Vehicles Drive Manufacturing and Retail Sales: April 16 – 20

Manufacturing activity grew again in March (albeit at a slower pace than in February) while retail sales had its best month since last November. Here are the five things we learned from U.S. economic data released during the week ending April 20.

#1Manufacturing output grows at a slower pace during March. The Federal Reserve estimates manufacturing production increased 0.1 percent on a seasonally adjusted basis during the month following a 1.5 percent gain in February, leaving the measure up 3.0 percent over the past year. Production of durable goods gained 0.4 percent—which included the impact of a 2.7 percent surge in motor vehicle output—and has increased 3.8 percent over the past year. Production of nondurables slowed 0.3 percent during the month but remained 2.7 percent ahead of its March 2017 mark. Overall industrial production rose 0.5 percent during March and has jumped 4.3 percent over the past 12 months. Mining output increased 1.0 percent (down from its 2.9 percent increase in February) while production at utilities surged 3.0 percent. The latter helped lead a 3/10ths of a percentage point in capacity utilization (factory utilization) to 78.0 percent, its highest point in three years.Industrial Production Capacity Utilization 042018

#2Retail sales gained in March. Retail and food services sales increased 0.6 percent during the month to a seasonally adjusted $494.6 billion, per the Census Bureau. This was the largest single-month percentage increase in retail sales since last November and left the measure up 4.5 percent over the past year. Leading the surge in retail sales was the 2.0 percent jump in sales at auto dealers/parts stores. Net of auto dealer/parts stores, retail sales gained a more modest 0.2 percent in March and was 4.5 percent ahead of the year-ago sales pace. Sales grew at retailers focused on health/personal care (+1.4 percent), furniture (+0.7 percent), electronics (+0.5 percent), general merchandisers (+0.3 percent), and groceries (+0.2 percent). Sales also improved at nonstore retailers (+0.8 percent) and restaurants/bars (+0.4 percent). Slipping were sales at sporting goods/hobby stores (-1.8 percent), building materials retailers (-0.6 percent), gas stations (-0.3 percent), and department stores (-0.3 percent).

#3Forward-looking economic indicators foretell continued economic growth in the coming months. The Conference Board’s Leading Economic Index (LEI) added 3/10ths of a point during March to 109.0 (2016=100), rising 6.2 percent over the past year. Six of the ten LEI components made positive contributions to the index, led by the interest rate spread, the new orders index from the Institute for Supply Management, and consumer expectations for future business conditions. The coincident index increased by 2/10ths of a point to 103.4, 2.2 percent ahead of its year-ago reading. All four components of the coincident index made positive contributions, including that for industrial production and personal income net of transfer payments. The lagging index inched up 1/10th of a point to 104.5 (+2.6 percent versus March 2017), with five of seven components making a positive contribution. The press release noted that leading indicators point “to continued solid growth in the U.S. economy for the rest of the year” but that weakness in labor market indicators “bear watching in the future.”

#4Housing starts advanced in March, thanks to gains in multifamily units. The Census Bureau estimates housing starts increased 1.9 percent to a seasonally adjusted annualized rate (SAAR) of 1.319 million units. This was 10.9 percent ahead of the year-ago rate of starts. Starts of multifamily units (e.g., condos, apartments) jumped 16.1 percent during the month to an annualized 439,000 units while those of single-family homes dropped 3.7 percent to 867,000 units (SAAR). Looking towards future construction activity, the annualized count of issued building permits increased 2.5 percent during March to 1.354 million permits (+7.5 percent versus March 2017). Again, the 22.9 percent bump in permits for multifamily units outpaced the 5.5 percent decline in issued permits for single-family homes. Completions of homes slowed 5.1 percent during the month to 1.217 million homes (SAAR)—this was 1.9 percent ahead of March 2017’s pace of completions.

#5Home builders’ confidence held strong in April. The National Association of Home Builders’ Housing Market Index (HMI) lost a point to a seasonally adjusted reading of 69. While this was the HMI’s lowest point since last November, it represented the 46th consecutive month with a reading above 50, indicating more homebuilders see the housing market as “good” rather as “poor.” The index slipped in the South and West, held steady in the Midwest, and inched up in the Northeast. Also losing grounds were indices measuring current and expected sales, with the former shedding two points to 75 and the latter slipping by a point to 77. The index for traffic of prospective buyers was unchanged at 51. The press release said that the housing market “remains on solid ground” thanks to “strong demand” with the NAHB expecting “the market to continue to make gains at a gradual pace.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 14, 2018, First-Time Claims, seasonally adjusted): 232,000 (-1,000 vs. previous week; -15,000 vs. the same week a year earlier). 4-week moving average: 231,250 (-5.3% vs. the same week a year earlier).
State Employment (March 2018, Nonfarm Payrolls, seasonally adjusted): Two states had significant increases in payrolls vs. February 2018. 24 states had significant increases in payrolls vs. March 2017.
Treasury International Capital Flows (February 2018, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$57.9 billion (vs. January 2018: +$62.5 billion; vs. February 2017: +$38.3 billion).
Business Inventories (February 2018, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.929 trillion (+0.6% vs. January 2018, +4.0% vs. February 2017).
Beige Book 

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

The FOMC Makes Another Move, Will (Likely) Do So Twice More This Year: March 19 – 23

The Federal Reserve raised its short-term interest rate target and signals its intention to do so several more times this year. Here are the five things we learned from U.S. economic data released during the week ending March 23.

#1The Fed bumps up its short-term interest rate target…and its economic forecast. The policy statement released after this past week’s meeting of the Federal Open Market Committee (FOMC) noted that the economy was growing “at a moderate rate” and the labor market had “continued to strengthen,” featuring “strong” job gains. Nonetheless, core inflation remained under its two-percent target. As a result, the committee voted without dissent to raise the fed funds target rate by 25-basis points to a range between 1.50 and 1.75 percent. The statement continued to note that economic conditions are likely to “warrant” further hikes, but that interest rates would likely remain accommodative “for some time.”

The expectation of what “some time” may mean is presented with the updated economic forecasts of the FOMC meeting participants published in conjunction with the above policy statement. The median fed funds target rate forecast remains at 2.1 percent at the end of 2018, suggesting two more 25-basis points hikes this year. The consensus forecast places the expected fed funds target at 2.9 percent (i.e., three rate hikes) for 2019 and 3.4 percent (i.e., two rate hikes) for 2020. The same forecast has the U.S. economy growing 2.7 percent for all of 2018 (up from the prior forecast of a 2.5 percent gain) and 2.4 percent in 2019 (up from the previous forecast of 2.1 percent).Fed Funds Target Rate Forecasts 032318

#2Existing homes sales grew for the first time in three months in February. The National Association of Realtors reports that sales of previously owned homes grew 3.0 percent during the month to a seasonally adjusted annualized rate of 5.540 million units. This was 1.1 percent ahead of the year-ago sales pace. During the month, existing home sales surged 11.4 percent in the West and 6.6 percent in the South but slowed 12.3 percent in the Northeast and 2.4 percent in the Midwest. Only two regions—the South (+3.4 percent) and West (+2.4 percent)—reported positive 12-month sales comparables. While inventories of unsold homes grew 4.6 percent during February to 1.590 million units, this was the equivalent to a very tight 3.4 month supply. As a result, the median sales price of existing homes has grown 5.9 percent over the past year to $241,700. The press release noted that “the very healthy U.S. economy and labor market are creating a sizeable interest in buying a home in early 2018,” but also that “affordability continues to be a pressing issue” because of a lack of homes available on the market.

#3…But new home sales slipped again. Sales of new single-family homes inched down 0.6 percent in February to a seasonally adjusted annualized rate (SAAR) of 618,000 units. Even with the decline, the annualized rate of the Census Bureau data series was 0.5 percent above that of a year earlier. Sales during the month in the Northeast (+19.4 percent) and South (+9.0 percent) but dropped in the West (-17.6 percent) and Midwest (-3.7 percent). In comparison to February 2017, sales grew in three regions—Northeast (+8.8 percent), West (+3.1 percent), and South (+0.6 percent)—but declined 8.1 percent in the Midwest. Inventories of new homes continued their gradual expansion—the 305,000 new homes available for sale at the end of February was up 2.0 percent for the month, a 16.0 percent advance from February 2017, and represented a still relatively tight 5.9 month supply. The median sales price of new homes of $326,800 was a 9.7 percent increase from a year earlier.

#4Durable goods orders surged during February. The Census Bureau estimates the value of new durable goods orders was at a seasonally adjusted $247.7 billion. This was the third increase over the past four months and a healthy rebound from January’s 3.5 percent drop. Transportation goods orders surged 7.1 percent, in part due to a jump in increased orders for both civilian (+25.5 percent) and defense aircraft (+37.7 percent) in addition to a 1.8 percent bounce in orders for motor vehicles. Net of transportation orders, new durable goods gained 1.2 percent after pulling backing 0.2 percent in January. New orders grew for primary metals (+2.7 percent), electrical equipment/appliances (+2.6 percent), machinery (+1.6 percent), and fabricated metal products (+0.8 percent). New orders for nondefense capital goods minus aircraft (a proxy for business investment) grew 1.8 percent during February after having pulled back 0.4 percent during the prior month.

#5Forward-looking economic indicators continue to suggest solid growth in 2018. The Conference Board’s Leading Economic Index (LEI) grew by 7/10ths of a point during February to a seasonally adjusted 108.8 (2016=100). The LEI has increased for five straight months, rising 6.5 percent over the past year. Eight of the ten components to the LEI made positive contributions to the index, led by average weekly manufacturing hours, new orders for manufactured goods (per ISM), and jobless claims. The coincident economic index added 3/10ths of a point during the month to a reading of 103.3 (+2.3 percent versus February 2017), with all four components on that index making positive contributions (led by industrial production and nonfarm payrolls). The lagging economic index picked up 4/10ths of a point to 104.3 (+2.6 percent versus February 2017) as four of seven index components making positive contributions (led by the average length of unemployment). The press release notes that the six-month growth rate for the leading index had not been this high since the first quarter of 2011.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 17, 2018, First-Time Claims, seasonally adjusted): 229,000 (+3,000 vs. previous week; -32,000 vs. the same week a year earlier). 4-week moving average: 223,750 (-9.2% vs. the same week a year earlier).
State Employment (February 2018, Nonfarm Employment, seasonally adjusted): Vs. January 2018: 11 states had significant payroll increases. Vs. February 2017: 24 states had significant payroll increases.
FHFA House Price Index (January 2018, Purchase-Only Index, seasonally adjusted): +0.8% vs. December 2017, +7.3% vs. January 2017. 

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

Tight Inventory Chokes the Housing Market: February 19 – 23

Existing home sales slowed for a second straight month, but overall business activity remains stout. Here are the five things we learned from U.S. economic data released during the week ending February 23. (OK, there are only four things, as it was a slow week)

#1A lack of homes for sale depressed the real estate market in January. The National Association of Realtors reports that sales of previously owned homes declined 3.2 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.38 million units. This left the sales pace 4.8 percent below that of January 2017, the largest year-to-year decline in existing home sales since the summer of 2014. Sales slowed in all four Census regions on both a month-to-month and year-to-year basis. Sales were down for the month by 6.0 percent in the Midwest, 5.0 percent in the West, 1.4 percent in the Northeast, and 1.3 percent in the South. Inventories, while growing a bit during the month, remained very tight. There were 1.52 million homes available for sale at the end of January (representing a mere 3.4 month supply of homes), up 4.1 percent for the month but still 9.5 percent smaller than year ago inventories levels. As a result, the median sales price of $240,500 was 5.8 percent above that of a year earlier. The press release lays blame on the “utter lack of sufficient housing supply and its influence on higher home prices” for the decrease in sales activity.

#2Forward-looking economic indicators suggest healthy economic growth during (at least) the first half of 2018. The Conference Board’s Leading Economic Index (LEI) grew by 1.1 points during January to a seasonally adjusted 108.1 (2016=100). The LEI has grown by 6.2 percent over the past year. Eight of the ten LEI components made a positive contribution to the index, led by building permits, new orders for manufactured goods and stock prices. The coincident index inched up by 1/10th of a point to 103.0 and up 2.2 percent over the past year. Three of the four coincident index components made positive contributions: nonfarm payrolls, personal income net of transfer payments, and manufacturing/trade sales. The lagging index also added 1/10th of a point to 104.0 (+2.5 percent versus January 2017), with three of seven components making positive contributions: prices for services, consumer debt as a percentage of personal income, and the prime rate charged by banks. The press release noted that LEI data point to “with widespread strengths coming from financial conditions, manufacturing, residential construction, and labor markets.”

#3Jobless claims decades remained near multi-decade lows. First-time claims made for unemployment insurance benefits dropped by 7,000 during the week ending February 17 to a seasonally adjusted 222,000, down 25,000 from the same week a year ago. The Department of Labor reports four-week moving average declined by 2,250 during the week to 226,000, down 7.9 percent from a year earlier. Except for the reading two weeks earlier, this was the lowest point for the moving average of first-time jobless claims since March 1973. 2,360,760 people were receiving some form of unemployment insurance benefits during the week ending February 3, 5.9 percent below the count during the same week a year earlier.Jobless Claims 1970-2018 022318

#4Inventories of crude oil, gasoline, and distillates are much smaller than they were a year ago. The Energy Information Administration finds commercial crude oil inventories, which does not include the oil held in the Strategic Petroleum Reserve, declined by 1.6 million barrels during the week of February 16 to 420.5 billion barrels. This was 18.9 percent smaller than crude oil inventories during the same week a year earlier. Gasoline inventories grew slightly (300,000 barrels) during the same week 249.3 million barrels (-2.8 percent versus the week of February 17, 2017). Inventories of distillate fuel oil shrank by 2.4 million barrels to 138.9 million barrels, 15.9 percent below year-ago inventories. 

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