Perhaps (Slightly) Slower Growth: June 25 – 29

Last week featured a series of data pointing to a slight cooling of the economy. Here are the five things we learned from U.S. economic data released during the week ending June 29. #1Personal spending paused in May. The Bureau of Economic Analysis estimates real personal consumption expenditures (PCE) were unchanged on a seasonally adjusted basis during the month, following gains of 0.3 percent and 0.6 percent during April and March, respectively. Spending on goods increased 0.3 percent (with equal 0.3 percent gains for both durable and nondurable goods) while expenditures on services dropped 0.2 percent. On a nominal (not price adjusted) basis, personal spending expanded 0.2 percent in May, funded by a 0.4 percent gain in both personal income and disposable income. Adjusting for inflation, real disposable income increased 0.2 percent during the month. Over the past year, real personal consumption has grown 2.3 percent over the past year while real disposable income has risen 1.7 percent. The difference was funded by reduced savings—the savings rate has dropped from +3.8 percent to +3.2 percent over the past year.Savings Rate 2013-2018 062918#2Q1 GDP growth was less robust than previously believed. The Bureau of Economic Analysis released its third estimate of first quarter 2018 Gross Domestic Product (GDP), now reporting that the U.S. economy had expanded 2.0 percent on a seasonally adjusted annualized basis. This was down from the +2.2 percent and +2.3 percent growth rates reported over the two previous months and represented the slowest quarter for the U.S. economy in a year. The downward revision was the result of lower than previously reported levels of private inventory accumulation, consumption, and exports. Positive contributions to Q1 GDP growth came from (in descending order): nonresidential fixed investment (+128-basis points), consumption (+60-basis points), exports (+44-basis points), and government expenditures (+22-basis points). The same report finds that corporate profits grew 1.8 percent (seasonally adjusted) from Q4 2017 and 6.8 percent from the same quarter a year earlier.#3Economic growth appears to have slowed in May. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators, plummeted by 57-basis points to -0.15. This was the CFNAI’s first negative reading since January. Thirty-nine of the 85 index components made positive contributions to the CFNAI with 43 indicators improving from their April readings. Virtually all the CFNAI’s decline came from the indicators tied to production—the contribution to the CFNAI from production-related indicators plummeted from +0.33 to -0.29 during the month. Smaller moves came from indicators linked to sales/orders/inventories (from a neutral reading to +0.05), employment (up from +0.12 to +0.13), and personal consumption/housing (from -0.03 to -0.04). The CFNAI’s three-month moving average lost 13-basis points to +0.10. As the CFNAI is designed such that a 0.00 reading is indicative of the U.S. economy expanding at its historical economic growth rate, the +0.10 moving average suggests that the economy was growing slightly more quickly than average.#4Weakness in transportation pulled down durable goods orders in May. The Census Bureau reports that new orders for manufactured durable goods fell 0.6 percent during the month to a seasonally adjusted $248.8 billion. Transportation goods orders dropped 1.0 percent, pulled down not only by a 7.0 percent decline in civilian aircraft orders but also by motor vehicles orders plunging 4.2 percent. Net of transportation goods, durable goods orders slowed 0.3 percent. Among major categories, only machinery (+0.3 percent) enjoyed an increase in orders. Falling were orders for electrical equipment/appliances (-1.5 percent), fabricated metals (-1.2 percent), primary metals (-0.4 percent), and computers/electronics (-0.1 percent). New orders for nondefense capital goods net of aircraft—a proxy for business investment—slowed 0.2 percent during May.#5Consumers remained confident but seem slightly more wary about the future. The Conference Board’s Consumer Confidence Index lost 2.4 points to a seasonally adjusted reading of 126.4 (1985=100). The current conditions slipped by a mere 1/10th of a point to a still very robust 161.1 while the expectations index shed four full points to 103.2. 36.0 percent of survey respondents viewed current economic conditions as “good” while only 11.7 percent see them as “bad.” Similarly, 40.0 percent of Americans believe that jobs are “plentiful” versus 14.9 percent see them as “hard to get.” The press release notes that the pullback in expectations as indicating consumers not expecting “the economy gaining much momentum in the months ahead.”The University of Michigan’s Index of Consumer Sentiment eked out a 2/10ths of a point gain in June to a seasonally adjusted 98.2. While this represented a 1.1 point pullback from the preliminary June reading reported a few weeks ago, the final June mark was 3.2 points ahead of that from a year earlier. The current conditions measure jumped 4.7 points to 116.5 (June 2017: 112.4) while the expectations index shed 2.8 points to 86.3 (June 2017: 83.8). The press release links the headline index’s decline from its preliminary June reading to the building trade war, with one in four consumers making a note of the recently announced trade tariffs with most seeing them as having “a negative impact on the domestic economy.” Other U.S. economic data released over the past week:
Jobless Claims (week ending June 23, 2018, First-Time Claims, seasonally adjusted): 227,000 (+9,000 vs. previous week; -16,000 vs. the same week a year earlier). 4-week moving average: 222,000 (-8.7% vs. the same week a year earlier).
New Home Sales (May 2018, New Residential Sales, seasonally adjusted annualized rate): 689,000 (+6.7% vs. April 2018, +14.1% vs. May 2017).
Case-Shiller Home Price Index (April 2018, 20-City Index, seasonally adjusted): +0.2% vs. March 2017, +6.6% vs. April 2017.
Agricultural Prices (May 2018, Prices Received by Farmers, seasonally adjusted): +1.7% vs. April 2018, -3.9% vs. May 2017.The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.

Manufacturing and Home Sales Inch Out Gains in September: What We Learned During the Week of October 17 – 21

September featured moderate growth in manufacturing, existing home sales, and in leading economic indicators. Here are the 5 things we learned from U.S. economic data released during the week ending October 21.

#1September saw modest growth in manufacturing activity. The Federal Reserve reports that manufacturing sector output grew 0.2% on a seasonally adjusted basis during the month. With the small gain, manufacturing output matched that from September 2015. Durable goods production was unchanged for the month but output of nondurables grew 0.5%. The former was pulled down by falling production of primary metals, machinery, and aerospace/miscellaneous transportation equipment. In the case of the latter, all major categories of nondurable enjoyed output growth, with the largest percentage production gains seen for printing and petroleum/coal products. Overall industrial production inched up 0.1% but remained 1.0% below year ago levels. Utility output fell 1.0% during the month while mining production grew 0.4%. The latter increased during Q3, the 1st quarterly gain in mining output (which includes oil extraction) after 6 straight quarterly declines. industrial-production-data-102116

#2Leading indicators signal moderate economic expansion over the near-term. The Leading Economic Index from the Conference Board added 3/10ths of a point during September to a seasonally adjusted 124.4 (2010=100). This followed a decline in August. 5 of the 10 components that make up the leading index pointed towards improved business activity; including, building permits, the interest rate spread, and jobless claims. The coincident index added 2/10ths of a point to 114.2, as all its components (nonfarm payrolls, person income transfer payments, manufacturing/trade sales, and industrial production) made positive contributions to the index. The lagging index grew by 2/10ths of a point to 122.3, with 4 of 7 index components making a positive contribution at the backward looking measure. The press release stated the gain in the leading index suggests the U.S. economy will grow at a “moderate pace” into early next year.

#3Sales of previously owned homes grew in September following declines during the 2 prior months. Existing home sales were at a seasonally adjusted annualized rate of 5.47 million units, up 3.2% from August and 0.6% from a year earlier. The National Association of Realtors measure grew during the month in all 4 Census regions: Northeast (+5.7%), West (+5.0%), Midwest (+3.9%), and South (+0.9%). Only the Midwest and West, however, had positive 12-month comparables in terms of sales activity. Inventories of unsold homes remained tight—there were 2.04 million previously owned homes available for sale at the end of September, up 1.5% for the month but 6.8% below year ago inventory levels. The resulting 4.5 month supply prompted a 5.6% gain in the median sales price versus a year earlier (to $234,200). NAR’s press release noted that a third of home sales were from first-time home buyers, the highest percentage of first-time buyers in over four years. 

#4Housing starts slowed in September, centered with multi-family units. The Census Bureau estimates housing starts were at a seasonally adjusted annualized rate of 1.047 million units. This was 9.0% decline for the month and 11.9% below year ago levels. The pace of starts for multi-family units (5+ units) plummeted 38.9% for the month and was 42.5% below year ago levels, while starts of single-family units jumped 8.1% during September to 783,000 units (SAAR, +5.4% vs. September 2015). Permit activity suggests that starts activity should grow over the intermediate term. The 1.225 million issued construction permits (SAAR) was 6.3% above the previous month’s pace and was 8.5% over September 2015 levels. The annualized count of permits was up 4.4% for single-family units and was 17.2% above September 2015’s pace for permits for 5+ unit properties. The rate of completions, however, slowed to their lowest level for 2016: down 8.4% for the month to 951,000 units.

#5Energy, shelter, and medical commodities sparked higher consumer prices in September. The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) grew a seasonally adjusted 0.3% during the month, its largest single-month increase since April. Prices for food held steady during the month, while energy CPI jumped 2.9%. The latter, which was its largest monthly gain since April, resulted from a 5.8% surge in gasoline prices, a 2.4% hike in fuel oil prices, a 0.8% increase in prices for utility delivered natural gas, and a 0.7% gain in electricity price. Net of energy and food, core CPI increased 0.1% (down from August’s 0.3% gain). Core commodity prices slipped 0.1% while those for core services increased 0.2. Prices grew for medical care commodities (+0.6%) and shelter (+0.2%) but fell for apparel (-0.7%), used cars (-0.3%), and new cars (-0.1%). Headline CPI was increased 1.5% over the past year while the core index was 2.2% above its September 2015 level.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending October 15, 2016, First-Time Claims, seasonally adjusted): 260,000 (+13,000 vs. previous week; -5,000 vs. the same week a year earlier). 4-week moving average: 251,750 (-6.0% vs. the same week a year earlier).
Housing Market Index (September 2016, Index (>50 = “good” housing market), seasonally adjusted): 63 (August 2016: 65, September 2015: 65).
State Employment (September 2016, Nonfarm Payrolls, Seasonally Adjusted):  Vs. August 2016: Payrolls grew in 14 states, contracted in 3 states and essentially was unchanged in 33 states and in the District of Columbia. Vs. September 2015: Payrolls grew in 35 states and in the District of Columba, fell in 1 state and was essentially unchanged in 14 states.
Beige Book
Treasury International Capital Flows (August 2016, U.S. Securities Purchased by Foreign Investors): +$30.4 billion (vs. July 2016:  +$71.4 billion, vs. August 2015: -$28.1 billion).

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

Business Activity Was Rocky This Spring: What We Learned During the Week of June 20 – 24

As the world considers the economic and political implications of the Brexit vote, we learned last week that U.S. economic activity lagged during the spring. Here are the 5 things we learned from U.S. economic data released during the week ending June 24.

#1Two indicators of economic activity show soft business conditions this spring. The Chicago Fed National Activity Index (CFNAI), a monthly index based on 85 economic indicators that tracks overall economic activity, dropped 56-basis points during May to a reading of -0.51. While all 4 major categories of index components deteriorated from their April readings, the bulk of decline was associated with production/income-related economic indicators. 062416These measures made a negative contribution to the CFNAI of 32-basis points (a 45-basis point drop from their April contribution of +0.13). The other 3 major categories of index components also losing stream during May were: consumption/housing (off 7-basis points to -0.09), employment (off 3-basis points to -0.09) and sales/orders (off a basis point to -0.01). The CFNAI’s 3-month moving average shed 11-basis points to -0.36. This was the moving average’s lowest reading in nearly 4 years. Nevertheless, the reading is not indicative of an U.S. economy that was in a recession since it remained above -0.70. Rather, the moving average reading of -0.36 is consistent with below average economic growth.

The Conference Board’s Leading Economic Index lost 2/10ths of a point during May to a reading of 123.7. The index was unchanged from 6 months earlier and was up by only 1.2% from a year earlier. 6 of 10 components made a positive contribution to May’s leading index reading, including the interest rate spread, factory orders for nondefense/non aircraft capital goods, and building permits. The main drag was a bump up in 1st time unemployment insurance claims. The coincident index was unchanged for the month and was up 1.9% from a year earlier. 3 of the coincident index’s 4 components improved during May. The lagging index added 3/10ths of a point during the month to 121.5 (+3.8% vs. May 2015), as 5 of 7 index components enjoyed gains. The press release said the index readings suggest “moderate” economic growth over the coming months but warns that “volatility in financial markets and a moderating outlook in labor markets could pose downside risks to growth.”

#2Sales of previously owned homes inched ahead to a post-recession high during May. Existing home sales were a seasonally adjusted annualized rate of 5.53 million units during the month, up 1.8% from April, up 4.5% from a year earlier, and the fastest sales pace since February 2007. According to the National Association of Realtors, sales of previously owned homes improved in 3 of 4 Census regions during the month: West (+5.4%), South (+4.6%), and Northeast (+4.1%). Sales slowed 6.5% in the Midwest. There were 2.15 million homes available for sale at the end of May, up 1.4% from April but off 5.7% from May 2015. The resulting tight 4.7 month supply led to a 4.7% year-to-year increase in the median sales price of previously owned homes to $239,700. While warning that first-time homebuyers were “still struggling to enter the market,” NAR’s press release did predict that home sales “have the potential to mostly maintain their current pace through the summer.”

#3Even with a drop in May, new home sales also remained their near post-recession highs. The Census Bureau reports that new home sales were at a seasonally adjusted annualized rate of 551,000 units. Despite being down 6.0% for the month, new home sales were 8.7% above their year ago pace. Sales slowed in 3 of 4 regions—the Northeast, West, and South—but improved in the Midwest. 3 of 4 Census regions—the Northeast, Midwest, and South had positive year-to-year sales gains. Homebuilders had 244,000 homes on the market at the end of May (+1.2% vs. April 2016, +16.2% vs. May 2015), the equivalent to a 5.3 month supply.

#4Durable goods orders stumbled in May following 2 monthly gains. The Census Bureau estimates the value of new orders for durable manufactured goods declined 2.2% to a seasonally adjusted $230.7 billion (+1.5% vs. May 2015). Transportation goods orders fell 5.6% during the month as orders for vehicles (-2.8%) and defense aircraft (-34.1%) both slowed. Civilian aircraft orders grew 1.0% in May following the previous month’s 69.4% surge. Orders for non-transportation durable goods declined 0.3% during the month following gains of 0.3% and 0.5% during the 2 previous months. While orders for communications equipment jumped 4.7%, orders dropped for computers (-2.5%), primary metals (-1.4%), and fabricated metals (-0.3%). Shipments declined for the 3rd time over the past 4 months with a 0.2% drop. Non-transportation goods shipments slowed 0.3%. The value of unfilled orders expanded for the 4th time in 5 months with a 0.2% increase while inventories of durable goods contracted for the 10th time in the past 11 months with a 0.3% decline.

#5One survey finds consumers are slightly less optimistic about economic conditions. The University of Michigan Index of Consumer Sentiment came in at a seasonally adjusted reading of 93.5 for June, off 8/10ths of a point from the preliminary June reading released a few week ago, 1.2 points from May, and 2.6 point from a year earlier. The drop from May was the result of a weaker outlook for future economic business conditions, with an index reading 82.4 being off 2.5 points from May and 5.4 points from a year earlier. The present conditions index edged up 9/10ths of a point during the month to 110.8 (+1.9 points vs. June 2015). The press release stated that consumers do not anticipate a recession but they “increasingly expect a slower pace of growth in the year ahead.” Further, the results are consistent with GDP growth of less than 2.0% and real consumer spending increased 2.6% for all of 2016.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending June 18, 2016, First-Time Claims, seasonally adjusted): 259,000 (-18,000 vs. previous week; -13,000 vs. the same week a year earlier). 4-week moving average: 267,000 (-2.6% vs. the same week a year earlier).
FHFA House Price Index (April 2016, Purchase-Only Index, seasonally adjusted): +0.2% vs. March 2016, +5.9% vs. April 2015.

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