Manufacturing and Retail Thrived in June: July 16 – 20

A series of economic news points to activity heating up during the first days of summer. Here are the five things we learned from U.S. economic data released during the week ending July 20.  

#1Manufacturing (and industrial production as a whole) rebounded in June. The Federal Reserve indicates manufacturing output gained 0.8 percent on a seasonally adjusted basis during the month, following a 1.0 percent pullback in May. Virtually all of June’s gain was on the durable goods side, where production swelled 1.6 percent. This included a 7.8 percent surge in automobile production (which had slumped 8.6 percent in May) and gains of at least one-percent for computers/electronics, wood products, and aerospace/transportation equipment. Nondurable output eked out a 0.1 percent increase during June. Overall industrial production grew 0.6 percent during the month following May’s 0.5 percent drop. Mining output increased 1.2 percent (with oil and gas extraction leading the way). Meanwhile, utility output slumped 1.5 percent. Over the past year, industrial production has grown 3.8 percent, with positive 12-month comparables for manufacturing (+1.9 percent), mining (+12.9 percent), and utilities (+5.0 percent).Industrial Production Manufacturing 072018

#2Retail sales remained solid as we entered the summer. The Census Bureau estimates retail and food service sales grew 0.5 percent during the month to a seasonally adjusted $506.8 billion. This was 6.6 percent ahead of the year-ago sales pace. Net of sales at auto dealers/parts stores (+0.9 percent) and gas stations (+1.0 percent, thanks to higher prices at the pump), core retail sales increased by a still decent 0.3 percent during the month and has grown 5.6 percent over the past year. The report also featured significant upward revisions to May sales, showing the headline and core sales rising 1.3 percent and 1.2 percent, respectively. Sales improved during June at retailers focused on health/personal care (+2.2 percent), building materials (+0.8 percent), and furniture (+0.6 percent). Sales also jumped 1.5 percent at restaurants/bars. But the news was not positive everywhere, with sales slumping at sporting goods/hobby stores (-3.2 percent), apparel retailers (-2.5 percent), electronics/appliance retailers (-0.4 percent), and grocery stores (-0.2 percent). 

#3Forward-looking economic indicators point to an accelerating U.S. economy in June. The Conference Board’s Leading Economic Index (LEI) added a half point to a seasonally adjusted reading of 109.8 (+5.8 percent versus June 2017). Seven of the ten components of the LEI made positive contributions during the month, led by new orders as measured by the Institute for Supply Management and the interest rate spread. The coincident index gained by 3/10ths of a point to 103.9 (+2.3 percent versus June 2017), aided by positive contributions for all four its components (including industrial production and nonfarm payrolls). The lagging index also increased by 3/10ths of a point (to a reading of 105.4, +2.7 percent versus June 2017). Four of the seven lagging index components made positive contributions, including those for the amount of outstanding commercial & industrial loans and the average length of unemployment. The press release said that the results do “not suggest any considerable growth slowdown in the short-term.”

#4Housing construction slowed in June. The Census Bureau reports that housing starts sank 12.3 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.173 million units. This represented a 4.2 percent decline from the June 2017 pace. Single-family home starts dropped 9.1 percent to 858,000 units (SAAR), just 0.2 percent under the year-ago pace while multifamily units started fell 20.2 percent to 304,000 units (-15.3 percent versus June 2017). Also declining was the annualized number of building permits, down 2.2 percent for the month to 1.301 million permits (-3.0 percent versus June 2017). The rate of housing completions held firm for the month at 1.261 million homes, which was nevertheless 2.3 percent ahead of that from a year earlier.

#5Homebuilders have remained confident this summer. The Housing Market Index (HMI) from the National Association of Home Builders held steady at a seasonally adjusted reading of 68. Not only was this the third time over the past four months in which the HMI was at 68, it also was the 49th consecutive month the index was above a reading of 50 (indicative of more homebuilders viewing the housing market as being “good” versus being “poor.” The HMI improved in the Midwest, was unchanged in the Midwest but lost ground in both the West and Northeast. The index measuring current sales of single-family homes remained at 74 while the expected sales index shed two points to 73. The index tracking the traffic of prospective buyers added two points to 52. The press release noted that even with the solid level of confidence, homebuilders are “burdened by rising construction material costs.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 14, 2018, First-Time Claims, seasonally adjusted): 207,000 (-8,000 vs. previous week; -32,000 vs. the same week a year earlier). 4-week moving average: 220,500 (-9.7% vs. the same week a year earlier).
Business Inventories (May 2018, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.937 trillion (+0.4% vs. April 2018, +4.4% vs. May 2017).
Treasury International Capital Flows (May 2018, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$20.3 billion (vs. April 2018: +$22.6 billion, vs. May 2017: +$95.5 billion).
Beige Book

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

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.