Inflation Solidifies and Manufacturing Rebounds: November 13 – 17

Inflation measures continued to converge towards the Fed’s target. Here are the five things we learned from U.S. economic data released during the week ending November 17.  

#1Topline consumer inflation was modest in October. The Consumer Price Index (CPI) inched up 0.1 percent during the month, per the Bureau of Labor Statistics. This followed gains of 0.4 percent and 0.5 percent during August and September, respectively. Holding down the headline index was the 1.0 percent drop in energy prices as gasoline prices declined 2.3 percent. Food CPI was unchanged for the month. Net of both energy and food, core CPI grew 0.2 percent during October and has risen 1.8 percent over the past 12 months. This was the largest 12-month comparable for core consumer prices since April as it gradually edges closer to the Federal Reserve’s two-percent target inflation rate. Used car/truck prices jumped 0.7 percent, with prices also rising for shelter (+0.3 percent), medical services (+0.3 percent), and transportation services (+0.2 percent). Falling during the month were prices for new vehicles (-0.2 percent) and apparel (-0.1 percent).CPI October 2017--111717

#2Meanwhile, wholesale prices repeated the prior month’s increase in October. The Producer Price Index (PPI) for final demand grew at a seasonally adjusted 0.4 percent rate during the month, matching September’s increase and doubling August’s rise. The Bureau of Labor Statistics’ core measure of wholesale prices (removing energy, food, and trade services) grew 0.2 percent for the third consecutive month. PPI for final demand energy was unchanged during the month (as wholesale gasoline prices fell 4.6 percent) while that for final demand food jumped 0.5 percent, its biggest single-month increase since June. PPI for core goods (net of energy and food) grew 0.3 percent, impacted by a 2.1 percent jump in the price for pharmaceutical preparations. PPI for final demand services jumped 0.5 percent, including a 1.1 percent rise in trade services PPI (largely retailer and wholesaler margins). Final demand PPI has risen 2.8 percent over the past year while the 12-month comparable for the core measure has gained 2.3 percent, the fifth time over the past seven months that it has been at or above two-percent.

#3Manufacturing output grew faster than it has in any month since April. The Federal Reserve reports manufacturing production jumped 1.3 percent on a seasonally adjusted basis during October, following a 0.4 percent gain in September. The Fed attributes much of the gain to activity returning to normal levels following disruptions caused by the hurricanes in August and September. Output of durables increased 0.4 percent (including a 1.0 percent rise in automobile production) while nondurables output surged 2.3 percent. Production grew by more than one percent for chemicals, petroleum/coal products, textiles, and apparel. Manufacturing output has gained 2.5 percent over the past year. Overall industrial production increased 0.9 percent (also its largest single-month gain since April), putting output 2.9 percent above its October 2016 mark. Output at utilities gained 2.0 percent while mining output fell 1.3 percent (later caused by temporary disruptions in oil drilling due to Hurricane Nate).

#4Retail sales expanded at a slower pace during October. Following a hurricane preparation and recovery fueled 1.9 percent surge during the previous month, retail and food services sales grew a far more modest 0.2 percent during October. The Census Bureau estimates sales were at a seasonally adjusted $486.6 billion, which was 4.6 percent ahead of its year-ago pace. Sales at auto dealers/parts stores jumped 0.7 percent while activity fell 1.2 percent at gas stations (primarily because of declining prices at the pump). Net of both, core retail sales increased 0.3 percent. Sales grew at 1.5 percent at sporting goods/hobby stores, 0.8 percent at both apparel stores and bars, 0.7 percent at both furniture and appliance/electronics retailers, and 0.6 percent at grocery stores. Sales fell 1.2 percent at building material stores and 0.3 percent at nonstore retailers.

#5Housing starts rose to their highest level in a year during October. The Census Bureau reports that housing starts grew 13.7 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.290 million units. This was the highest level of housing starts since October 2016, when starts were at an annualized rate of 1.328 million units. Starts of single-family units increased 5.3 percent during the month while multi-family units surged 37.4 percent in October. Starts grew in three of four regions with only the West experiencing a decline. Looking towards the future, the number of issued building permits rose 5.9 percent in October to a SAAR of 1.297 million permits, 0.9 percent above the year-ago rate. The annualized rate of home completions blossomed 12.6 percent during October to 1.232 million homes with a 12-month comparable of 15.5 percent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 11, 2017, First-Time Claims, seasonally adjusted): 249,000 (+10,000 vs. previous week; +10,000 vs. the same week a year earlier). 4-week moving average: 237,750 (-5.4% vs. the same week a year earlier).
Import Prices (October 2017, All Imports, not seasonally adjusted): +0.2% vs. September 2017, +2.5% vs. October 2016. Nonfuel imports: +0.2% vs. September 2017, +1.4% vs. October 2016.
Export Prices (October 2017, All Exports, not seasonally adjusted): Unchanged vs. September 2017, +2.7% vs. October 2016. Nonagricultural Exports: -0.3% vs. September 2017, +2.5% vs. October 2016.
State Employment (October 2017, Nonfarm Payrolls, seasonally adjusted): 9 states with significant month-to-month increases in payrolls and 3 states had significant month-to-month employment decreases. 27 states had significant year-to-year increases in payrolls.
Small Business Optimism (October 2017, Index (1986=100), seasonally adjusted): 103.8 (vs. September 2017: 103.0; October 2016: 94.9).
Treasury International Capital Flows (September 2017, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$60.8 billion (vs. August 2017: +$40.4 billion, vs. September 2016: -$51.4 billion).
Monthly Treasury Statement (October 2017, Budget Surplus/Deficit): -$63.2 billion (vs. October 2016: -$45.8 billion).
Business Inventories (September 2017, Manufacturers’ and trade inventories, seasonally adjusted): $1.889 trillion (unchanged vs. August 2017, +3.5% vs. September 2016).

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

Tight Inventories Continue to Slow Home Sales: October 16 – 20.

September was a mixed bag for both the housing market and manufacturing. Here are the five things we learned from U.S. economic data released during the week ending October 20.  

#1Existing homes sales grew for only the second time in six months during September. The National Association of Realtors’ measure of sales of previously owned homes increased 0.7 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.390 million units. The increase left the sales 1.5 percent below their year-ago pace, although it is worth noting that the annualized sales rate has stayed within a tight range of 5.35 and 5.70 million units over the past year. Sales grew during the month in the West and Midwest, held steady in the Northeast and slipped in the South. None of the four Census regions had positive year-to-year increases in home sales. One of the reasons for the muddled sales picture is the relatively small number of homes on the market—at the end of September, there were 1.900 million homes available for sale. While this was up 1.6 percent from August, it represented not only a 6.4 percent decline from a year early but also a very tight 4.2 month supply of homes. As a result, the median sales price of previously owned homes has grown 4.2 percent over the past year to $245,100. NAR’s press release blamed both “supply shortages” and recent hurricanes for the “muted overall activity.”

Housing Inventory 2014-17 102017

#2Housing starts slowed during September. The Census Bureau indicates that starts of privately owned housing units were at a seasonally adjusted annualized rate (SAAR) of 1.127 million units, down 4.7 percent from August but still 6.1 percent above the year-ago pace. Starts of single-family homes slowed 4.6 percent to an annualized pace of 829,000 while that of multifamily units (5+ units) dropped 6.2 percent to 286,000. Starts slowed in the Midwest (-20.2 percent), South (-9.3 percent), and the Northeast (-9.2 percent) but increased 15.7 percent in the West. Looking toward the future, the number of issued building permits fell 4.5 percent during September to a SAAR of 1.215 million. This was 4.3 percent below the year-ago annualized rate of issued permits. Issued permits for single-family units, however, increased 2.4 percent during September. Housing completions gained 1.1 percent during the month to a SAAR of 1.109 million homes. This was 10.3 percent above the completions rate during September 2016.

#3Manufacturing output eked out a small gain during September. The Federal Reserve indicates that manufacturing output grew 0.1 percent on a seasonally adjusted basis during the month, putting the measure 1.0 percent above its September 2016 reading. Output of durable jumped 1.0 percent during September while that for nondurables fell 0.9 percent. The former was boosted by increased production of nonmetallic mineral products, machinery, and electrical equipment/appliances. Most categories of nondurables suffered production declines except for food/beverages and plastics/rubber products. Overall industrial production grew 0.3 percent during September, following two monthly declines. Industrial production was 1.6 percent above that of a year earlier. Mining production increased 0.4 percent (thanks to greater oil/gas extraction) while output at utilities bounced back from August’s big decline with a 1.5 percent gain. Overall capacity utilization grew by 2/10ths of a percentage point to 76.0 percent (September 2016: 75.6 percent) while manufacturing sector factories hummed at the same level that they had in August at 75.1 percent (September 2016: 74.9 percent).

#4Forward-looking economic indicators took a step back in September, largely due to the hurricanes. The Leading Economic Index from the Conference Board shed 2/10ths of a point to a seasonally adjusted 128.6 (2010=100). The measure was nevertheless 4.0 percent above its year-ago reading. Six of the economic measures that make up the leading index improved during the month, including those for new manufacturing orders and the interest rate spread. But the huge (but short-lived) surge in initial jobless claims weighed heavily on the index. The coincident index edged up 1/10th of a point to 115.7, putting it 1.7 percent above its year-ago mark. Three of the four components of the coincident index made positive contributions: personal income, industrial production, and manufacturing/trade sales. The lagging index slipped by 1/10th of a point to 125.2 (+2.4 percent versus September 2016), with three of seven components moving forward during the month. The press release said that “the trend in the US LEI remains consistent with continuing solid growth in the US economy for the second half of the year.”

#5Employment expanded in five states while falling in six others during September. The Bureau of Labor Statistics reports that nonfarm payrolls grew significantly in five states during the month, led by California (+52,000), Washington (+13,800), and Indiana (+11,400). Payrolls contracted in six states, led by Hurricane Irma ravished Florida, where nonfarm payrolls shrank by 127,400. Other states experiencing substantial payroll declines included New York (-34,100) and Missouri (-10,500). Over the past year, 28 states saw significant expansions in nonfarm payrolls, with the biggest percentage gains in Nevada (+2.5 percent), Utah (+2.5 percent), and Maryland (+2.4 percent). No state experienced a significant year-to-year percentage decline in nonfarm payrolls over the past 12 months.

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 14, 2017, First-Time Claims, seasonally adjusted): 222,000 (-22,000 vs. previous week; -26,000 vs. the same week a year earlier). 4-week moving average: 248,250 (-1.3% vs. the same week a year earlier).
Housing Market Index (October 2017, Index (%age of homebuilders saying the housing market is “good” minus %age of homebuilders saying it is “poor.”), seasonally adjusted): 68 (vs. September 2017: 64; October 2016: 63).
Bankruptcy Filings (12-month period ending September 30, 2017, Bankruptcy Filings): 790,830 (-1.8% vs. 12-month period ending September 30, 2016).
Treasury International Capital Data (August 2017, Net Foreign Purchases of Domestic Securities, not seasonally adjusted): +$34.6 billion (vs. July 2017: +$5.1 billion; August 2016: +24.0 billion).
Beige Book

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

Industrial Production and Retail Sales Take a Pause: September 11 – 15

Even though the storm hit Texas during the final days of August, the impact of Hurricane Harvey was already showing up in economic data. Here are the five things we learned from U.S. economic data released during the week ending September 15.

#1Hurricane Harvey slowed industrial production at the end of August. The Federal Reserve indicates that industrial production fell for the first time in seven months with a 0.9 percent decline. Manufacturing output dropped 0.3 percent after holding steady in July. The Fed estimates both measures dropped by 3/4ths of a percentage point due to storm-related effects. Durable goods output grew 0.3 percent during the month while that of nondurables fell 0.9 percent. Automobile and aerospace production boosted the former while drops in the output of chemicals and petroleum/coal products pulled down the latter. Also falling were outputs at utilities (-5.5 percent) and in mining (-0.8 percent), with the latter the result of large declines in oil and gas well drilling and servicing. Capacity utilization also fell, shedding 8/10ths of a percentage point to 76.1 percent (its lowest reading since March). Manufacturing sector capacity utilization dropped by 3/10ths of a percentage point to 75.3 percent.Industrial Production Aug17-091517.png

#2Retail sales slipped in August, although it is unclear how much of that drop was due to Harvey. The Census Bureau estimates U.S. retail and food services sales were at a seasonally adjusted $474.8 billion, off 0.2 percent from the previous month. Hurting the headline number was softer sales at auto dealers (and parts stores), which saw sales drop 1.6 percent. Net of auto dealers/parts stores, retail sales grew 0.2 percent—although this figure is pulled up by a 2.5 percent rise in gas station sales (largely due to higher gasoline prices). Sales also grew at furniture retailers (+0.4 percent), restaurants/bars (+0.3 percent), grocery stores (+0.3 percent), and general merchandisers (+0.2 percent). August was not a particularly good month for apparel retailers (-1.0 percent), electronics/appliance stores (-0.7 percent), building materials retailers (-0.5 percent), and department stores (-0.1 percent). The Census Bureau statement included comments about possible retail sales impacts resulting from Hurricane Harvey, noting that they received “indications from the companies that the hurricane had both positive and negative effects on their sales data while others indicated they were not impacted at all.”

#3Higher gasoline prices led to firmer consumer and wholesale prices in August. The Consumer Price Index (CPI) jumped 0.4 percent on a seasonally adjusted basis during the month, the largest single-month increase in the Bureau of Labor Statistics measure in seven months. Energy and shelter were responsible for much of the gain in consumer prices. Energy CPI jumped 2.8 percent, pulled up by a 6.3 percent gain in gasoline prices and a 2.9 percent increase in fuel oil. (Note that these figures largely do not reflect the impact of the sharp rise in gas prices caused refineries temporary closing along the Gulf Coast following Hurricane Harvey.) Food CPI inched up 0.1 percent. Net of energy and food, core CPI increased 0.2 percent, its largest single-month gain since February. Growing were prices for shelter (+0.5 percent), transportation services (+0.4 percent), medical care services (+0.2 percent), and apparel (+0.1 percent). Prices fell for used cars (-0.2 percent) and medical care commodities (-0.1 percent) while new car prices did not change from July. Over the past year, CPI has grown 1.9 percent while the core CPI measure has increased 1.7 percent.

The final demand Producer Price Index (PPI) grew 0.2 percent during August following a 0.1 percent decline in July. Net of food, energy, and trade services, core final demand PPI increased 0.2 percent during August after holding firm in July. The former has jumped 2.4 percent over the past year while the 12-month comparable for the core index was at +1.9 percent. Wholesale prices for final demand goods leaped 0.5 percent (its biggest month-to-month since April), led by a 3.3 percent jump in PPI for final demand energy goods (gasoline PPI surged 9.5 percent). Food PPI fell 1.3 percent, pulled down by lower meat prices. Net of energy and food, wholesale prices for core goods increased 0.2 percent (its biggest gain since April). Final demand services PPI eked out a 0.1 percent gain.

#4The number of job openings and people hired both edged up during July. Per the Bureau of Labor Statistics, there were a seasonally adjusted 6.170 million job openings at the end of the July, up 54,000 from a month earlier and up 3.3 percent from a year earlier, and its highest reading in the 17-year history of the data series. Private sector employers had 5.657 million job openings at the end of the month, up 4.4 percent from the July 2016 count. Among the industries with large year-to-year percentage gains in job opening were mining/logging (+130.8 percent), wholesale trade (+20.2 percent), leisure/hospitality (+12.9 percent), and financial activities (+9.9 percent). Employers hired 5.501 million people during July, up 69,000 from June and 3.2 percent from a year earlier. Private sector employers hired 5.164 million people, up 4.4 percent from a year earlier. The largest percentage year-to-year increases in hiring occurred in mining/logging (+47.8 percent), manufacturing (+20.1 percent), financial activities (+10.4 percent), and construction (+9.3 percent). 5.332 million people left their jobs during July, up 23,000 for the month and 6.6 percent from July 2016. 3.164 million people voluntarily quit their jobs during the month (+4.4 percent versus July 2016) while layoffs totaled 1.783 million (+10.8 percent versus July 2016).

#5Employers expect to continue hiring during the final months of 2017. Twenty-one percent of the 11,500 companies surveyed by Manpower indicated plans to hire more workers during the third quarter of 2017 while six percent expect to shed workers. The resulting difference—the Net Employment Outlook—of +15 increases to +17 after seasonal adjustments. This matched the Net Employment Outlook reading from three months earlier but slipped a point from a year earlier. The measure was positive for all 13-tracked industries, with the highest readings for leisure/hospitality (+28), professional/business services (+22), and transportation/utilities (+20). Similarly, there were positive seasonally adjusted Net Employment Outlooks in all four Census regions: Northeast (+18), Midwest (+16), South (+18), and West (+18).

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 9, 2017, First-Time Claims, seasonally adjusted): 284,000 (-14,000 vs. previous week; +26,000 vs. the same week a year earlier). 4-week moving average: 263,250 (+1.7% vs. the same week a year earlier).
Small Business Optimism Index (August 2017, Index (1986=100), seasonally adjusted): 105.3 (vs. July 2017: 105.2; August 2016: 94.4).
University of Michigan Index of Consumer Sentiment (September 2017-preliminary, Index (1966Q1=100), seasonally adjusted):  95.3 (vs. August 2017: 96.8; September 2016: 91.2).
Manufacturers’ and Trade Inventories (July 2017, Business Inventories, seasonally adjusted): $1.874 trillion (+0.2% vs. June 2017, +3.0% vs. July 2016).
Regional and State Employment (August 2017, Nonfarm Payrolls, seasonally adjusted): vs. July 2017: payrolls grew significantly in 6 states and declined significantly in 3 states; vs. August 2016: payrolls increased significantly in 29 states and in the District of Columbia. No state suffered a significant year-to-year decline.
Federal Government Treasury Statement (August 2017, Surplus/Deficit): -$107.7 billion (vs. July 2017: -$42.9 billion; vs. August 2016: -$107.1 billion).

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