Manufacturing Rebounds in April, Leading Indicators Point Up: May 15 – 19

Manufacturing output bounced up in April, led by a boost in automobile production. Leading indicators suggest economic growth in the coming months. Here are the 5 things we learned from U.S. economic data released during the week ending May 19.

#1Manufacturing output jumped in April. The Industrial Production report from the Federal Reserve tells us that manufacturing output gained 1.0 percent during the month, following a 0.4 percent decline in March. This was the measure’s biggest single-month increase since February 2014. Production of durable and nondurable goods each grew at a 1.0 percent rate during April. The former was led by a 5.0 percent bump in motor vehicles output and 1.8 percent gain in the production of electrical equipment and appliances. Nondurables production benefited from higher output of food/beverage/tobacco products, textiles, and printing. Manufacturing output has risen 1.7 percent over the past year. Overall industrial production also gained 1.0 percent during April and has grown by 2.2 percent over the past year. Mining output rose 1.2 percent during the month, thanks to increased coal mining. Increased air conditioning usage boosted utility production 0.7 percent. Overall factory capacity utilization jumped by 6/10ths of a percentage point to 76.7 percent (its highest reading since August 2015). Manufacturing sector capacity utilization grew by 7/10ths of a percentage point to 75.9 percent, its best reading since December 2014.Increased Manufacturing Output-April2017-051917

#2Forward-looking indicators point to economic expansion over the coming months. The Conference Board’s Leading Economic Indicators grew by 4/10ths of a point during April to a seasonally adjusted 126.9. This was 3.2 percent above its year-ago reading. Eight of the ten components of the leading index made positive contributions to the leading index, led by the interest rate spread, jobless claims, and consumers’ expectations for the economy. The coincident index added 3/10ths of a point to 115.2 (+2.0 percent versus April 2016) as all four index components made positive contributions (including, industrial production and nonfarm payrolls). The lagging economic index increased by 4/10ths of a point to 124.1 (+2.5 percent versus April 2016) as five of seven components improved during the month (including the average length of unemployment and the prime interest rate charged by banks). The press release said that the data suggest that Q1 weak GDP report was “temporary hiccup as the economy returns to its long-term trend of about [a] 2 percent” growth rate.

#3Housing starts cooled slightly during April. The Census Bureau reports that starts of new housing construction fell 2.6 percent during the month to a seasonally adjusted annualized rate of 1.172 million units. Even with the decline, this was 0.7 percent above its year-ago pace and the 25th straight month in which the measure was above an annualized rate of 1 million units. Starts of single-family homes sped up slightly during the month (0.9 percent) and were 8.9 percent above their pace of starts in April 2016. Starts of multifamily residences (those with at least five units) dropped 9.6 percent during the month and were 14.6 percent below the starts rate of a year earlier. Looking towards the future, the annualized rate of issued building permits was at 1.172 million. While this was off 2.5 percent from March, it remained 5.7 percent above April 2016’ SAAR of issued permits. Finally, the annualized rate of housing completions dropped 8.6 percent during April to 1.106 million homes. This was 15.1 percent above the April 2016 pace.

#4Homebuilders remain optimistic. The Housing Market Index (HMI) grew by two points during May to a seasonally adjusted reading of 70, according to the National Association of Home Builders. The measure of homebuilder sentiment has remained above a reading of 50—indicative of a greater percentage of builders characterizing the housing market as “good” as opposed to being “poor—ever since July 2013. This also was the HMI’s second best reading since before the last recession (the best being only two months earlier). The HMI grew in three of four Census regions: Northeast (up five points to 50), West (up three points to 80), and South (up two points to 72). The measure slipped by two points in the Midwest to 65. Also growing was the indices for single-family home sales (up two points to 76) and the expected sales index (up four points to 79, its best reading since 2005). Meanwhile, the measure of the traffic of prospective buyers slipped by a point to a reading of 51. The press release noted the results indicated a housing market that was “solidifying.”

#5Nonfarm payrolls grew in nine states during April . Per state-level employment data released by the Bureau of Labor Statistics, nonfarm payrolls increased significantly in nine states during April, led by increases in Texas (+30,400), Minnesota (+15,100), and Wisconsin (+14,800). Only one state—Indiana—had suffered a significant decrease in nonfarm payrolls (-11,300). Versus a year earlier, 28 states enjoyed significant payrolls gains, with the largest year-to-year percentage gains in Utah (+3.3 percent), Florida (+2.6 percent), Georgia (+2.6 percent), and Idaho (+2.6 percent each). Similarly, 19 states saw significant declines in their unemployment rates, with the biggest declines occurring in Illinois, Oregon, West Virginia, and Wyoming. No state had a significantly higher employment rate in April versus what it had a year earlier.

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 13, 2017, First-Time Claims, seasonally adjusted): 232,000 (-4,000 vs. previous week; -45,000 vs. the same week a year earlier). 4-week moving average: 243,500 (-12.5% vs. the same week a year earlier).
Treasury International Capital Flows (March 2017, Net Purchase of Domestic Securities by Foreign Investors, not seasonally adjusted): +$30.8 billion (vs. February 2017: +$35.7 billion, March 2016: +$65.3 billion).

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

Home Sales Gain Again While Factory Output Slows. What We Learned During the Week of April 17 – 21

Home sales hit a ten-year high in March and housing starts remained solid.  But the manufacturing sector ends its recent winning streak. Here are the 5 things we learned from U.S. economic data released during the week ending April 21.

#1Existing home sales hit another post-recession high in March. The National Association of Realtors reports that existing home sales jumped 4.4 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.710 million homes. This was up 5.9 percent from a year earlier and represented the best month for sales of previously owned homes since February 2007. Sales grew in three of four Census regions: Northeast (+10.1 percent), Midwest (+9.2 percent), and South (+3.4 percent). Sales slipped 1.6 percent in the West. All four Census regions enjoyed positive 12-month sales comparables.  Even though inventories of unsold homes grew 5.8 percent during the month, the 1.830 million homes available for sale at the end of March was a 6.6 percent drop from a year earlier and represented a very tight 3.8 month supply. As a result, the median sales price for existing homes has risen 6.8 percent over the past year to $236,400. The press release described the spring home buying season as “promising,” but noted that “finding available properties to buy continues to be a strenuous task for many buyers.”

#2Housing starts slip but remained near post-recession highs in March. Per the Census Bureau, housing starts were at a seasonally adjusted annualized rate (SAAR) of 1.215 million units, down 6.8 percent for the month but still 9.2 percent its March 2016 pace. (Note that while housing starts were near their post-recession high, they remained well below the peak values seen during the early and middle part of the last decade.) While both the month-to-month and year-to-year comparables were equivalent for both single-family and multi-family properties, they did differ by region. Versus February, starts grew 12.9 percent in the Northeast but dropped 16.2 percent in the Midwest, 16.0 percent in the West, and 3.2 percent in the South. Starts have grown over the past year in the South (+19.4 percent) and West (+9.2 percent) while they have fallen in the Northeast (-14.9 percent) and Midwest (-2.5 percent). Looking towards the future, the SAAR of issued building permits grew 3.6 percent during March to 1.26 million permits (+17.0 percent). Permit issuance was up sharply in all four Census regions: Northeast (+26.1 percent), West (+24.5 percent), South (+14.6 percent), and Midwest (+4.9 percent). The annualized rate of housing completions grew 3.2 percent during the month to 1.168 million units. This was a healthy 13.4 percent above the March 2016 pace of completions.Housing Starts 2005-2017-042117

#3Industrial production rose during March, but manufacturing output did not. The Federal Reserve reports that industrial production grew 0.5 percent during March, following a tepid 0.1 percent increase during February and a 0.3 percent decline during January. The increase was largely the result of an 8.6 percent surge in output at utilities as weather conditions returned to their seasonal norms after an abnormally warm winter had suppressed demand for heating. Mining output edged up 0.1 percent during the month. On the flip side, manufacturing production fell 0.4 percent during March and was only 0.8 percent above its year ago level. This was the first monthly decline in manufacturing output since last August. The production of durable manufactured goods dropped 0.8 percent with all major categories of durable products reporting output declines (except for computers/electronics). Falling by at least one percent was the output of automobiles, electrical equipment/appliances, and primary metals. Production of nondurables eked out a 0.2 percent gain, with petroleum/coal products seeing the largest gain in output. Capacity utilization increased 4/10ths of a percentage point to 76.1 percent, but the same measure for the manufacturing sector saw factory utilization declining by 3/10ths of a percentage point to 75.7 percent.

#4Forward-looking data suggest continued economic growth for the remainder of this year. The Conference Board’s Leading Economic Indicators added a half point during March to a hit a seasonally adjusted 126.7 (2010=100). This left the measure 3.5 percent above where it was a year earlier. Eight of the leading index’s components improved during the month, led by the interest rate spread, purchasing managers’ report on new orders, and consumers’ expectations for future business conditions. The coincident index added 2/10ths of a point 114.9 (+2.0 percent vs. March 2016) with all 4 of the measure’s components making a positive contribution to the index (including, industrial production and personal income). The lagging index held firm at 123.6 during the month, which left the measure 2.3 percent above where it was a year ago. Three of the seven components of the lagging index made positive contributions, led by banks’ prime rate for loans. The press release stated the results suggest continued economic growth in 2017, “with perhaps an acceleration later in the year if consumer spending and investment pick up.”

#5A closer look at March employment data finds payrolls were unchanged in most states. The Bureau of Labor Statistics’ Regional and State Employment report indicates that there were statistically significant increases in nonfarm payrolls during the month in three states: Washington state (+10,000). Tennessee (+8,600), and Maine (+3,000). Payrolls declined in four other states: New Jersey (-17,500), Pennsylvania (-16,100), Missouri (-13,400), and Louisiana (-8,500). Payrolls did not significantly change in the other 43 states and in the District of Columbia during the month. Even with the relative stagnation during March, nonfarm payrolls have expanded in 27 states over the past year, with the largest percentage gains occurring in Utah, Florida, Georgia, and Nevada. Only two states—Alaska and Wyoming—suffered year-to-year payroll declines.

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 15, 2017, First-Time Claims, seasonally adjusted): 244,000 (+10,000 vs. previous week; -13,000 vs. the same week a year earlier). 4-week moving average: 247,250 (-8.4% vs. the same week a year earlier).
NAHB Housing Market Index (April 2017, Index (>50 = “Good” Housing Market Conditions), seasonally adjusted): 68 (vs. March 2017: 71, vs. April 2016: 58).
Bankruptcy Filings (12-month period through March 31, 2017): 794,492 (-4.7 percent versus 12-month period through March 31, 2016). Business bankruptcy filings: 770,901 (-4.7 percent vs. March 31, 2016), Nonbusiness bankruptcy filings: 23,591 (-4.9 percent versus March 31, 2016).
Treasury International Capital Flows (February 2017, Foreign Purchases of Domestic U.S. Securities, not seasonally adjusted): +$35.9 billion (vs. January 2017: +$14.8 billion., vs. February 2016; +$26.9 billion).
Beige Book

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

The Fed Acted Last Week and Intends to Do So Twice More in 2017. What We Learned During the Week of March 13 – 17

The Federal Reserve raised its short-term interest rate target last week and not for the final time this year. Here are the 5 things we learned from U.S. economic data released during the week ending March 17.

#1The Fed bumped up its short-term interest rate target and indicates it will do so two more times in 2017. The policy statement released following last week’s two-day meeting of the Federal Open Market Committee (FOMC) noted that the U.S. economy was growing at a “moderate pace” and that the labor market had “continued to strengthen.” With job gains remaining “solid,” household spending rising “moderately,” and business investment having “firmed somewhat,” the statement noted that inflation was moving towards (but was still below) the Fed’s two-percent target. The policy statement also noted the committee’s view that the economy would continue to expand at a “moderate” pace and that inflation will continue to move towards the Fed’s target. As a result, the committee voted (with one dissenting vote) to bump up its fed funds target rate by 25-basis points to a range between 0.75 and 1.00 percent. The statement also reaffirmed previous statements that the FOMC expects to continue raising the fed funds target rate further, but that the target rate will remain “below levels that are expected to prevail in the longer run.”

The FOMC members also released updated economic forecasts that indicate continued moderate economic growth in 2017 and beyond.  The consensus forecast for the growth rate in the Gross Domestic Product (GDP) was now at +2.1% in both 2017 and 2018 and a slightly slower growth rate of +1.9% in 2019. The consensus forecast keeps the unemployment rate at 4.5% over the next three years while the anticipated inflation rate is at +1.9% in 2017 and at +2.0% for both 2018 and 2019.  As a result, the committee members’ median forecast for the fed funds target rate suggests two more rate hikes in 2017, with three rate hikes during both 2018 and 2019. Should this forecast hold, the fed funds target rate would be at 3.0% by the end of 2019.FOMC-Interest-Rate-Forecast-031717

#2Manufacturing output jumped for a second straight month in February. The Federal Reserve reports that the manufacturing output grew 0.5% during the month, matching January’s growth rate. Production of durable goods gained 0.6%, pulled up by higher output of nonmetallic mineral products, fabricated metal products, and machinery. Production slowed for electrical equipment/appliance/component industry and furniture. Nondurables production increased 0.4%, boosted by gains in the output of paper and plastics/rubber products. Manufacturing output was 1.2% above that of February 2016. Overall industrial production was unchanged during the month as the gain in manufacturing output and a 1.8% increase in mining output was counterbalanced by a sharp 5.7% decline in utility output (largely due to moderate winter weather lowering demand for heating). Capacity utilization edged down by 1/10th of a percentage point to 75.4% while factory utilization in manufacturing grew by 3/10ths of a percentage point to 75.6% (its highest reading since October 2015).

#3While cooling from their January pace, both consumer and producer prices move closer to the Fed’s targets. The Consumer Price Index (CPI) grew 0.1% on a seasonally adjusted basis during the month, its smallest monthly increase since last July. Pulling down the Bureau of Labor Statistics measure was the first monthly decline in gasoline prices (-3.0%) since last August. In all, energy CPI dropped 1.0% during the month as a result. Meanwhile, food CPI grew 0.2%, its biggest increase in more than 1.5 years, with 4 of 6 major grocery food groupings experiencing price increases. Net of energy and food, core CPI increased 0.2% during the month and has grown 2.2% over the past year. Rising during the month were prices for transportation services (+0.7%), apparel (+0.6%), shelter (+0.3%), and medical care services (+0.2%). Prices fell for used cars (-0.6%), new cars (-0.2%), and medical care commodities (-0.2%).

Meanwhile, the final demand Producer Price Index (PPI) grew 0.3% during February, half of the 0.6% gain in January.  Net of prices for food (+0.3%), energy (+0.6%), trade services (+0.4%), core final demand PPI also grew 0.3% during the month, up from a 0.2% increase in January. Final demand PPI was up 2.2% from a year earlier while the 12-month comparable for core final demand PPI +1.8%, its highest reading since last November. Prices for final demand goods increased 0.3% during February, with wholesale prices for core goods (net of energy and food) inched up 0.1%. Prices grew during the month for electric power, fresh and dry vegetables, jet fuel, liquefied petroleum gas, pharmaceutical preparations, and residual fuels. PPI for final demand services jumped 0.4% during the month.

#4The count of job openings and the pace of hiring both edged up in January. The Bureau of Labor Statistics tells us that there were a seasonally adjusted 5.626 million job openings at the end of January, up 87,000 from December but off 1.5% from a year earlier. Among the industries reporting year-to-year percentage gains in job openings were financial activities (+15.6%) and manufacturing (+4.6%). Job openings counts fell from January 2016 in wholesale trade (-12.6%), government (-9.4%), construction (-7.0%), accommodation and food services (-5.4%), retail (-3.3%), and health care/social assistance (-1.0%). The seasonally adjusted count of people hired grew by 137,000 during January to 5.440 million (+6.3% vs. January 2016). Among the industries with large year-to-year percentage increases in hiring were construction (+29.5%), transportation (+21.3%), health care/social assistance (+13.8%), accommodation/food services (+12.8%), financial activities (+10.8%), and manufacturing (+5.4%). Separations burst up by 174,000 during the month to a seasonally adjusted 5.258 million (+4.5% vs. January 2016). Voluntary quits continued to suggest job holders’ confidence in the labor market by surging to 3.220 million (+11.4% vs. January 2016). Layoffs were 3.5% below their year ago levels at 2.065 million.

#5Retail sales growth softened during February. According to the Census Bureau, retail sales inched up 0.1% on a seasonally adjusted basis to $446.8 billion. This was 5.7% higher than the February 2016 retail sales pace. Sales fell 0.2% at automobile dealers and parts stores. Net of auto and parts sales, retail sales grew 0.2% and were 5.7% above their February 2016 sales pace. Sales increased at retailers focused on building materials (+1.8%), furniture (+0.7%), and health & personal care (+0.7%). Sales fell at department stores (-1.1%), gas stations (-0.6%), apparel retailers (-0.5%), sporting goods/hobby stores (-0.4%), and restaurants/bars (-0.1%). Reflecting the continued shift in sales away from brick-and-mortar stores and towards internet retailers, nonstore sales grew 1.2% during the month and were 13.0% above their February 2016 pace.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 11, 2017, First-Time Claims, seasonally adjusted): 241,000 (-2,000 vs. previous week; -18,000 vs. the same week a year earlier). 4-week moving average: 237,250 (-8.6% vs. the same week a year earlier).
New Residential Construction (February 2017, Housing Starts, seasonally adjusted annualized rate): 1.213 million units (-6.2% vs. January 2017, +4.4% vs. February 2016).
Housing Market Index (March 2017, Index (>50 = “Good” Housing Market), seasonally adjusted): 71 (vs. February 2017: 65, vs. March 2016: 58).
University of Michigan Index of Consumer Sentiment (March 2017-preliminary, Index (1966Q1 = 100), seasonally adjusted): 97.6 (vs. February 2017: 96.3, vs. March 2016: 91.0%).
Small Business Optimism Index (February 2017, Index (1986 = 100), seasonally adjusted): 105.3 (vs. January 2017: 105.9, February 2016: 92.9).
Business Inventories (January 2017, Manufacturing and Trade Inventories, seasonally adjusted): $1.842 trillion (+0.3% vs. December 2016, +2.3% vs. January 2016).
Regional/State Employment (January 2017, Change in Nonfarm Payrolls, seasonally adjusted): Vs. December 2016: Increased in 13 states, decreased in 1 state, essentially unchanged in 36 states and the District of Columbia, vs. January 2016: increased in 28 states, declined in 2 states, and essentially unchanged in 20 states and the District of Columbia.

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