year earlier).
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Consumers Check Their Spending: November 25 – 29

Personal spending and overall economic activity chilled in the fall weather. Here are the five things we learned from U.S. economic data released during the week ending November 29.

#1Personal spending reflected caution in October. The Bureau of Economic Analysis indicates real personal consumption expenditures (PCE) increased 0.1 percent on a seasonally adjusted basis during the month, its smallest increase since February. Real spending on goods slumped 0.2 percent, pulled down by a 0.8 percent drop for durable goods. Expenditures on both nondurable goods and services each grew 0.2 percent. Nominal (not inflation-adjusted) PCE rose 0.3 percent, even as nominal personal income held steady and nominal personal income slipped 0.1 percent. Real disposable income dropped 0.3 percent. As a result, the savings rate shed 3/10ths of a point to +7.8 percent, its lowest point since July. Over the past year, real PCE has risen 2.3 percent, while real disposable income has grown 2.8 percent.Real Personal Consumption Expenditures: January - October 2019

#2The U.S. economy grew more robustly in Q3 than previously thought. The Bureau of Economic Analysis’ second estimate of Q3 Gross Domestic Product (GDP) now places the quarter’s economic expansion at a seasonally adjusted annualized rate (SAAR) +2.1 percent, up from the previously reported 1.9 percent gain. The upward revision was due to higher than previously reported levels of private inventory accumulation, business investment, and personal spending. Of the major components of the economy, only those tied to personal spending, government spending, fixed residential investment, and private inventory accumulation led to GDP growth. The same report finds Q3 corporate profits were soft, edging up by a mere 0.2 percent during the quarter and off 0.8 percent from a year earlier. The BEA will update its Q3 GDP and corporate profits data once again on December 20. 

#3…But the rate of economic expansion appears to have decelerated sharply in October. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic data points, lost 36-basis points during the month to a reading of -0.71. The CFNAI’s three-month moving average, which removes some of the month-to-month volatility, fell to its lowest mark since May with a ten-basis point loss to -0.31. The negative reading does not imply the U.S. economy contracted during the month, however, as the moving average remained above -0.70 (the marker for negative growth). Still, only 27 of the 85 economic indicators made a positive contribution to the CFNAI, while the other 58 measures had a negative impact. Indicators linked to production and employment had the most substantial negative impact on the CFNAI in October.

#4Durable goods orders showed some life in October. The Census Bureau estimates new orders for manufactured durable goods grew 0.6 percent during the month to a seasonally adjusted $248.7 billion. Transportation goods orders rose 0.7 percent, boosted by increases for both defense (+18.1 percent) and civilian (+10.7 percent) aircraft. Net of transportation goods, core durable goods orders gained 0.6 percent. Rising were orders for fabricated metal products (+1.8 percent), machinery (+1.3 percent), and computers/electronics (+0.7 percent). Orders slowed for electrical equipment/appliances (-1.7 percent) and primary metals (-1.4 percent). Signaling some vigor was business investment as civilian capital goods orders net of aircraft grew 1.2 percent in October.

#5New home sales slipped in October. The Census Bureau reports sales of new single-family homes decreased 0.7 percent during the month to a seasonally adjusted annualized rate of 733,000 units. Even with the decline, new home sales were 31.6 percent ahead of their year-ago pace. Sales grew during the month in two Census regions—West (+7.1 percent) and Midwest (+4.2 percent)—but slowed in the Northeast (-18.2 percent) and South (-3.3 percent). There were 322,000 new homes available for sale at the end of the month, up a modest 0.3 percent from September but off 3.3 percent from a year earlier. This was equivalent to a 5.3 month supply of homes on the market (versus a 7.2 month supply a year earlier).

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 23, 2019, First-Time Claims, seasonally adjusted): 213,000 (-15,000 vs. previous week; -21,000 vs. the same week a year earlier). 4-week moving average: 219,750 (-2.1% vs. the same week a year earlier).
Consumer Confidence Index (November 2019, Index (1985=100), seasonally adjusted): 125.5 (vs. October 2019: 126.1).
Pending Home Sales (October 2019, Index (2001=100), seasonally adjusted): 106.7 (vs. September 2019: 108.6; vs. October 2018: 102.2).
FHFA House Price Index (September 2019, Purchase-Only Index, seasonally adjusted): +0.6% vs. August 2019, +5.1% vs. September 2018.
Agricultural Prices (October 2019, Prices Received by Farmers): -2.6% vs. September 2019, -0.6% vs. October 2018.
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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).
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The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.