A Signal Change: June 17 – 21

The Fed sees increased business conditions uncertainty. Here are the five things we learned from U.S. economic data released during the week ending June 21.

#1The Fed held still but sent a more dovish signal. The statement released after this past week’s meeting of the Federal Open Market Committee (FOMC) noted that the U.S. economy was growing at a “moderate rate,” the labor market was “strong,” and that consumer spending had “picked up.” But the committee also saw business investment as being “soft” and that core inflation was remaining below its two-percent target rate. As a result, the FOMC voted to maintain the fed funds target rate at a range between 2.25 and 2.50 percent (one voting member desired a rate cut). Further, the statement turned dovish with language saying that uncertainties “have increased. Nevertheless, the committee believed “sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes.” Notable in the economic projections released in conjunction with the policy statement was that eight of the 17 FOMC participants expects one or two quarter-point rate cuts before 2019 ends. Only one participant anticipates a rate bump in 2019. Further, seven FOMC participants have the fed funds target rate below the current range into 2021.FOMC Projections June 2019 062119

#2Forward-looking economic indicators suggest business activity mellowed in May. The Conference Board’s Leading Economic Index (LEI) held steady at 118.1 for the month and has risen by only a half point since last December. Just five of the LEI’s ten components made a positive contribution to the measure, led by consumers’ expectations for business conditions. The coincident index added 2/10ths of a point to 105.9, up a mere 3/10ths of a point since last December. All four coincident index components made positive contributions to the measure. The lagging index pulled back by 2/10ths of a point to 107.0 (up 7/10ths of a point to 106.3), with only one of seven components improving during May (the ratio of consumer installment credit outstanding to personal income). The press release noted that the LEI’s reading “clearly points to a moderation in growth towards 2 percent by year end.”

#3Existing home sales grew for the first time in three months in May. Sales of previously owned homes increased 2.5 percent during the month to a seasonally adjusted annualized rate of 5.34 million units. Even with the gain, the National Association of Realtors’ measure of existing home sales was 1.1 percent under its year-ago pace. Sales increased in all four Census regions, led by increases of 4.7 percent and 3.4 percent in the Northeast and Midwest, respectively. The only region with a favorable 12-month comparable, however, was the South with a 1.3 percent gain. Inventories of unsold homes expanded to their largest level since last July to 1.92 million units (+4.9 percent versus April 2019 and +2.7 percent versus May 2018) but remained at a tight 4.3 month supply. The press release stated that “[t]he purchasing power to buy a home has been bolstered by falling mortgage rates, and buyers are responding.”

#4Starts of single-family homes slowed in May. The Census Bureau tells us housing starts slipped 0.9 percent during the month to a seasonally adjusted 1.269 million units, representing a 4.7 percent drop from a year earlier. While starts of multi-family units (e.g., condos) jumped 13.8 percent on both a month-to-month and year-to-year basis, they dropped for single-family homes 6.4 percent versus April 2019 and 12.5 percent versus May 2018. Looking towards future activity, permitting activity inched up during May as the annualized count of issued building permits grew 0.5 percent to 1.294 million permits (-1.5 percent versus May 2018). Permits for single-family homes rose 3.7 percent but fell a matching 3.7 percent for permits of homes with five or more units. Housing completions slumped 9.5 percent during the month to an annualized 1.213 million units, a 2.8 percent decline from a year earlier

#5Only one state enjoyed significant jobs growth in May. The Bureau of Labor Statistics reports that nonfarm payrolls grew at a statistically significant rate in only Washington state during the month while remaining “essentially” unchanged in the other 49 states and the District of Columbia. (Note a few weeks earlier, the BLS reported that nonfarm payrolls grew by a relatively modest 75,000 jobs on a seasonally adjusted basis during May.) Over the past year, nonfarm payrolls have increased in 24 states, led by Texas (+286,300), California (+282,700), and Florida (+214,500).

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 15, 2019, First-Time Claims, seasonally adjusted): 216,000 (-6,000 vs. previous week; -3,000 vs. the same week a year earlier). 4-week moving average: 218,750 (-0.5% vs. the same week a year earlier).
Housing Market Index (June 2019, Index (>50=More Homebuilders View Housing Market as “Good” than “Bad,” seasonally adjusted): 64 (May 2019: 66, June 2018: 68).
Treasury International Capital Flows (April 2019, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$36.4 billion (March 2019: -$27.8 billion, April 2018: +$22.6 billion).

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

Home Sales & Starts Inched Up: November 19 – 23

Home sales and starts grew in October, but builder confidence stumbled nonetheless.  Here are the five things we learned from U.S. economic data released during the week ending November 23.

#1Existing home sales grew for the first time in seven months in October. Sales of previously owned homes increased 1.4 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.22 million units, its first increase since March. The National Association of Realtors tells us that sales grew in the three of four Census regions: West (+2.8 percent), South (+1.9 percent), and Northeast (+1.4 percent). Sales slipped 0.8 percent in the Midwest. Existing home sales have fallen a sharp 5.1 percent over the past year, with negative 12-month comparables in all four Census regions: West (-11.2 percent), Northeast (-6.8 percent), Midwest (-3.1 percent), and South (-2.3 percent). Inventories of homes available for sale remained very tight as there were 1.85 million homes on the market at the end of October, down 1.6 percent for the month and the equivalent to a 4.3 month supply. The median sales price of homes sold was $255,400, up 3.8 percent from that of a year earlier. This slower growth rate in home prices allowed, according to the press release, “for much more manageable, less frenzied buying conditions.”Existing Home Sales 112318

#2Housing starts grew, but homebuilders were less confident about the market. The Census Bureau reports that housing starts increased 1.5 percent to a seasonally adjusted annualized rate (SAAR) of 1.228 million units. Even with the increase, starts were 2.9 percent behind the year-ago pace. October’s gain was solely on the multi-unit side—starts of five or more unit housing increased 6.2 percent during the month. Meanwhile, single-family home starts slowed 1.8 percent. Looking towards the future, the number of issues building permits slipped 0.6 percent to a SAAR of 1.27 million units (-6.0 percent versus October 2017). Fewer homes were finished as the new home housing completed fell 3.3 percent during the month to 1.111 million units (SAAR).

The Housing Market Index (HMI), the National Association of Home Builder’s measure of builders’ sentiment, plummeted by eight points to a seasonally adjusted 60. While this was the 53rd consecutive month in which the HMI was above a reading of 50—meaning more homebuilders see the housing market as “good” rather than “bad”—it was the index’s lowest mark since August 2016. The HMI fell sharply in all four Census regions: Northeast (down nine points to 52), West (down nine points to 65), Midwest (down six points to 54), and South (down five points to 65). Also losing ground were indices for single-family home sales (down seven points to 67), expected sales (down ten points to 65), and traffic of prospective buyers (down eight points to 45). The press release notes survey respondents had stated consumers were “taking a pause due to concerns over rising interest rates and home prices.”

#3Forward-looking economic indicators suggest moderating growth over the near-term. The Conference Board’s Leading Economic Index (LEI) grew by only 1/10th of a point in October to a seasonally adjusted 112.1, its smallest increase since May and representing a still robust 5.9 percent gain over the past year. Five of the LEI’s ten components made positive contributions during the month, led by consumers’ economic expectations and the interest rate spread. The coincident index added 2/10ths of a point to a reading of 104.7, up 2.2 over the prior 12 months. All four coincident index components made positive contributions, including nonfarm payrolls and personal income net of transfer payments. The lagging index increased by 4/10ths of a point to 105.5 (+2.5 percent versus October 2017), with four of seven components making positive contributions. The press release stressed that the reading still suggests “robust economic growth in early 2019,” but also that rate of economic growth “may already have peaked.”

#4Durable goods orders slumped in October. The Census Bureau estimates new orders for manufactured durable goods plummeted 4.4 percent to a seasonally adjusted $248.5 billion, its third decrease over the past four months. Aircraft orders can be volatile month-to-month and tend to be a primary driver for the headline estimate of durable goods orders, and October was no exception. Civilian aircraft orders fell 21.3 percent and defense aircraft orders slumped 59.3 percent. As a result, overall transportation goods order declined 12.2 percent (motor vehicle orders inched up 0.2 percent). Net of transportation goods, durable goods orders eked out a 0,1 percent gain. Falling during the month were orders for primary metals (-2.3 percent) and machinery (-0.5 percent) while orders rose for electrical equipment/appliances (+2.9 percent), computers/electronics (+1.6 percent), and fabricated metal products (+1.0 percent). Weakness continued for core capital goods (i.e., civilian capital goods net of aircraft—a proxy for business investment), which were unchanged in October after having declined in both August and September.

#5Consumer sentiment edged down in November. The Index of Consumer Sentiment from the University of Michigan lost 1.1 points during the month to a seasonally adjusted reading of 97.5 (1966Q1=100). This reading was 8/10ths of a point below the preliminary November reading reported a few weeks ago and one full point under the November 2017 mark. The index has been within a relatively tight 5.7 point range over the past 12 months. The current conditions index shed 8/10ths of a point during the month to a reading of 112.3 (November 2017: 113.5) while the expectations index fell by 1.2 points to 88.1 (November 2017: 88.9). The press release noted that sentiment among lower-income survey respondents had improved during the month while that of higher income respondents had slumped.

Other U.S. economic data released over the past week:

Jobless Claims (week ending November 17, 2018, First-Time Claims, seasonally adjusted): 224,000 (+3,000 vs. previous week; -15,000 vs. the same week a year earlier). 4-week moving average: 218,500 (-9.0% vs. the same week a year earlier).

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

Home Sales Steady, Leading Indicators Firm: September 17 – 21

Existing home sales stalled while housing starts picked up. Here are the five things we learned from U.S. economic data released during the week ending September 21.

#1Sales of previously owned homes held constant in August. The National Association of Realtors places the seasonally adjusted annualized sales rate of existing homes at 5.34 million units, matching July’s sales pace and off 1.5 percent from a year earlier. Sales improved during the month in the Northeast (+7.6 percent) and Midwest (+2.4 percent) but slipped in the West (-5.9 percent) and South (-0.4 percent). Only in the South were existing home sales ahead of their year-ago pace. Also unchanged for the month was the inventory of unsold homes—the 1.92 million homes available for sale at the end of August was 2.7 percent larger than that of a year earlier but also represented a very tight 4.3 month supply. The resulting median sales price of homes sold has grown 4.6 percent over the past 12 months to $264,800. The press release was optimistic: “With inventory stabilizing and modestly rising, buyers appear ready to step back into the market.”Existing Home Sales Aug17-18 092118

#2Housing starts rebounded in August. The Census Bureau reports that housing starts rose 9.2 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.282 million units. This was 9.4 percent ahead of the August 2017 annualized rate of housing starts. Much of the gain was with multifamily units—starts of buildings with five or more units surged 27.3 percent to 392,000 (SAAR) while single-family unit starts gained a more modest 1.9 percent to 876,000 (SAAR). Looking towards the future, the number of issued construction permits slumped 5.7 percent to an annualized 1.303 million (-5.5 percent versus August 2017). The rate of issued permits fell during the month for single-family (-6.1 percent) and multi-family units (-8.0 percent). Housing completions increased 2.5 percent during August to a SAAR of 1.213 million homes. This represented an 11.2 percent improvement from the August 2017 rate of completions.

#3Homebuilder sentiment remained robust in September. The National Association of Home Builder’s Housing Market Index (HMI) stayed at a seasonally adjusted reading of 67 during the month. This was the 52nd straight month in which the HMI was above a reading of 50, meaning a greater percentage of homebuilders saw the housing market as being “good” as opposed to being “poor.” The HMI improved in the Northeast (61), slipped in the South (69) and Midwest (56), and held steady in the West (73). Gaining during the month were measures for current sales (up a point to 74) and expected sales (up two points to 74) of single-family homes while the measure of traffic of prospective buyers held steady of 49. The press release reported “firm demand for housing” but expressed concerned about both the trade tariffs’ impact on builders’ costs and rising interest rates possibly stemming housing demand.

#4Forward-looking economic indicators continued to point towards more growth this year and into 2019. The Conference Board’s Leading Economic Indicators (LEI) added 4/10ths of a point to 111.2 (2016=100), up 6.4 percent from a year earlier. This was slightly smaller than the 6/10ths and 8/10ths of a point increases during the two prior months. Seven of the ten components that make up the LEI made positive contributions. The coincident index gained by 2/10ths of a point to 104.3 (+2.5 percent versus August 2017). All four components of the coincident index made positive contributions. The lagging index also increased by 2/10ths of a point to 105.4 (+2.3 percent versus August 2017), although only two of seven index components improved during August. While noting that the “strengths among the LEI’s components were very widespread,” the press release pointed out that its “growth trend has moderated since the start of the year.”

#5August’s job gains were centered mainly in just four states. The Bureau of Labor Statistics deeper state-level dive at employment trends for August finds that nonfarm payrolls had statistically meaningful increases in just four states: California, Texas, Arizona, and Florida. Payrolls were “essentially unchanged” in the other 46 states and the District of Columbia. Earlier this month, we had learned that nonfarm payrolls expanded by a seasonally adjusted 201,000 during August. Over the past year, employment had grown in 35 states with the biggest percentage gains in Utah (+3.5 percent), Nevada (+3.3 percent), and Washington state (+3.3 percent).

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 15, 2018, First-Time Claims, seasonally adjusted): 201,000 (-3,000 vs. previous week; -54,000 vs. the same week a year earlier, lowest since November 1969). 4-week moving average: 205,750 (-21.8% vs. the same week a year earlier).
Treasury International Capital Flows (July 2018, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$40.6 billion (vs. June 2018: -$45.5 billion, vs. July 2017: +$0.8 billion)

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