Manufacturing Rebounds in April, Leading Indicators Point Up: May 15 – 19

Manufacturing output bounced up in April, led by a boost in automobile production. Leading indicators suggest economic growth in the coming months. Here are the 5 things we learned from U.S. economic data released during the week ending May 19.

#1Manufacturing output jumped in April. The Industrial Production report from the Federal Reserve tells us that manufacturing output gained 1.0 percent during the month, following a 0.4 percent decline in March. This was the measure’s biggest single-month increase since February 2014. Production of durable and nondurable goods each grew at a 1.0 percent rate during April. The former was led by a 5.0 percent bump in motor vehicles output and 1.8 percent gain in the production of electrical equipment and appliances. Nondurables production benefited from higher output of food/beverage/tobacco products, textiles, and printing. Manufacturing output has risen 1.7 percent over the past year. Overall industrial production also gained 1.0 percent during April and has grown by 2.2 percent over the past year. Mining output rose 1.2 percent during the month, thanks to increased coal mining. Increased air conditioning usage boosted utility production 0.7 percent. Overall factory capacity utilization jumped by 6/10ths of a percentage point to 76.7 percent (its highest reading since August 2015). Manufacturing sector capacity utilization grew by 7/10ths of a percentage point to 75.9 percent, its best reading since December 2014.Increased Manufacturing Output-April2017-051917

#2Forward-looking indicators point to economic expansion over the coming months. The Conference Board’s Leading Economic Indicators grew by 4/10ths of a point during April to a seasonally adjusted 126.9. This was 3.2 percent above its year-ago reading. Eight of the ten components of the leading index made positive contributions to the leading index, led by the interest rate spread, jobless claims, and consumers’ expectations for the economy. The coincident index added 3/10ths of a point to 115.2 (+2.0 percent versus April 2016) as all four index components made positive contributions (including, industrial production and nonfarm payrolls). The lagging economic index increased by 4/10ths of a point to 124.1 (+2.5 percent versus April 2016) as five of seven components improved during the month (including the average length of unemployment and the prime interest rate charged by banks). The press release said that the data suggest that Q1 weak GDP report was “temporary hiccup as the economy returns to its long-term trend of about [a] 2 percent” growth rate.

#3Housing starts cooled slightly during April. The Census Bureau reports that starts of new housing construction fell 2.6 percent during the month to a seasonally adjusted annualized rate of 1.172 million units. Even with the decline, this was 0.7 percent above its year-ago pace and the 25th straight month in which the measure was above an annualized rate of 1 million units. Starts of single-family homes sped up slightly during the month (0.9 percent) and were 8.9 percent above their pace of starts in April 2016. Starts of multifamily residences (those with at least five units) dropped 9.6 percent during the month and were 14.6 percent below the starts rate of a year earlier. Looking towards the future, the annualized rate of issued building permits was at 1.172 million. While this was off 2.5 percent from March, it remained 5.7 percent above April 2016’ SAAR of issued permits. Finally, the annualized rate of housing completions dropped 8.6 percent during April to 1.106 million homes. This was 15.1 percent above the April 2016 pace.

#4Homebuilders remain optimistic. The Housing Market Index (HMI) grew by two points during May to a seasonally adjusted reading of 70, according to the National Association of Home Builders. The measure of homebuilder sentiment has remained above a reading of 50—indicative of a greater percentage of builders characterizing the housing market as “good” as opposed to being “poor—ever since July 2013. This also was the HMI’s second best reading since before the last recession (the best being only two months earlier). The HMI grew in three of four Census regions: Northeast (up five points to 50), West (up three points to 80), and South (up two points to 72). The measure slipped by two points in the Midwest to 65. Also growing was the indices for single-family home sales (up two points to 76) and the expected sales index (up four points to 79, its best reading since 2005). Meanwhile, the measure of the traffic of prospective buyers slipped by a point to a reading of 51. The press release noted the results indicated a housing market that was “solidifying.”

#5Nonfarm payrolls grew in nine states during April . Per state-level employment data released by the Bureau of Labor Statistics, nonfarm payrolls increased significantly in nine states during April, led by increases in Texas (+30,400), Minnesota (+15,100), and Wisconsin (+14,800). Only one state—Indiana—had suffered a significant decrease in nonfarm payrolls (-11,300). Versus a year earlier, 28 states enjoyed significant payrolls gains, with the largest year-to-year percentage gains in Utah (+3.3 percent), Florida (+2.6 percent), Georgia (+2.6 percent), and Idaho (+2.6 percent each). Similarly, 19 states saw significant declines in their unemployment rates, with the biggest declines occurring in Illinois, Oregon, West Virginia, and Wyoming. No state had a significantly higher employment rate in April versus what it had a year earlier.

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 13, 2017, First-Time Claims, seasonally adjusted): 232,000 (-4,000 vs. previous week; -45,000 vs. the same week a year earlier). 4-week moving average: 243,500 (-12.5% vs. the same week a year earlier).
Treasury International Capital Flows (March 2017, Net Purchase of Domestic Securities by Foreign Investors, not seasonally adjusted): +$30.8 billion (vs. February 2017: +$35.7 billion, March 2016: +$65.3 billion).

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

GDP Growth Dimmed During Q4: What We Learned During the Week of January 23 – 27

A decline in exports (particularly for soybeans) pulled down economic growth during the final 3 months of 2016. Here are the 5 things we learned from U.S. economic data released during the week ending January 27.

#1GDP grew at only a modest pace during the final 3 months of 2016. The Bureau of Economic Analysis‘ first estimate of Q4 2016 Gross Domestic Product (GDP) has the U.S. economy expanding at a 1.9% seasonally adjusted annualized rate during the quarter. This was well below Q3’s +3.5% rate of economic expansion. Most components of the economy made positive contributions to Q4 GDP growth: consumption (adding 170-basis points to GDP growth), growth in private inventories (adding a full percentage point to GDP growth), fixed residential investment (+37-basis point contribution), fixed nonresidential investment (+30-basis point contribution), and state & local government (+28-basis point contribution). But it was net exports (as a drop in exports—particularly for soybeans—and a hike in imports cost 170-basis points in GDP growth) and the federal government (costing another 8-basis points) that slowed the GDP growth rate during the quarter. For all of 2016, the U.S. economy grew 1.6%, down from the 2.6% rate growth rate in GDP of 2015 and the worst year for economic expansion since 2011. The BEA will revise its Q4 GDP estimate twice over the next 2 months. gdp-growth-012717

#2Affordability and supply weighed on home sales during December. Per the National Association of Realtors, sales of previously owned homes slipped 2.8% during the month to a seasonally adjusted annualized rate (SAAR) of 5.49 million units. This was 0.9% above its year ago sales pace. Existing home sales fell in 3 of 4 Census regions during the month: Northeast (-6.2%), West (-4.8%), and Midwest (-3.8%), but held steady in the South. 3 of 4 Census regions enjoyed positive 12-month comparables: Northeast (+2.7%), Midwest (+2.4%), and South (+0.4%). Sales were 1.6% below their December 2015 pace in the West. Inventories of unsold homes tightened even further, shrinking 10.8% during the month to 1.65 million units (6.3% vs. December 2015). This was the smallest number of homes on the market since NAR started tabulating inventories of all home types back in 1999 and was the equivalent to a paltry 3.6 month supply. The median sales price has increased 4.0% over the past year to  $232,200. In its press release, NAR blamed “higher mortgage rates and home prices combined with record low inventory levels” for December’s sales decline.

Meanwhile, new home sales dropped 10.4% during the month to a seasonally adjusted annualized rate of 536,000 -0.4% vs. December 2015), according to the Census Bureau. Sales dropped in 3 of 4 Census regions during the month with the Northeast being the only region with a sales gain. Only 2 regions—the Northeast and West—had positive 12-month sales comparables. The inventory of unsold homes grew by 4.0% during December to 259,000 homes (+10.2%). This translated into a 5.8 month supply of new homes on the market. The median sales price of $322,500 was 7.9% above its year ago mark.

#3Durable goods orders slowed in December. The Census Bureau estimates that new orders for durable goods declined 1.0% during the month to a seasonally adjusted $227.0 billion. Orders for transportation goods fell 2.2% during the month, pulled down a 63.9% drop in defense aircraft orders. Orders increased for civilian aircraft (+42.4%) and automobiles (+2.0%). Net of transportation goods, durable goods orders grew 0.5% during the month with increased orders for computers/electronics (+2.4%), electrical equipment/appliances (+0.6%), and machinery (+0.4%). New orders fell for primary metals (-0.9%) and fabricated metal products (-0.8%). Shipments of durable goods increased for the 3rd time in 4 months with a 1.4% bump up to $238.0 billion. Net of transportation goods, shipments increased 0.8%. The value of unfilled orders declined for the 6th time in 7 months (-0.6% to $1.119 trillion) while inventories were virtually unchanged at $384.4 billion. 

#4Leading economic indicators point to accelerating business activity in December. The Consumer Board’s Leading Economic Index jumped by 6/10ths of a point to 124.6 (2010 = 100). While 6 of the leading index’s 10 components added to the index, the biggest positive contributors were the interest rate spread, stock prices, and consumer expectations for business conditions. The coincident index added 3/10ths of a point to 114.3, with all 4 index components making positive contributions, including industrial production and nonfarm payrolls. The lagging index grew by 4/10ths of a point to 123.4 with 4 of 7 components making positive contributions, including commercial & industrial loans outstanding, the average prime rate charged by banks, and the average length of unemployment. The press release said the U.S. economy “will continue growing at a moderate pace, perhaps even accelerating slightly in the early months of this year.”

#5Consumer confidence held firm in January. The University of Michigan Index of Consumer Sentiment added 3/10ths of a point to a seasonally adjusted reading of 98.5 (1966Q1 = 100). This was the measure’s best reading in 13 years as sentiment continued to improve following last November’s election. A year earlier, the Index of Consumer Sentiment was at 92.0. The current conditions index shed 6/10ths of a point during the month to a reading of 111.3 (January 2016: 106.4) while the expectations index added 7/10ths of a point to 90.3 (January 2016: 82.7). The press release indicated that the “highest proportion” of survey respondents in a decade “anticipated improved finances,” with the largest percentage of survey respondents since 2008 expecting income gains. The press release also noted that sentiment varied by one’s partisan views, with “Democrats becoming much more pessimistic and Republicans much more optimistic.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 21, 2017, First-Time Claims, seasonally adjusted): 259,000 (+22,000 vs. previous week; -16,000 vs. the same week a year earlier). 4-week moving average: 245,500 (-12.6% vs. the same week a year earlier).
Chicago Fed National Activity Index (December 2016, Index (0.00 = historic growth rate, seasonally adjusted): +0.14 (vs. -0.33 in November 2016, vs. -0.21 in December 2015). 3-month moving average: -0.07 (vs. -0.14 in November 2016, -0.26 in December 2015).
Regional and State Employment (December 2016, Change in Nonfarm Employment, seasonally adjusted): Vs. November 2016: Up in 3 states, down in 5 states and essentially unchanged in 42 states and the District of Columbia. Vs. December 2015: Up 26 states and the District of Columbia, down in 2 states, and essentially unchanged in 22 states.
FHFA House Price Index (November 2016, Purchase-Only Index, seasonally adjusted): +0.5% vs. October 2016, +6.1% vs. November 2015.
Bankruptcy Filings (2016, Count of Filings): 794,960 (-5.9% vs. 2015), Business filings: 24,114 (-2.5% vs. 2015), Non-business filings: 770,846 (-6.0% vs. 2015).

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

Another Strong Month for Retail Sales: What We Learned During the Week of November 14 – 18

Retail sales continued to build momentum this fall, while gains in manufacturing were restrained. Here are the 5 things we learned from U.S. economic data released during the week ending November 18.

#1Retail sales were strong again in October. The Census Bureau places its estimate of retail sales at a seasonally adjusted $465.9 billion, up 0.8% for the month and 4.3% from the same month a year earlier. Some of the gain reflected higher sales at both auto dealers (+1.1%) and gas stations (+2.2%, because of higher gas prices). But even net of sales at auto dealers & parts store, retail sales grew 0.8% during October and were 4.0% above year ago levels. Sales increased at sporting goods/hobby retailers (+1.3%), building materials stores (+1.1%), health care/personal care stores (+0.8%), grocery stores (+0.7%), and apparel retailers (+0.6%). Sales slowed at furniture retailers (-0.9%), department stores (-0.7%), and at restaurants/bars (-0.7%). Sales at nonstore retailers (e.g., internet retailers) jumped 1.5% during the month and were 12.9% above October 2015 levels.retail-sales-111816

#2Manufacturing output increased modestly during October. The Federal Reserve estimates manufacturing production grew 0.2% during the month, matching September’s increase but leaving factory output 0.2% below that of a year earlier. Production of durable goods gained 0.4%, with most product types seeing an increase during the month. Auto production expanded for a 5th straight month and was approximately 7.5% above production levels of a year earlier. Nondurables output was unchanged, which included a 0.4% increase in the output of chemicals and a 0.8% drop off in paper production. Overall industrial production was unchanged from September, putting it 0.9% below year ago levels. Utility output slowed 2.6% during October while mining output gained 2.1% Capacity utilization slipped 1/10th of a point to 75.3% (it was at 76.3% during the same month a year ago). Capacity utilization in the manufacturing sector inched up 1/10th of a percentage point to 74.9%. A year earlier, the same measure was at 75.6%.

#3Higher gasoline prices pull up consumer prices while the impact on wholesale prices was muted. According to the Bureau of Labor Statistics, Consumer Price Index (CPI)) jumped 0.4% on a seasonally adjusted basis during the month, its largest single-month gain since April. Energy CPI surged 3.5% during October (following a 2.9% jump during the previous month) with large increases in the prices for gasoline (+7.0%), fuel oil (+5.9%), utility delivered natural gas (+0.9%), and electricity (+0.4%). Energy CPI was 0.1% above year ago levels, although gasoline prices remained 0.9% below their October 2015 mark. Meanwhile, food prices held steady during the month and were 0.4% below year ago levels. Net of energy and food, core CPI increased by a modest 0.1% during the month, with the largest increases seen for shelter (+0.4%), apparel (+0.3%), and new vehicles (+0.2%). Prices declined for transportation services (-0.2%) and used vehicles (-0.1%). CPI has increased 1.6% over the past year while core CPI was 2.1% above its October 2015 level (essentially at the Fed’s interest target–although the Fed more closely other meaures of inflation).

The Producer Price Index for final demand was unchanged during October and was a mere 0.8% above year ago levels. Final demand PPI net of energy, food and trade slipped 0.1% during the month and had a 12-month comparable of +1.6%. Wholesale prices for final demand goods grew 0.4% during the month, pulled up by a 2.5% gain in energy PPI (gasoline PPI: +9.7%). Food PPI fell 0.8% while prices for final demand goods net of energy and food eked out a 0.1% bump up. Prices for final demand services dropped 0.3%, as the index for trade services—which tracks margins for wholesalers and retailers—fell 0.3%

#4Homebuilder confidence remained firm in November. The National Association of Home Builders’ Housing Market Index was unchanged during the month, keeping it at a seasonally adjusted reading of 63. This was the 3rd straight month in which the measure of homebuilder sentiment was above a reading of 60. The index grew in 3 of 4 Census regions, while the HMI held steady in the South. Also unchanged during the month was the index measuring sales of new single-family homes (at 69) while the index for expected sales over the next 6 months shed 2 points to 69. The traffic for prospective buyers index added a point to 47. The press release noted that “[o]ngoing job creation, rising incomes and attractive mortgage rates are supporting demand in the single-family housing sector. This will help keep housing on a steady, upward glide path in the months ahead.”

#5Leading indicators suggest a small gain in economic activity during October. The Conference Board’s Leading Economic Index (LEI) grew by 1/10th of a point to 124.5 (2010=100), its 2nd straight monthly increase and its 4th gain over the past 5 months. 6 of 10 LEI components made a positive contribution to the index, led by the interest rate spread, average weekly manufacturing hours worked, and nondefense capital goods orders (net of aircraft). Also adding 1/10th of a point was the coincident index (to 114.3). All 4 components of the measure made a positive contribution to the index, led by nonfarm payrolls and personal income net of transfer payments. The lagging index added 3/10ths of a point to 122.9, with 3 of 7 index components making a positive contribution. Even though all 3 indices had small increases, the press release declares that “the economy will continue expanding into early 2017.”

Other data released over the past week that you might find of interest:
Jobless Claims (week ending November 12, 2016, First-Time Claims, seasonally adjusted): 235,000 (-19,000 vs. previous week; -40,000 vs. the same week a year earlier). 4-week moving average: 253,500 (-7.3% vs. the same week a year earlier).
Housing Starts (October 2016, seasonally adjusted): 1.323 million (+25.5% vs. September 2016, +23.3% vs. October 2015).
Manufacturing/Trade Inventories (September 2016, seasonally adjusted): $1.819 trillion (+0.1% vs. August 2016, +0.6% vs. September 2015).
Regional and State Employment (October 2016, Nonfarm Payrolls, seasonally adjusted): Vs. September 2016: increased in 11 states, decreased in 5 states and essentially unchanged in 34 states and District of Columbia. Vs. October 2015: increased in 31 states and the District of Columbia, declined in 2 states and held steady in 17 states.
Treasury International Capital Flows (September 2016, Domestic Securities Purchased by Foreign Investors, not seasonally adjusted): -$46.6 billion (August 2016: +$27.5 billion, September 2015: +$5.5 billion).

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