Economic Growth Moved Forward in Q1: April 22 – 26

The U.S. economy grew faster than expected during the first three months of this year. Here are the five things we learned from U.S. economic data released during the week ending April 26.  

#1GDP rebounded in Q1. The Bureau of Economic Analysis’ initial estimate of first quarter Gross Domestic Product (GDP) has the U.S. economy expanding at a seasonally adjusted annualized rate (SAAR) of 3.2 percent. This up from Q4 2018’s 2.2 percent growth rate, but below the Q2 and Q3 paces of expansion of +4.2 percent and +3.4 percent, respectively. The biggest positive contributors to Q1 GDP were personal consumption (adding 82-basis points to the growth rate), change in private inventories (contributing 65-basis points), imports (58-basis points), exports (45-basis points), government expenditures (41-basis points), and nonresidential fixed investment (38-basis points). Dragging down Q1 GDP was residential fixed investment, which cost 11-basis points in economic growth. The BEA will revise its estimate of Q1 GDP twice over the next two months.GDP Growth 2015-2019 042619

#2Economic data suggest business activity picked up in March. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic measures, improved by 16-basis points during the month to a reading of -0.15, its best reading since last December. (The CFNAI is designed such that a 0.00 reading indicates the U.S. economy is growing at its historical average.) Thirty-seven CFNAI components made positive contributions to the headline index, with 47 others making negative contributions and one with a neutral contribution. Among the four major categories of indicators, three of four made improved contributions in March: sales/orders/inventories made a +0.05 contribution (up from +0.01 in February), employment improved by 12-basis points to -0.03, and production improved by two-basis points to -0.10. Losing a basis point was the contribution from personal consumption/housing (to -0.07). The CFNAI’s three-month moving average slumped by six basis points to -0.24, which suggests below average economic growth.

#3Existing home sales pulled back in March following February’s bounce. The National Association of Realtors indicates that sales of previously owned homes dropped 4.9 percent during March to a seasonally adjusted annualized rate of 5.21 million units. This followed an 11.2 percent sales surge in February. Sales fell in all four Census regions: Midwest (-7.9 percent), West (-6.0 percent), South (-3.4 percent), and South (-2.1 percent). Existing home sales were 5.4 percent behind their March 2018 pace, with negative 12-month comparables in all four Census regions. There were 1.68 million homes on the market at the end of March, which was the most since last November, up 2.4 percent from a year earlier, and the equivalent to a 3.9 month supply. The press release noted that sales were “underperforming in relation to the strength in the jobs markets.

#4But new home sales rose in March. The Census Bureau reports that sales of single-family homes increased 4.5 percent during the month to a seasonally adjusted annualized rate (SAAR) of 692,000 units. This was 3.0 percent ahead of the March 2018 sales pace. Sales grew during the month in three of four Census regions—Midwest (+17.6 percent), West (+6.7 percent), and South (+3.6 percent—but dropped 22.2 percent in the Northeast. There were 344,000 new homes available for sale at the end of March, up 13.2 percent from a year earlier and the equivalent to a 6.0 month supply.

#5Consumer confidence eased slightly in April. The Index of Consumer Sentiment lost 1.2 points during the month to a seasonally adjusted 97.2 (1966Q1=100), per the University of Michigan. While the measure was off 1.6 points from a year earlier, it has stayed within a relatively narrow ten-point range (91.2 to 101.4) since November 2016. Losing a full point was the current conditions index to 112.3 (April 2018: 114.9) while the expected conditions index shed 1.4 points to 87.4 (April 2018: 88.4). The press released noted that the “data indicate that inflation-adjusted personal consumption expenditures will grow by 2.5 percent in 2019.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 20, 2019, First-Time Claims, seasonally adjusted): 230,000 (+37,000 vs. previous week). 4-week moving average: 206,000
Durable Goods Orders (March 2019, New Orders for Manufactured Durable Goods, seasonally adjusted): $258.5 billion (+2.7% vs. February 2019).
Bankruptcy Filings (12-Month Period through March 31, 2019, Business and Non-Business Filings): 772,646 (-0.9% vs. March 31, 2018).- FHFA House Price Index (February 2019, Purchase-Only Index, seasonally adjusted): +0.3% vs. January 2019, +4.9% vs. February 2018.

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

Spring Had Sprung for Retailers in March: April 15 – 19

Retail sales rebounded while manufacturing sputtered in March. Here are the five things we learned from U.S. economic data released during the week ending April 19.  

#1Retail sales surged in March. The Census Bureau places total U.S. retail and food services sales at a seasonally adjusted $514.1 billion. The 1.6 percent increase from February was the largest single-month percentage gain in retail sales since the fall of 2017 and left sales up 3.6 percent from a year earlier. A part of the increase was thanks to improved sales at both auto dealers/parts stores (+3.1 percent) and gas stations (+3.5 percent), the latter the product of higher gasoline prices. Core retail sales rose a still robust 0.9 percent for the month, reversing February’s 0.7 percent sales decline and placing the measure 3.6 percent ahead of that from a year earlier. Sales activity rose at retailers focused on apparel (+2.0 percent), furniture (+1.7 percent), groceries (+1.2 percent), electronics/appliances (+0.5 percent), building materials (+0.3 percent), and health/personal care (+0.2 percent), along with a 0.8 percent bounce at restaurants and bars. The only major retailer category to suffer a sales decline during the month was sporting goods/hobby stores with a 0.3 percent drop while department store sales were flat.

#2Manufacturing output was flat in March. The Federal Reserve estimates manufacturing production was unchanged during the month after having increased 0.3 percent in February, leaving output up a soft 1.0 percent over the past year. Durable goods output slipped 0.1 percent, with output falling sharply for wood products and automobiles but growing for primary metals and electronics/computers. Nondurable goods production eked out a 0.1 percent increase, boosted by gains for textiles, petroleum/coal products, and chemicals. Overall, industrial production declined 0.1 percent in March, reversing February’s 0.1 percent gain. Mining output dropped 0.8 percent while that at utilities inched up 0.2 percent. The former has risen 10.5 percent over the past year while the latter’s 12-month comparable was +3.8 percent.

#3The trade deficit narrowed in February. The Census Bureau and the Bureau of Economic Analysis report that exports grew by $2.3 billion to $209.7 billion (+2.3 percent versus February 2018) while imports inched up by $0.6 billion to $259.7 billion (-0.5 percent versus February 2018). As a result, the trade deficit contracted by $1.8 billion to -$49.4 billion, its smallest reading since last June. The goods deficit shrank by $1.2 billion to -$72.0 billion while the services surplus grew by $0.5 billion to +$22.6 billion. The former was the result of higher exports of civilian aircraft and automobiles/parts and a decline in imports of industrial supplies/materials. The U.S. had its biggest goods trade deficits with China, the European Union, and Mexico.

#4Forward-looking economic indicators improved in March. The Conference Board’s Leading Economic Indicators (LEI) added 4/10ths of a point in March to a reading of 111.9 (+3.1 percent versus March 2018). Eight of ten LEI components made positive contributions, led by first-time unemployment insurance claims and consumers’ expectations for the economy. The coincident index grew by 1/10th of a point to 105.8 (+2.1 percent versus March 2018), with three of four components making positive contributions (industrial production was the exception). The lagging index also added 1/10th of a point as it grew to 107.0 (+2.9 percent versus March 2018), with four of seven components improving from their February readings. The press release notes that even with March’s gain, the LEI “continues to moderate, suggesting that growth in the US economy is likely to decelerate toward its long-term potential of about 2 percent by year end.”

#5Housing starts and building permits declined in March. The Census Bureau estimates housing starts slipped 0.3 percent during the month to a seasonally adjusted annualized rate of 1.139 million units. This was 14.2 percent below the March 2018 rate and the measure’s lowest mark since May 2017. Starts of single-family homes slowed 0.4 percent to an annualized 785,000 while multi-family unit starts slumped 3.4 percent. Looking towards the future, the number of issued building permits declined 1.3 percent to an annualized 1.269 million permits (-7.8 percent versus March 2018), with declines for single-family and multi-family homes of 1.1 percent and 2.7 percent, respectively. The annualized count of completed homes also fell, with a 1.9 percent drop to 1.338 million homes, which was nevertheless up 6.8 percent from a year ago.

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 13, 2019, First-Time Claims, seasonally adjusted): 192,000 (-5,000 vs. previous week; -35,000 vs. the same week a year earlier; fewest since September 6, 1969). 4-week moving average: 201,250 (-10.8% vs. the same week a year earlier).
Housing Market Index (April 2019, Index (>50=greater percentage of homebuilders viewing housing market as “good” versus being “poor,” seasonally adjusted): 63 (vs. March 2019: 62, April 2018: 68).
State Employment (March 2019, Nonfarm Payrolls, seasonally adjusted) Vs. February 2019: Grew in 1 state, essentially unchanged in 49 states and the District of Columbia. Vs. March 2018: Grew in 22 states, essentially unchanged in 28 states and the District of Columbia.
Business Inventories (February 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.017 trillion (+0.3 percent versus January 2019, +4.9% vs. February 2018).
Treasury International Capital Flows (February 2019, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$42.4 billion (vs. January 2019: -$19.6 billion, vs. February 2018: +$57.6 billion.
Beige Book

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

A Slowdown in Growth: March 25 – 29

Economic activity was lukewarm in Q4 and early 2019. Here are the five things we learned from U.S. economic data released during the week ending March 29.

#1Q4 economic growth was less robust than previously believed. The Bureau of Economic Analysis’ third release of fourth quarter 2018 gross domestic product (GDP) finds the U.S. economy grew 2.2 percent on a seasonally adjusted annualized basis. This was a downward revision from the Q4 GDP report published a month ago that had indicated a 2.6 percent increase, and it was below Q3’s 3.4 percent annualized gain. Even with the downward revision, GDP grew 2.9 percent for all of 2018, ahead of increases of 2.2 percent and 1.6 percent for 2017 and 2016, respectively. The downward revision was the result of lower than previously believed levels of personal consumption expenditures, government spending, and business spending. The same report indicates that business profits slipped 0.4 percent from Q3 to an annualized $2.311 trillion. Corporate earnings for all of 2018 were $2.263 trillion, up 7.8 percent from 2017. The first view of Q1 2019 GDP comes out in late April, with early indications suggesting a weaker report (see next).GDP 2007-2018 032919

#2Meanwhile, economic activity appears to have been tepid in February. The Chicago Fed National Activity Index lost four basis points during the month to a reading of -0.29. This was the third consecutive month in which the CFNAI was negative, indicative of below-average economic growth. Of the 85 data points included in the CFNAI, only 38 made positive contributions, and just 37 indicators showed improvement from their January readings. Among the four major categories of indicators, two improved from the previous month: production (up 13-basis points to a contribution of -0.16) and sales/orders/inventories (up two-basis points to +0.02). Slipping in February were measures related to employment (down 17-basis points to a -0.10 contribution) and personal consumption/housing (down three-basis points to -0.03). The CFNAI’s three-month moving average fell to its lowest reading since October 2016, shedding 18-basis points to a reading of -0.18 (again, indicative of below-average economic growth). 

#3Real personal spending slightly grew in January. Real personal consumption expenditures (PCE) increased 0.1 percent on a seasonally adjusted basis during the month following December’s 0.6 percent decline, per the Bureau of Economic Analysis. Spending grew for both nondurable goods (+0.5 percent) and services (+0.2 percent) but plummeted 1.6 percent for durable goods. Nominal (not inflation adjusted) spending also grew 0.1 percent. The modest gain in spending occurred despite a 0.1 percent drop in nominal personal income and with disposable income (both nominal and real) falling 0.2 percent. Over the past year, real disposable income has grown 3.0 percent while real PCE increased 2.3 percent. January’s saving rate of 7.5 percent was off 2/10ths of a percentage point from December.

#4The trade deficit narrowed (but remained rather wide) in January. The Census Bureau and the Bureau of Economic Analysis reports that exports grew by $1.9 billion to $207.3 billion (+3.0 percent versus January 2018) during January while imports shrank by $6.8 billion to $258.5 billion (+1.6 percent versus January 2018). The resulting trade deficit of -$51.1 billion was down $8.8 billion from the previous month and 3.7 percent smaller than that of January 2018. The goods deficit plummeted by $8.2 billion to -$73.3 billion (down 2.8 percent from a year earlier) while the services surplus grew by $0.5 billion to +$22.1 billion (off 0.7 percent over the previous year). The former was the result in a $1.8 billion gain in exported goods (due to increased food and automotive exports) and a $6.5 billion decline in imported goods (due to a decrease in imports of capital goods and crude oil). The U.S. had its biggest goods deficits with China (-$33.2 billion), the European Union (-$13.1 billion), and Mexico (-$7.2 billion).

#5Differing stories from two measures of consumer sentiment. The Conference Board’s Consumer Confidence Index shed 7.3 points during March to a seasonally adjusted reading of 124.1 (1985=100). Also falling were indices for present conditions (slumping 12.2 points to 160.6) and expected conditions (off 4.0 points to 99.8). Dropping hard was the percentage of survey respondents who viewed current business conditions as “good,” declining from 40.6 percent to 33.4 percent. However, only 13.6 percent of consumers viewed current conditions as “poor.” The press release characterized sentiment as “volatile,” as consumers “have had to weather volatility in the financial markets, a partial government shutdown and a very weak February jobs report.”

Presenting a different story was the University of Michigan’s Index of Consumer Sentiment, which added 4.6 points during March to a seasonally adjusted reading of 98.4 (1966Q1=100). The present conditions grew by 4.8 points to 113.3 (March 2018: 121.2) while the expectations index rose by 4.4 points to 88.8 (which matched its reading from a year earlier). The press release noted that the improvement in the headline measure “was entirely due to households with incomes in the bottom two-thirds of the income distribution.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 23, 2019, First-Time Claims, seasonally adjusted): 211,000 (-5,000 vs. previous week; -6,000 vs. the same week a year earlier). 4-week moving average: 217,250 (-1.6% vs. the same week a year earlier).
New Home Sales (February 2019, New Houses Sold, seasonally adjusted annualized rate): 667,000 (+4.9% vs. January 2019, +0.6% vs. February 2018).
Housing Starts (February 2019, Housing Starts, seasonally adjusted annualized rate): 1.162 million (-8.7% vs. January 2019, -9.9% vs. February 2018).
Pending Home Sales (February 2019, Index (2001=100), seasonally adjusted): 101.9 (-1.0% vs. January 2019, -4.9% vs. February 2018).
Case-Shiller Home Price Index (January 2019, 20-City Index, seasonally adjusted): +0.1% vs. December 2018, +3.6% vs. January 2018).
FHFA Housing Price Index (January 2019, Purchase-Only Index, seasonally adjusted): +0.6% vs. December 2018, +5.6% vs. January 2018. 

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