Inflation Moderates While Business Sentiment Stays Hot: October 8 – 12

Consumer prices grew less quickly while wholesale prices firmed in September. Here are the five things we learned from U.S. economic data released during the week ending October 12.

#1Consumer prices cooled during the last days of summer. The Bureau of Labor Statistics tells us that the Consumer Price Index (CPI) inched up 0.1 percent on a seasonally adjusted basis in September following two consecutive months of 0.2 percent gains. Energy prices dropped 0.5 percent, pulled down by price decreases for utility delivered gas (-1.7 percent), electricity (-0.5 percent), and gasoline (-0.2 percent). Food prices were unchanged. Net of energy and food, core CPI increased 0.1 percent during the month. Falling were prices for vehicles—both used cars/trucks (-3.0 percent) and new vehicles (-0.1 percent)—and medical care commodities (-0.1 percent). Prices increased for apparel (+0.9 percent), transportation services (+0.5 percent), shelter (+0.2 percent), and medical care services (+0.2 percent). CPI has risen 2.3 percent over the past year while core CPI has a 12-month comparable of +2.2 percent.Consumer Prices Mar-Sep 18 101218

#2…But wholesale prices rebounded. The Producer Price Index (PPI) for final demand grew for the first time in three months with a seasonally adjusted 0.2 percent increase, per the Bureau of Labor Statistics. The core measure—PPI less energy, food, and trade services, jumped 0.4 percent for its largest increase since January. Final demand PPI for goods slipped 0.1 percent, pulled down by significant declines in both energy and food prices. PPI for goods net energy and food gained 0.2 percent. PPI for final demand services jumped 0.3 percent (its biggest gain since June), fueled by a 1.8 percent bounce in wholesale prices for transportation/warehousing services. Over the past year, the headline PPI measure had grown 2.6 percent while the 12-month comparable for core wholesale prices has surged 2.9 percent.

#3Small business owner optimism remained new record highs in September. The Small Business Optimism Index from the National Federation of Independent Business lost 9/10ths of a point during the month (giving back exactly what it had gained in August) to lead the index at a seasonally adjusted 107.9 (1986=100). Six of ten index components pulled back from their August readings, including a seven-point drop for plans to increase inventories and three-point decreases for indices tied to plans to increase employment and make capital outlays. Only three index components improved during the month: expected real sales (up three points), current inventories (up two points), and expected credit conditions. The press release noted that small business owners were indicating that “business is booming and prospects continue to look bright.

#4Wholesalers expanded their inventories more rapidly during August. The Census Bureau reports that merchant wholesalers inventories swelled 1.0 percent during the month to a seasonally adjusted $642.7 billion. This left wholesale inventories 5.3 percent larger than what it was a year earlier. Durable goods wholesale inventories grew 0.9 percent while that of nondurables rose 1.2 percent. The former was boosted by sharp increases in the automotive (+3.5 percent), computer equipment (+1.6 percent), and hardware (+1.0 percent) sectors. Wholesale inventories of nondurables expanded thanks to substantial increases for farm products (+4.9 percent), chemicals (+2.2 percent), and drugs (+2.1 percent). Wholesale sales rose 0.8 percent in August to a seasonally adjusted $511.1 billion (+9.2 percent versus August 2017). The resulting inventory-to-sales ratio of 1.26 matched that of July but was down four basis points from a year earlier.

#5Layoffs remained near multi-decade lows. The Department of Labor indicates the first-time claims for unemployment insurance benefits grew by 7,000 during the week ending October 6 to a seasonally adjusted 214,000. Even with the modest increase, initial jobless claims remained 27,000 below that of a year earlier. The four-week moving average inched up by 2,500 to 209,500 claims. This was 16.9 percent below the year-ago moving average and just above the 49-year low achieved just a few weeks ago. 1.422 million people were receiving some form of unemployment insurance benefits during the week ending September 22, 14.0 percent below the count from the same week a year earlier.

Other U.S. economic data released over the past week:
University of Michigan Surveys of Consumer (September 2018—preliminary, Index of Consumer Sentiment): 99.0 (vs. August 2018: 100.1, vs. September 2017: 100.7).
Import Prices (September 2018, Import Prices, not seasonally adjusted): +0.5 % vs. August 2018, +3.5% vs. September 2017. Nonfuel imports: Unchanged vs. August 2018, +0.6% vs. September 2017.
Export Prices (September 2018, Export Prices, not seasonally adjusted): Unchanged vs. August 2018, +2.7% vs. September 2017. Nonagricultural exports: +0.2% vs. August 2018, +3.3% vs. September 2017.

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

Home Sales and Durable Goods Orders Take Steps Backward: August 20 – 24

Home sales continued to mellow this summer. Here are the five things we learned from U.S. economic data released during the week ending August 24.

#1Existing home sales slipped for a fourth consecutive month in July. The National Association of Realtors reports that sales of previously owned homes inched down 0.7 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.34 million units, its slowest sales pace since February 2016. During the four-month losing streak, home sales have declined 4.6 percent. Sales dropped during July in three of four Census regions: Northeast (-8.3 percent), Midwest, (-1.6 percent), and South (-0.4 percent). Sales gained 4.4 percent in West. Sales were 1.5 percent below that of a year earlier, with negative 12-month comparables in all four Census regions. The number of homes available for sale held relatively stable versus both June and a year earlier at 1.92 million units, the equivalent to a tight 4.3 month supply. The median sales price of $269,600 represented a 4.5 percent increase from a year earlier. The press release stressed that the supply of homes is “still not at a healthy level, and new home construction is not keeping up to meet demand.”Existing and New Home Sales July 2018 082418

#2New homes slumped for a second straight month. The Census Bureau estimates new home sales were at a seasonally adjusted annualized rate (SAAR) of 627,000 units during July, down 1.7 percent from June but still 12.7 percent ahead of the July 2017 sales pace. New home sales improved in the West (+10.9 percent) and Midwest (+9.9 percent) but fell in the Northeast (-52.3 percent) and South (-3.3 percent). There were 309,000 new homes available for sale at the end of July (+2.0 percent versus June 2018 and +12.0 percent versus July 2017), the equivalent to a 5.9 month supply. The median sales price of $328,700 was up 1.8 percent from a year earlier.

#3Volatility in aircraft purchasing led to a slowdown in durable goods orders. New orders for durable manufactured goods slumped 1.7 percent to a seasonally adjusted $246.9 billion, per the Census Bureau. Transportation goods orders fell 5.3 percent thanks to huge drops in orders for both civilian (-35.4 percent) and defense (-34.6 percent) aircraft (orders of both tend to swing widely month-to-month). Motor vehicle orders gained 3.5 percent. Orders for durable goods other than transportation orders grew 0.2 percent, with increases for computers/electronics (+1.1 percent), machinery (+0.6 percent), and primary metals (+0.3 percent). Electrical equipment/appliances orders slipped 0.2 percent. New orders for civilian capital goods net of aircraft—a measure of business investment—jumped 1.4 percent. Durable goods shipments slipped 0.2 percent during the month to $250.8 billion, with the measure gaining 0.6 percent after removing the shipments of transportation goods.

#4Employers laid off relatively few workers during the late summer. There were 210,000 first-time claims made for unemployment insurance benefits during the week ending August 18, down 2,000 claims from the week earlier and 27,000 claims from the same week a year ago. Only twice has the Department of Labor’s estimate of initial jobless claims been this low since 1969—and both times have been within the past four months. The four-week moving average of first-time claims dropped to 213,750, down 10.8 percent from a year earlier and (also) just above its 49-year low. 1.704 million people (not seasonally adjusted) were receiving some form of unemployment insurance benefits during the week ending August 4, down 11.3 percent from a year earlier

#5House prices grew at a slower rate in June. The Federal Housing Finance Agency (FHFA) indicates that its purchase-only House Price Index (HPI) grew 0.2 percent on a seasonally adjusted basis during the month. (This measure tracks sales prices of homes purchased using mortgages that were sold to or guaranteed by Fannie Mae and Freddie Mac.) The HPI increased in seven of nine Census regions, led by a 0.7 percent gain in the Mountain region, a 0.6 percent rise in the East North Central region, and a 0.5 percent bump in the Middle Atlantic. Prices declined 0.4 percent in both New England and the South Atlantic. Home prices have risen 6.5 percent over the past year, with positive 12-month comparables in all nine Census regions. The largest year-to-year percentage price gains were in the Mountain (+9.6 percent), Pacific (+7.0 percent) and South Atlantic (+6.7 percent) regions.

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.

Tight Inventories, Rising Materials Prices Weigh on Housing: June 18 – 22

Tight inventories continued to hold back the housing market during the spring. Here are the five things we learned from U.S. economic data released during the week ending June 22.

#1Existing home sales stagnated during May. Sales of previously owned homes slipped 0.4 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.430 million homes. This left the National Association of Realtors’ home sales measure down 3.0 percent from May 2017 levels. Sales grew during the month on in the Northeast (+4.6 percent) while activity fell in three of four regions versus the previous year (Sales held steady versus May 2017 levels in the South). While still very tight, the number of homes on the market grew 2.8 percent during the month to 1.85 million units. This was nevertheless 6.1 percent below the year-ago level of inventories and the equivalent to a 4.1 month supply. As a result, the median sales price for existing homes has grown 4.9 percent over the past year to $264,800. The press release notes that “[i]ncredibly low supply continues to be the primary impediment to more sales.”Existing Home Sales June 2018-062218

#2Activity in the Midwest drives a rise in housing starts. The Census Bureau reports that housing starts grew 5.0 percent during May to a seasonally adjusted annualized rate (SAAR) of 1.350 million homes. This was 20.3 percent ahead of the year-ago pace of starts. Single-family home starts grew 3.9 percent during the month to an annualized 936,000 (+18.3 percent versus May 2017) while multifamily units starts jumped 11.3 percent to an annualized 404,000 units (+27.4 percent versus May 2017). Only one region—the Midwest—enjoyed a month-to-month increase in starts. Looking toward the future, the number of issued housing permits of 1.364 million (SAAR), which was off 4.6 percent for the month but still 8.0 percent ahead of the year-ago rate. The annualized rate of housing completions grew 1.9 percent during May to 1.291 million homes. This was up 10.4 percent from the same month a year earlier. 

#3Higher raw material prices weigh on homebuilder sentiment. The National Association of Home Builders’ Housing Market Index (HMI) lost two points in June to a seasonally adjusted reading of 68. Even with the modest drop, the HMI has been above a reading of 50—where a higher percentage of homebuilders see the housing market as “good” than view it as “poor”—for 48 straight months. During the month, the HMI improved in the Northeast and West but lost ground in the Midwest and South. Indicies for both current (75) and expected sales (76) each lost a point, as did the measure tracking prospective buyers traffic (50). The press release stressed that builders remained optimistic, but also they were “increasingly concerned that tariffs placed on Canadian lumber and other imported products are hurting housing affordability.”

#4Economic indicators suggest continued economic growth for the remainder of the year. The Conference Board’s Leading Economic Index added 2/10ths of a point in May to a seasonally adjusted reading of 109.5 (2016=100). The measure has grown 6.1 percent over the past year. Seven of the LEI’s ten components made positive contributions during the month, led by new manufacturing orders, the interest rate spread, and consumers’ expectations for business conditions. The coincident index also increased by 2/10ths of a point during May with the 103.7 reading representing a 2.2 percent gain from a year earlier. Three of four coincident index components made positive contributions: nonfarm payrolls, personal income net of transfer payments, and manufacturing & trade sales. The lagging index added a half point to a reading of 105.2 (+2.7 percent versus May 2017). The press release noted that while economic growth would remain “solid,” May’s smaller increase suggests that “economic activity is not likely to accelerate.”

#5Layoff activity remained slow in mid-June. There were a seasonally adjusted 218,000 first-time claims made for unemployment insurance benefits during the week ending June 16, down 3,000 from the prior week and 26,000 for the same week a year earlier. The Department of Labor’s jobless claims data can be volatile week-to-week, so analysts frequently look at four-week moving data to spots trends. But the story is much the same—the moving average was at 221,000, which was 10.0 percent below that of a year earlier. Further, the four-week moving average has been below 300,000 for an impressive 172 consecutive weeks.

Other U.S. economic data released over the past week:
FHFA House Price Index (April 2018, Purchase-Only Index, seasonally adjusted):  +0.1% vs. March 2018, +6.4% vs. April 2017. 

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