Bracing for a Halt: March 16 – 20

This past week’s jobless claims data is only a taste of what is about to come. Here are the five things we learned from U.S. economic data released during the week ending March 20.

#1Jobless surged in mid-March, and that was only the tip of the iceberg. The Department of Labor reported that there were a seasonally adjusted 281,000 first-time claims made for unemployment insurance benefits during the week ending March 14. The surge of 70,000 applications from the prior week was the fourth largest jump in the 53-year history of the data series. The four-week moving average of first-time claims jumped by 16,500 to 232,250. Next week’s claims data will be historic as the full force of COVID-19 business shutdowns shows up, with some forecasters anticipating next week’s estimate showing two or three million claims. The DOL press release noted that many states reported pandemic-related layoffs with the impact centered on “service related industries broadly and in the accommodation and food services industries specifically, as well as in the transportation and warehousing industry.”

#2The Fed cut its short-term interest target to near zero percent and took other actions to support the credit markets. The Federal Open Market Committee (FOMC) canceled its two-day meeting scheduled for last week but voted to cut its fed funds target rate by a full percentage point to a range between 0.00 and 0.25 percent. This followed a half-percentage point cut earlier in the month. The statement noted that “the coronavirus outbreak has harmed communities and disrupted economic activity.” The FOMC expects to maintain this target rate until “it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” Other steps taken by the Fed include an asset purchasing program for Treasury and mortgage-backed securities, the creation of a facility to inject liquidity into the money market fund market (including those linked to short-term state and municipal securities), and an expansion of its overnight and term repurchase agreement operations.

#3Leading indicators edged up in February for a final hurrah. The Conference Board’s Leading Economic Indicators added 1/10th of a point during the month to a reading of 112.1 (2016=100), following an 8/10ths of a point advance in January. Only four of the LEI’s ten components made positive contributions. The coincident index advanced by 3/10ths of a point to 107.6 while the lagging index rose by 4/10ths of a point to 109.1. The subhead of the press release said it all: “Improvement in [the] Index Will Not Continue into March.” Noting the sharp declines in the stock prices, consumer sentiment, and hours worked, the press release concluded that “the economy may already be entering into a period of contraction.” 

#4Retail sales fell in February. The Census Bureau indicates that U.S. retail and food services sales dropped 0.5 percent during the month to a seasonally adjusted $528.1 billion. Some of the softness came from weakness at auto dealers/parts stores (-0.9 percent) and gas stations (with lower prices pulling down sales 2.8 percent). But even core retail sales were off 0.2 percent from January. There was weakness across most retail sectors; including, electronics/appliance stores (-1.4 percent), building materials retailers (-1.3 percent), apparel stores (-1.2 percent), restaurants/bars (-0.5 percent), furniture retailers (-0.4 percent), and department stores (-0.2 percent). Retail sales were up 4.3 percent from a year earlier, with core sales having a 12-month comparable of +4.4 percent.

#5Manufacturing output continued struggling in February. Even though the Federal Reserve finds manufacturing production grew a seasonally adjusted 0.1 percent during the month, with output 0.4 percent below that of a year earlier. Durable goods production gained 0.3 percent, boosted by motor vehicle production, while nondurables output declined 0.1 percent, pulled down by textiles, petroleum/coal products, and chemicals. Overall industrial production rose 0.6 percent in February, matching its year-ago level. Mining output slumped 1.5 percent while utility output surged 7.1 percent (with both electric and gas utilities reporting large increases).

Other U.S. economic data released over the past week:
Existing Home Sales (February 2020, Sales of Previously Owned Homes, seasonally adjusted annualized rate): 5.77 million units (+6.5% vs. January 2020, +7.2% vs. February 2019).
Job Openings and Labor Turnover (January 2020, Nonfarm Job Openings, seasonally adjusted): 6.963 million (+411,000 vs. December 2019, -557,000 vs. January 2019).
Business Inventories (January 2020, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.035 trillion (-0.1% vs. December 2019, +1.1% vs. January 2019).
Housing Market Index (March 2020, Index (>50=More Homebuilders Viewing Housing Market as “Good” vs. Being “Poor,” seasonally adjusted): 72 (vs. February 2020: 74, vs. March 2019: 62).
Treasury International Capital Flows (January 2020, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$28.0 billion (vs. December 2019: +$65.7 billion, vs. January 2019: -$24.8 billion).

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

A Bright Outlook for 2020 (At Least So Far): February 17 – 21

Signs indicate the economic expansion should continue this year. Here are the five things we learned from U.S. economic data released during the week ending February 21.

#1Forward-looking economic data improved in January. The Leading Economic Indicators (LEI) rose by 9/10ths of a point during the month to a reading 112.1 (2016=100). This left the Conference Board measure up 0.9 percent from a year earlier (reflecting the general weakness in the LEI over most of the past year). Eight of ten LEI components made positive contributions, led by jobless claims, building permits, and stock prices. The coincident index added 1/10th of a point to a reading of 107.3 (+1.1 percent versus January 2019), with three of four components making positive contributions (led by nonfarm payrolls). The lagging index held steady at 108.7 (+1.7 percent versus January 2019), with three of seven components making a positive contribution. The press release said the results were consistent with a two percent GDP growth rate, although “the COVID-19 outbreak may impact manufacturing supply chains in the U.S. in the coming months.”

#2Tight supplies continued to constrain home sales. The National Association of Realtors tells us that existing home sales declined 1.3 percent in January to a seasonally adjusted annualized rate (SAAR) of 5.46 million units. Home sales were 9.6 percent above their year-ago sales pace. Sales grew during the month in the Midwest (+2.4 percent) and South (+0.4 percent), held steady in the Northeast, and slumped in the West (-9.4 percent). While inventories of unsold homes increased 2.2 percent to 1.42 million units, they were 10.7 percent below year-ago levels and represented a mere 3.1 month supply. As a result, the median sales price of $266,300 was up 6.8 percent from a year earlier. 

#3Housing starts slowed in January while permitting activity rose. The Census Bureau finds starts of privately-owned homes declined 3.6 percent during the month to a seasonally adjusted rate of 1.567 million units. Even with the drop, starts were a robust 21.4 percent ahead of their year-ago pace. Starts of single-family homes fell 5.9 percent while those for buildings of at least five units gained 3.0 percent. Looking towards the future, the annualized rate of issued building permits grew to an almost 13-year high at 1.551 million permits, up 9.2 percent for the month, and 17.9 percent from a year earlier. Versus a year earlier, permitting for single-family and multi-family units were up 20.2 percent and 16.0 percent, respectively. Completions slowed 3.3 percent to an annualized 1.280 million homes (+1.5 percent versus January 2019). 

#4Homebuilder sentiment slipped in February. The National Association of Home Builders’ Housing Market Index (HMI) lost a point during the month to a seasonally adjusted reading of 74. This was the 68th straight month in which the HMI was above a reading of 50, indicative of more homebuilders’ viewing the housing market as being “good” versus being “poor.” The HMI grew in the Northeast and South but lost ground in both the Midwest and West. Shedding a single point each were measures for single-family home sales (80), expected sales (79), and traffic of prospective buyers (57). The press release noted that “[s]teady job growth, rising wages, and low-interest rates are fueling demand” but that higher costs were weighing on builders.

#5Trade services led to a rise in wholesale prices in January. The Producer Price Index (PPI) for final demand rose a seasonally adjusted 0.5 percent during the month, its largest single-month increase in 15 months. The Bureau of Labor Statistics notes that 90 percent of the rise came from the 0.7 percent jump in services prices, with much of the increase from higher margins at retailers focused on apparel, jewelry, footwear, and accessories. Trade services, reflecting retailer and wholesaler margins, jumped 1.2 percent. PPI for final demand goods grew by a more modest 0.1 percent. This reflects a 0.2 percent increase in foods PPI, a 0.7 percent decline energy wholesale prices, and a 0.3 percent bounce in core PPI. Wholesale prices have grown 2.1 percent over the past year, while the core measure (net of food, energy, and trade services) has advanced 1.5 percent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 15, 2020, First-Time Claims, seasonally adjusted): 210,000 (+4,000 vs. previous week; -3,000 vs. the same week a year earlier). 4-week moving average: 209,000, -8.9% vs. the same week a year earlier).
Treasury International Capital (December 2019, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$60.7 billion (vs. November 2019: +$8.1 billion, vs. December 2018: -$87.7 billion).
FOMC Minutes

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

Signs Point to Sluggish Growth: January 20 – 24

Late 2019 data–except for housing–fails to impress. Here are the five things we learned from U.S. economic data released during the week ending January 24.

#1Forward-looking economic data point to soft economic growth in 2020. The Conference Board’s Leading Economic Index (LEI) shed 3/10ths of a point in December to a reading of 111.2 (2016=100). This was the LEI’s fourth drop in five months and left the measure just 0.1 percent above its December 2018 reading. Five of ten LEI components made positive contributions, led by stock market gains. The coincident index edged up 1/10th of a point to 107.2, a 1.2 percent increase from a year earlier. Three of four coincident index components gained in December, led by nonfarm payrolls. The lagging index, however, shed 1/10th of a point to 108.8, with only two of seven components advancing. The lagging index has increased 2.3 percent over the past year. The press release noted “positive” financial conditions and consumer outlook “should support growth of about two percent through early 2020.”

#2Business activity sputtered in December. The Chicago Fed National Activity Index (CFNAI) plummeted by 76-basis points during the month to a reading of -0.35. (A reading of 0.00 is indicative of the U.S. economy expanding at its historical average.) Only 25 of the 85 economic indicators that comprise of the CFNAI made a positive contribution to the measure with the other 60 pulling down the index. Among the four major categories of CFNAI components, three dragged down the measure: production (made a negative 26-basis point contribution), employment (made a six-basis point negative contribution), and sales/orders/inventories (made a negative five-basis point contribution). Personal consumption/housing components added three-basis points to the headline index. The CFNAI’s three-month moving average improved by eight-basis points to -0.23, indicative of below-average economic growth.

#3Sales of previously owned homes rose to a two-year high in December. The National Association of Realtors estimates existing home sales jumped 3.6 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.54 million units. This was 10.8 percent ahead of the year-ago sales pace and its highest level since March 2018. Sales grew in three of four Census regions—Northeast (+5.7 percent), South (+5.4 percent), and West (+4.6 percent)—but declined 1.5 percent in the Midwest. Sales were ahead of their year-ago levels in all four Census regions, including double-digit percentage gains in both the South (+12.4 percent) and West (+10.7 percent). The press released noted that “[l]ow inventory remains a problem.” In fact, the already tight inventory of homes on the market constricted even further during the month. The 1.40 million homes on the market at the end of December—a mere 3.0 month supply—represented a 14.6 percent decline from November and 8.5 percent drop from a year earlier.

#4Home price growth mellowed in November. The Federal Housing Finance Agency’s House Price Index (HPI) grew 0.2 percent during the month, its smallest single-month increase since June. The index, which measures transaction prices of previously owned homes purchased with a conforming loan, grew in eight of nine Census regions. Home prices jumped 0.8 percent in the East North Central region but slipped 0.1 percent in the Mountain region. The HPI has risen 4.9 percent over the past year, with the most significant 12-month comparables in the Mountain (+6.3 percent) and East North Central (+5.5 percent) regions.

#5Only three states enjoyed a substantial payroll gain in December. The Bureau of Labor Statistics reports that only Texas (+29,800), Washington state (+10,900), and Arkansas (+5,400) enjoyed substantial payroll increases during the month. Nonfarm payrolls mostly held steady in the other 47 states and the District of Columbia. (We learned a few weeks ago that nonfarm payrolls expanded by a seasonally adjusted 145,000 during December.) In comparison to December 2018, payrolls grew in 26 states but held steady in the other 24 states and the District of Columbia. The states with the largest year-to-year percentage payroll increases were Utah (+3.1 percent), Idaho (+2.9 percent), and Arizona (+2.8 percent). 

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 18, 2020, First-Time Claims, seasonally adjusted): 211,000 (+6,000 vs. previous week; Unchanged vs. the same week a year earlier). 4-week moving average: 213,250 -3.1% vs. the same week a year earlier).

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