Consumer and Business Sentiment is Tested: March 9 – 13

Data released last week show COVID-19’s early impact on consumer and business owner sentiment. Here are the five things we learned from U.S. economic data released during the week ending March 13.

#1Consumer sentiment took a hit in early March. The preliminary March reading of the Index of Consumer Sentiment from the University of Michigan came in at 95.9 (1966Q1=100). This was down 5.1 points from the final February reading and 2.5 points from a year earlier. The current expectations index pulled back 2.3 points to 112.5 (May 2019: 113.3), while the expectations index shed 6.8 points to 85.3. The press release stated that “the initial response to the pandemic has not generated the type of economic panic among consumers” in comparison to the start of the 2008 Great Recession (although data collection for these results did not reflect the impact of this past week’s news). Also interesting is that the data suggest most consumers believe any negative impact on their finances would be temporary. However, it worth watching to see if that sanguine view holds up in the coming weeks and months.

#2Small business owners remained optimistic…at least in early-to-mid February. The Small Business Optimism Index from the National Federation of Independent Business eked out a 2/10ths of a point gain in February to a seasonally adjusted reading of 104.5 (1986=100). The index has been above 100 for 39 straight months and was 3.8 points above its year-ago reading. A closer look at the index components paints a more mixed picture, however. Just four of ten components improved: expectations of the economy to improve, plans to increase employment, expected credit conditions, and current job openings. The other six components pulled back, including expected real sales, whether it is a good time to expand, plans to increase inventories, and plans to make capital outlays. The press release noted that “February was another historically strong month for the small business economy,” but also stressed that the survey closed before “the recent escalation of the coronavirus outbreak and the Federal Reserve rate cuts.”

#3Consumer prices edged up in February. The Bureau of Economic Analysis reports that the Consumer Price Index (CPI) grew a seasonally adjusted 0.1 percent during the month, matching January’s gain and down from the 0.2 percent advance during the three months before that. Food CPI jumped 0.4 percent, with increases in five of six major grocery categories (fruits/vegetables were the exception). Energy CPI declined 2.0 percent, with gasoline prices off 3.4 percent. Core CPI increased by 0.2 percent for the third time in four months. Rising were prices for used cars/trucks (+0.4 percent), apparel (+0.4 percent), shelter (+0.3 percent), transportation services (+0.3 percent), health care services (+0.3 percent), and new automobiles (+0.1 percent). Health care commodities prices declined by 0.6 percent. Over the past year, headline CPI has risen 2.3 percent while the 12-month comparable for core CPI was +2.4 percent. 

#4Wholesale prices fell in February. Final demand Producer Price Index (PPI) slumped a seasonally adjusted 0.6 percent during the month, its largest single-month drop in five years. The Bureau of Labor Statistics’ core wholesale price measure, which removes the impact of food, energy, and trade services, decreased 0.1 percent (its first decline since last June). PPI for final demand goods plummeted 0.9 percent (its biggest drop since September 2015) with declines for energy (-3.6 percent), food (-1.6 percent), and core goods (-0.1 percent). PPI for final demand cooled 0.3 percent, which included the impact of the 0.7 percent decline in trade services (i.e., retailer and wholesaler margins). Headline PPI has grown a relatively modest 1.3 percent over the past year while the core measure has risen 1.4 percent.

#5…as did both import and export prices. The Bureau of Labor Statistics finds import prices declining 0.5 percent in February, its most significant drop since last August. Much of the fall resulted from a sharp 7.7 percent reduction in imported fuel prices (petroleum: -7.7 percent, natural gas: -12.4 percent). Net of fuel, core import prices grew 0.3 percent, boosted by nonfuel industrial supplies/materials, foods/beverages, and capital goods. Meanwhile, export prices fell 1.1 percent, with prices for agricultural exports dropping 2.7 percent (hurt by declines for vegetables, soybeans, and meat). (Note that the import and export price measures do not reflect any seasonal adjustments). 

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 7, 2020, First-Time Claims, seasonally adjusted): 211,000 (-3,000 vs. previous week; -13,000 vs. the same week a year earlier). 4-week moving average: 214,000, -2.6% vs. the same week a year earlier).
Monthly Treasury Statement (February 2020—First 5 Months of FY2020, Federal Government Budget Surplus/Deficit):  -$622.5 billion (vs. FY2019: -$544.2 billion).

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

Retail Sales Gain, Manufacturing Does Not: November 11 – 15

Retail sales made a small comeback in October while manufacturing let up again. Here are the five things we learned from U.S. economic data released during the week ending November 15.

#1Retail sales bounced back in October. Retail and food services sales grew 0.3 percent during the month to a seasonally adjusted $526.5 billion. This followed a 0.3 percent drop in September for the Census Bureau measure. Sales rose at both auto dealers & parts stores (+0.5 percent) and gas stations (+1.1 percent). Net of both, core retail sales inched up 0.1 percent after slipping 0.1 percent during the prior month. Sales gained at general merchandisers (+0.4 percent) and grocery stores (+0.4 percent) but stumbled at stores focused on apparel (-1.0 percent), furniture (-0.9 percent), sporting goods/hobbies (-0.8 percent), building materials (-0.5 percent), and electronics/appliances (-0.4 percent). Retail sales have risen 3.1 percent over the past year, while core retail sales have a more robust 12-month comparable of +3.7 percent.

#2A now-ended strike dampened manufacturing output in October. The Federal Reserve estimates that manufacturing output fell 0.6 percent during the month following a 0.5 percent decline in September. Durable goods product slumped 1.2 percent, harmed in part by the now-settled General Motors strike. Net of automobiles, durable goods manufacturing slowed 0.2 percent. Nondurables output held steady during the month. Overall industrial production had its worst month in 17 months with a 0.8 percent decline. Mining output declined 0.7 percent while utilities production plummeted 2.6 percent. Manufacturing production was 1.5 percent below that of a year earlier, while overall industrial production was 1.1 percent behind its October 2018 pace. 

#3Higher gasoline prices heated up not only consumer inflation in October… The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) jumped 0.4 percent on a seasonally adjusted basis during the month, the biggest single-month gain since March. Gasoline prices surged 3.7 percent, pushing up energy CPI 2.7 percent. Food CPI jumped 0.2 percent (its highest one-month gain since May). Net of energy and food, core CPI increased 0.2 percent. Rising in October were prices for used cars/trucks (+1.3 percent), medical care commodities (+1.2 percent), medical care services (+0.9 percent), shelter (+0.1 percent), and transportation services (+0.1 percent). Prices decreased for apparel (-1.8 percent) and new vehicles (-0.2 percent). CPI has risen 1.8 percent over the past year, while the core measure has a 12-month comparable of +2.3 percent.

#4…But also wholesale prices. Final demand Producer Price Index (PPI) also rose a seasonally adjusted 0.4 percent in October, the biggest gain in six months for the Bureau of Labor Statistics gauge. The core measure, which nets out energy, food, and trade services, had a more modest 0.1 percent increase. Goods PPI jumped 0.7 percent, half of which came from a 7.3 percent surge in wholesale gasoline prices. Netting out gains for energy (+2.8 percent) and food (+1.3 percent), core goods PPI held steady in October. Final demand services PPI gained 0.3 percent, pushed up by a 0.8 percent rise in trade services (wholesale and retail margins). Headline PPI has grown a relatively modest 1.1 percent over the past year while the core measure has risen 1.5 percent.

#5Optimism improved slightly among small business owners. The Small Business Owner Optimism Index from the National Federation of Independent Business added 6/10ths of a point during October to a seasonally adjusted reading of 102.4 (1986=100). While this was the first increase in three months, the measure remained five full points below its year-ago mark. Eight of the index’s ten components improved during the month, led by gains for measures tied plans to increase both inventories and capital outlays. Two components dropped during the month: earnings trends and current job openings. The press release noted small business owners “are not experiencing the predicted turmoil” of a recession.

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 9, 2019, First-Time Claims, seasonally adjusted): 225,000 (+14,000 vs. previous week; +2,000 vs. the same week a year earlier). 4-week moving average: 217,000 (-1.0% vs. the same week a year earlier).
Import Prices (October 2019, All Imports, not seasonally adjusted): -0.5% vs. September 2019, -3.0% vs. October 2018. Nonfuel Imports: -0.2% vs. September 2019, -1.4% vs. October 2018.
Export Prices (October 2019, All Exports, not seasonally adjusted): -0.1% vs. September 2019, -2.2% vs. October 2018. Nonagricultural Exports: -0.1% vs. September 2019, -2.7% vs. October 2018.
Monthly Treasury Statement (October 2019, Federal Budget Deficit): -$134.5 billion (vs. October 2018: -$100.5 billion).
Business Inventories (September 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.042 trillion (unchanged vs. August 2019, +3.7% vs. September 2018).

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

The Fed Moves, Inflation Does Not: June 12 – 16

The Federal Reserve raised short-term interest rates even though inflation remains below where the Fed wants it to be. Here are the 5 things we learned from U.S. economic data released during the week ending June 16.

#1The Federal Reserve bumped up its short-term interest rate target for the second time in 2017. The policy statement released following the conclusion of last week’s meeting of the Federal Open Market Committee (FMOC) reaffirmed its view that the economy was “rising moderately,” the labor market had “continued to strengthen,” and that risks to economic growth were “balanced.” At the same time, it noted that inflation had “declined recently” and was tracking below the Fed’s two-percent target rate. Nevertheless, the FOMC voted (with one dissension) to raise the fed funds target rate by 25-basis points to a range of +1.00 percent and +1.25 percent, a level that the statement noted was still “accommodative” and would promote “further strengthening in the labor market.” The FOMC also agreed to gradually begin reducing the central bank’s holdings of Treasury securities and agency mortgage-back securities by slowing its reinvestment of the principal payments that it receives on these holdings.

The Fed also released updated economic forecasts from FOMC meeting participants. The group continues to expect modest economic growth over the coming years with median forecasts for annual GDP growth at +2.2 percent, +2.1 percent, and +1.9 percent for 2017, 2018, and 2019 respectively. At the same time, they now anticipate low unemployment rates of 4.3 percent this year and 4.2 percent in both 2018 and 2019. The group also expects the core personal consumption expenditures (PCE) deflator, a measure of inflation, to be at +1.7 percent for this year before creeping up to +2.0 percent during both 2018 and 2019. Finally, the FOMC meeting participants predict one more hike in the fed funds target rate this year and then three hikes per year in both 2018 and 2019.FOMC Fed Funds Target Forecasts--061617

 #2Inflation took the month of May off. The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) slipped 0.1 percent on a seasonally adjusted basis during the month, leaving it 1.9 percent above its May 2016 reading. The decline was partially the result of a pullback in gasoline prices (-6.4 percent) that weighed on the energy price index -2.7 percent. Meanwhile, food CPI grew 0.2 percent during the month. Net of both energy and food, core CPI eked out a 0.1 percent increase, giving it a 12-month comparable of +1.7 percent. Rising during the month were prices for medical care commodities (+0.4 percent), transportation services (+0.3 percent), and shelter (+0.2 percent). Prices fell for apparel (-0.8 percent), both new and used vehicles (-0.2 percent), and medical care services (-0.1 percent).

Falling wholesale gasoline prices also kept wholesale prices in check during May. Final demand Producer Price Index (PPI) held steady during the month but was still up 2.4 percent from a year earlier. The core measure of final demand wholesale prices (net of energy, food, and trade services) declined 0.1 percent for the month and had a 12-month comparable of +2.1 percent. PPI of final demand goods dropped 0.2 percent as wholesale price declines for energy (-3.0 percent) and food (-0.2 percent) outweighed the 0.1 percent increase in prices for core goods. PPI for final demand services grew 0.3 percent during May as the price index for trade services (i.e., retailer and wholesaler margins) jumped 1.1 percent.

#3Manufacturing output fell in May. The Federal Reserve’s report on industrial production finds manufacturing output declining 0.4 percent on a seasonally adjusted basis during the month following a 1.1 percent gain in April. This left manufacturing output growing by an unexceptional 1.4 percent from a year earlier. Durable goods production slumped 0.8 percent during May, with declines across all major product categories, while nondurables output gained 0.3 percent, led by a “large gain” in the production of chemicals. Overall industrial production was unchanged for the month as a drop in manufacturing output was counterbalanced by production gains in mining (+1.6 percent) and at utilities (+0.4 percent)

#4Retail sales sputtered in May. Per the Census Bureau, retail sales declined 0.3 percent during the month to a seasonally adjusted $473.8 billion. Nevertheless, sales paced 3.8 percent ahead of their year-ago level. Sales net of those at auto dealers & parts stores (-0.2 percent vs. April 2017) shared the same comparbles of -0.3 percent vs. April 2017 and +3.8 percent vs. May 2016. Some of the decline in retail sales during May was the result of lower gasoline prices that had pushed down sales at gas stations 2.8 percent (this data series does not adjust for price changes). Sales also fell at electronic stores (-2.8 percent), department stores (-1.0 percent), sporting goods/hobby retailers (-0.6 percent), and restaurants/bars (-0.1 percent). Having a better month were furniture stores (+0.4 percent), apparel retailers (+0.3 percent), and grocery stores (+0.1 percent). Consumers continued to shift away from brick and mortar stores to online retailers as sales at nonstore retailers jumped 0.8 percent during the month and were 10.2 percent ahead of their May 2016 pace.

#5Employers expect to expand payrolls during Q3. Twenty-four percent of the more than 11,000 employers Manpower interviewed intend to expand payrolls during the three-month period of July, August, and September, while four percent expect to shed workers. Taking the difference of +20 and adjusting for seasonal variation gives you the Manpower Net Employment Outlook Index of +17, which was unchanged from the second quarter forecast and up two points from the same quarter a year earlier. The index was positive in all 13 industries tracked, with the highest outlook index reading coming in for leisure/hospitality (+25), transportation/utilities (+22), and wholesale/retail trade (+21). The press release said that “[e]mployers across the country are optimistic but don’t want to get ahead of themselves.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 10, 2017, First-Time Claims, seasonally adjusted): 237,000 -8,000 vs. previous week; -36,000 vs. the same week a year earlier). 4-week moving average: 243,000 (-9.5% vs. the same week a year earlier).
Import Prices (May 2017, All Imports, not seasonally adjusted): -0.3% vs. April 2017, +2.1% vs. May 2016. Nonfuel imports: unchanged vs. April 2017, +0.8% vs. May 2016).
Export Prices (May 2017, All Exports, not seasonally adjusted: -0.7% vs. April 2017, +1.4% vs. May 2016.
Housing Starts (April 2017, Housing Starts, seasonally adjusted annualized rate): 1.172 million (-2.6% vs. March 2017, +5.7% vs. April 2016).
Housing Market Index (June 2017, Index (>50 = “Good” Housing Market, seasonally adjusted): 67 (vs. May 2017: 69, vs. June 2016: 60).
University of Michigan Consumer Sentiment (June 2017-preliminary, Index of Consumer Sentiment (1966Q1 = 100), seasonally adjusted): 94.5 (vs. May 2017: 97.1, June 2016: 93.5).
Regional & State Employment (May 2017, States with Significant Changes in Nonfarm Payrolls Vs. Previous Month, seasonally adjusted): Increased in 9 states and the District of Columbia and decreased in 4 states. Vs. May 2016: Increased in 28 states and no states suffered significant declines.
Business Inventories (April 2017, Manufacturing & Trade Inventories, seasonally adjusted): $1.854 trillion (-0.2% vs. March 2017, +2.3% vs. April 2016).

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