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.

A Wider Trade Deficit, Fewer Job Openings: What We Learned During the Week of December 6 – 10

The trade deficit widened and there were fewer job openings in October. On the other hand, new orders for factory orders grew in October while the service sector blossomed in November. Here are the 5 things we learned from U.S. economic data released during the week ending December 9.

#1A drop in exports leads to an expansion in the trade deficit during October. The Census Bureau and the Bureau of Economic Analysis data indicate that exports declined by $3.4 billion on a seasonally adjusted basis during the month while imports increased by $3.0 billion to $229.0 billion. The resulting trade deficit of -$42.6 billion was $6.4 billion larger than that from September and was at its widest point since June. The goods deficit widened by $6.3 billion to -$63.4 billion while the services surplus narrowed by $0.1 billion to +$20.8 billion. The decline in goods exports was the product of a $1.4 billion drop in exported food/feeds/beverages (including those for soybeans and corn), a $0.9 billion decrease in consumer goods exports, a $2.4 billion increase in consumer goods imports, and a $1.1 billion gain in imports of capital goods. The U.S. had its largest goods trade deficits during October with China (-$28.9 billion), the European Union (-$12.9 billion), Mexico (-$5.8 billion), Japan (-$5.8 billion), and Germany (-$4.7 billion).trade-deficit-121016

#2The count of job openings and the number of people hired both declined in October. The Bureau of Labor Statistics estimates there were a seasonally adjusted 5.534 million job openings at the end of October. This was down 97,000 openings from the end of September but still up 2.1% from October 2015. The private sector had 5.022 million job openings at the end of October, 1.7% above year ago levels. Industries with the largest positive 12-month comparables included construction (+58.9%), retail (+20.2%), health care/social assistance (+17.7%), and financial activities (+13.0%). 5.099 million people were hired during October, off 22,000 from September and down 2.2% from the same month a year earlier. The same comparables for the private sector were -5,000 and -2.1%, respectively.

#3Factory orders jumped in October. The Census Bureau estimates new orders for manufactured goods jumped 2.7% during the month to a seasonally adjusted $469.4 billion. This was up 1.3% from a year earlier. Much—but not all—of the gain came in the form of new orders for aircraft. Civilian aircraft orders surged 93.8% while defense aircraft orders gained 32.5%. Those figures combined with a 0.7% decline in new orders for automobiles resulted in a 12.0% increase in transportation orders during October. Net of transportation goods, new orders for manufactured goods gained 0.8% during the month but were only 0.5% above October 2015 levels. Growing during the month were orders for fabricated metals (+1.8%), electrical equipment/appliances (+1.6%), and computer/electronic products (+0.8%). Orders for furniture fell 1.0% during October. Meanwhile, shipments of manufactured goods increased for the 7th time over the past 8 months with a 0.4% gain. Unfilled orders grew for the 1st time in 5 months with a 0.7% increase while inventories expanded for the 3rd time in 4 months, albeit with an increase that was smaller than 0.1%.

#4The service sector sharply strengthened during November. The headline index from the Institute for Supply Management’s Nonmanufacturing Report on Business added 2.4 points during November to a seasonally adjusted reading of 57.2. This was the highest reading for the measure of service sector activity since October 2015 and was the 82nd straight month in which it was above a reading of 50.0 (indicative of the nonmanufacturing side of the U.S. economy to be expanding). 3 of 4 index components improved during the month: employment (up 5.1 points to 58.2), business activity/production (up 4.0 points to 61.7), and supplier deliveries (up 1.5 points to 52.0). The new orders slipped 7/10ths of a point to 57.0. 14 of 18 tracked service sector industries grew during November, led by agriculture, retail, arts/entertainment/recreation, and transportation/warehousing. The press release noted that survey respondents expressed “positive” comments “about business conditions and the direction of the overall economy.”

#5Productivity grew during Q3 at its fastest pace since late 2011. The Bureau of Labor Statistics reports nonfarm business sector labor productivity grew 3.1% on a seasonally adjusted annualized rate during the quarter. This was unchanged from the BLS’s previous estimate of Q3 productivity reported a month earlier. This followed 3 consecutive quarters of declining productivity and represented the biggest gain in productivity since Q4 2011. Even with the bump during Q3, productivity gains have been scarce during the economic recovery with labor productivity unchanged from a year earlier. For the quarter, the manufacturing sector grew a measly 0.4%, as a 3.0% gain in durable manufacturing productivity was nearly counterbalanced by a 3.0% contraction in the productivity of nondurable manufactured goods manufacturing. Real hourly compensation grew 2.2% (SAAR) during the quarter and was 1.8% above year ago levels.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending December 3, 2016, First-Time Claims, seasonally adjusted): 258,000 (-10,000 vs. previous week; -21,000 vs. the same week a year earlier). 4-week moving average: 252,500 (-7.5% vs. the same week a year earlier).
University of Michigan Index of Consumer Sentiment (December 2016-preliminary, Index (1966Q1=100, seasonally adjusted): 98.0 (+4.2 vs. November 2016, +5.4 vs. December 2015)
Wholesale Inventories (October 2016, Inventories of Wholesale Merchants, seasonally adjusted): $587.7 billion (-0.4% vs. September 2016, -0.4% vs. October 2015).
Consumer Credit (October 2016, Outstanding Non-Real Estate Backed Credit Balances, seasonally adjusted): $3.727 trillion (+$16.0 billion vs. September 2016, +6.1% vs. October 2015).

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

Retail Sales Pause, Productivity Declines Again: What We Learned During the Week of August 8 – 12

Retail sales took a summer break during July while productivity’s losing streak stretched into a 3rd straight quarter. Here are the 5 things we learned from U.S. economic data released during the week ending August 12.

#1Retail sales stayed cool in the summer heat during July. The Census Bureau places its estimate of retail/food sales at a seasonally adjusted $457.7 billion, essentially matching June’s levels and up a moderate 2.3% over the past year. Some of the stagnation reflected lower gasoline prices that led to a 2.7% drop in sales at gas stations (the retail sales measure is not adjusted for price variations). Removing sales at gas stations and at auto dealers and parts stores (which enjoyed a 1.1% sales gain), core retail sales dropped 0.1% during the month but were up 3.8% from a year earlier. Sales fell across most retail sectors; including, sporting goods/hobby stores (-2.2%), grocery stores (-0.9%), building materials retailers (-0.5%), department stores (-0.5%), and restaurant/bars (-0.2%). Furniture retailers and health/personal care stores eked out gains of 0.2% and 0.1%, respectively. Finally, sales at “nonstore” retailers (e.g., internet retailers) jumped 1.2% for the month and were 14.1% above  year ago levels. 081216

#2The count of job openings and the pace of hiring rebounded in June. The Bureau of Statistics estimates there were a seasonally adjusted 5.624 million job openings at the end of the month, up 110,000 from May and 8.8% above year ago levels. Industries with the largest year-to-year percentage gains in job openings were construction (+33.3%), manufacturing (+32.7%), finance/insurance (+25.5%), government (+15.1%), leisure/hospitality (+11.4%), and health care/social assistance (+10.5%). Hiring increased by 84,000 jobs to 5.131 million. This was down 0.3% from a year earlier. While there were healthy year-to-year percentage hiring gains in leisure/hospitality (+9.7%), the government (+9.6%), health care/social assistance (+8.5%), and manufacturing (+5.6%), hiring declined in construction (-12.4%), wholesale trade (-10.9%), retail (-8.7%), and professional/business services (-4.9%). Americans were still voluntarily quitting jobs at a faster rate than that of a year earlier (2.909 million, +5.9% vs. June 2015) while layoffs were 7.9% below year ago levels at 1.643 million.

#3Food and energy goods pulled down July wholesale prices. The Bureau of Labor Statistics’ Producer Price Index (PPI) for final demand dropped 0.4% during the month, its 1st decline since March. Net of food, energy, and trade services, core final demand PPI was flat during the month. Prices for final demand goods decreased 0.4%, led by falling wholesale prices for energy and food. The former declined because of lower gasoline prices. The latter reflected the 9.8% drop in prices for beef/veal, along with lower prices for corn and oil seeds. PPI for final demand trade dropped 0.3% as trade PPI (essentially margins for wholesalers and retailers) slumped 1.3%, including a sharp 6.0% fall for the apparel/jewelry retail sector. Over the past year, final demand PPI has fallen 0.2%, with the core final demand index up a still weak 0.8% since July 2015.

#4Productivity declined for a 3rd consecutive quarter. The Bureau of Labor Statistics reports that nonfarm business output per hour declined 0.5% on a seasonally adjusted annualized basis during the 2nd quarter, following contractions of 0.6% and 2.4% during the 2 preceding quarters. The Q2 drop in productivity was the product of an annualized 1.8% gain the number of hours worked leading to only a 1.2% increase in output. Productivity slowed 0.4% over the past year with gains in hours worked and output of 1.5% and 1.1%, respectively. Weak productivity has been a hallmark of the current economic recovery, with frail productivity gains of 0.3%, 0.8%, and 0.9% during 2013, 2014, 2015, respectively. Manufacturing sector productivity slowed 0.2% during Q2, as a 4.1% contraction in nondurable manufacturing outpaced the 2.6% gain in durable manufacturing.

#5Confidence among small business owners held steady in July. The Index of Small Business Optimism from the National Federation of Independent Business. inched up by 1/10th of a point to a seasonally adjusted reading of 94.6 (1986 = 100). While the index has been above a reading of 90.0 for 42 consecutive months, it has remained within a tight range near the mid-90s for virtually all of those months. Only 4 of the index’s 10 components improved during the month, including that for expected business conditions and on plans to increase inventories. 4 other index components declined during the month, including those for the current number of job openings, earnings trends, plans to make capital outlays, and expected gains in real sales. The press release said that “there is little hope for a surge in the small business sector anytime soon,” as it noted there was “high” uncertainty, “low” expectations for the future, and “weak” future business investments.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending August 6, 2016, First-Time Claims, seasonally adjusted): 266,000 (-1,000 vs. previous week; -5,000 vs. the same week a year earlier). 4-week moving average: 262,750 (-2.6% vs. the same week a year earlier).
Import Prices (July 2016, not seasonally adjusted): +0.1% vs. June 2016, -3.7% vs. July 2015. Nonfuel imports: +0.3% vs. June 2016, -1.2% vs. July 2015.
Export Prices (July 2015, not seasonally adjusted): +0.2% vs. June 2016, -2.6% vs. July 2015.
University of Michigan Index of Consumer Sentiment (August 2016-preliminary, Index (1966 Q1 = 100, seasonally adjusted): 90.4 (July 2016: 90.0, August 2015: 91.9).
Federal Budget (July 2016, surplus/deficit): -$112.8 billion (vs. June 2016: +$6.5 billion, vs. July 2015: -$149.2 billion).
Manufacturing & Trade Inventories (June 2016, seasonally adjusted): $1.814 trillion (+0.2% vs May 2016, +0.5% vs, June 2015).
Mortgage Delinquencies (2nd Quarter 2016, Delinquency Rates for 1-4 Unit Residential Properties, seasonally adjusted): 4.66% (vs. Q1 2016: 4.77%, vs. Q2 2015: 5.30%).

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