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.

Consumer Spending Rises, Q2 GDP Growth Narrows: August 26 – 30

Consumers have been a bright spot for the U.S. economy, but their outlook may be tenuous. Here are the five things we learned from U.S. economic data released during the week ending August 30.

#1Consumers’ spending spree continued in July. The Bureau of Economic Analysis reports that “real” personal consumption expenditures (PCE) grew 0.4 percent on a seasonally adjusted basis during the month, up from June’s 0.2 percent advance and matching the increases for both April and May. Spending rose for goods by 0.8 percent, with solid gains for both durable (+1.1 percent) and nondurable goods (+0.6 percent). Services spending grew 0.3 percent. Without adjustments for inflation, nominal PCE rose 0.6 percent. The increased spending outpaced gains in nominal personal income (+0.1 percent), nominal disposable income (+0.3 percent), and real disposable income (+0.1 percent). As a result, the savings rate narrowed by 3/10ths of a percentage point to +7.7 percent. Over the past year, personal spending has risen 2.7 percent as real disposable income advanced 3.0 percent.

#2Q2 GDP growth was smaller than previously believed. The Bureau of Economic Analysis‘ second estimate of Q2 2019 Gross Domestic Product (GDP) has the U.S. economy growing at a seasonally adjusted annualized rate (SAAR) of +2.0 percent, down from 2.1 percent gain reported a month ago. The downward revision was the product of lower than previously estimated levels of state/local government spending, exports, private inventory accumulation, and fixed residential investment. Counterbalancing those revisions was a higher than previously reported estimate for consumer spending. In fact, consumers were by far the most significant positive contributor to Q2 GDP growth. The same report finds corporate profits rose 5.3 percent during the quarter to an annualized $2.113 trillion. The BEA will revise its Q2 estimates of both GDP and corporate profits again in late September.

#3Economic growth also was modest in July. The Chicago Fed National Activity Index (CFNAI) plummeted by 39-basis points during the month to a reading of -0.36. Only 26 of the weighted index’s 85 components made a positive contribution to the CFNAI as only 30 improved from their June marks. All four major categories of index components made negative contributions: production (-25 basis points), personal consumption/housing (-6 basis points), sales/orders/inventories (-5 basis points), employment (-1 basis point). A bright spot is the 16-basis point improvement for the CFNAI’s three-moving average, growing June’s -0.30 reading to -0.16 in July. The moving average’s reading, however, is indicative of below-average economic growth.

#4Aircraft orders boosted durable goods orders in July. The Census Bureau estimates new orders for manufactured goods jumped 2.1 percent during the month to a seasonally adjusted $250.4 billion, following a 1.8 percent gain in June. Much of the increase came from the 7.0 percent surge in orders for transportation goods, with substantial monthly gains in orders for civilian aircraft (+47.8 percent), defense aircraft (+34.4 percent), and motor vehicles (+0.5 percent). Net of transportation goods, durable goods fell 0.4 percent in July, reversing a 0.8 percent increase during the prior month. Rising were new orders for electrical equipment/appliances (+1.1 percent) and computers/electronics (+0.2 percent). Orders fell for primary metals (-1.0 percent), fabricated metals (-0.9 percent), and machinery (-0.6 percent).

#5Consumer sentiment waned in August. The University of Michigan’s Index of Consumer Sentiment suffered its largest single-month drop in nearly seven years with an 8.6 point decline to a seasonally adjusted 89.8 (1966Q1=100). Whereas the measure tracking current sentiment decreased by 5.4 points to 105.3, it was the huge drop in longer-term optimism that pulled down the headline index. The expectations index plummeted by 10.6 points to 79.9. The press release notes that trade tariffs were the chief cause of weakening confidence, with one in three survey respondents “spontaneously” noting the issue in their comments. Those concerned about tariffs were more likely to “voice higher year-ahead inflation expectations, more frequently expected rising unemployment, and expected smaller annual gains in household incomes.”

The Consumer Confidence from the Conference Board slipped by a more modest 7/10ths of a point to a seasonally adjusted 135.1 (1985=100). The present conditions rose to a nearly 19-year high at 177.2 (up 6.3 points versus July 2019) while the expectations index shed 5.4 points to 107.0. A robust 42.0 percent of survey respondents described current business conditions as “good,” while 51.2 percent said that jobs were “plentiful.” The press release did warn that “if the recent escalation in trade and tariff tensions persists, it could potentially dampen consumers’ optimism regarding the short-term economic outlook.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 24, 2019, First-Time Claims, seasonally adjusted): 215,000 (+5,000 vs. previous week; Unchanged vs. the same week a year earlier). 4-week moving average: 214,500 (-0.1% vs. the same week a year earlier).
Pending Home Sales (July 2019, Index (2001=100), seasonally adjusted): 105.6 (-2.5% vs. June 2019, -0.3% vs. July 2018).
FHFA House Price Index (June 2019, Purchase-Only Index, seasonally adjusted): +0.2% vs. May 2019, +4.8%. vs. June 2018.
Case-Shiller Home Price Index (June 2019, 20-City Index, seasonally adjusted): Unchanged vs. May 2019, +2.1% vs. June 2018.

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

Consumers Went Shopping in June: July 15 – 19

Retail sales accelerated, but overall economic activity slowed in June. Here are the five things we learned from U.S. economic data released during the week ending July 19.  

#1Retail sales shined in June. U.S. retail and food services sales grew 0.4 percent during the month to a seasonally adjusted $519.9 billion, per the Census Bureau. This matched May’s 0.4 percent sales gain and left the measure up 3.4 percent over the past 12 months. Sales at auto dealers & parts stores jumped 0.7 percent but fell 2.8 percent at gas stations (due to lower prices at the pump). Net of sales at auto dealers & parts stores and gas stations, core retail sales expanded 0.7 percent in June and 3.8 percent over the past year. Virtually every retail sector enjoyed sales gains during the month, led by restaurants/bars (+0.9 percent) and matching 0.5 percent jumps at furniture retailers, building materials/garden stores, grocery stores, apparel retailers, and health/personal care stores. Sales fell at department stores (-1.1 percent) and electronics/appliance retailers (-0.3 percent).

#2Forward-looking economic indicators suggest the U.S. economy may have hit the brakes in June. The Conference Board’s Leading Economic Index (LEI) shed 3/10ths of a point to a reading of 111.5 (up 1.6 percent from a year earlier), the measure’s first drop since last December. Even with the slide, six of ten LEI components improved during the month. The coincident index increased 1/10th of a point to 105.9 (+1.6 percent versus June 2018) as three of four index components made a positive contribution. The lagging index jumped 6/10ths of a point to 107.7 (+2.6 percent versus June 2018) with four of seven components making a positive contribution. The press release noted that the “LEI suggests [economic] growth is likely to remain slow in the second half of the year.”

#3Manufacturing output grew in June. The Federal Reserve reports that manufacturing output rose 0.4 percent on a seasonally adjusted basis, up from the 0.2 percent bump in May and April’s 0.7 percent drop. Durable goods production advanced 0.4 percent while that for nondurables increased 0.5 percent. Boosting the former were sizable output gains of motor vehicles, nonmetallic mineral products, and computers/electronics while the latter expanded thanks to a jump for petroleum and coal products. Overall industrial production was flat during June. Mining output eked out a 0.2 percent gain while utilities saw output fall 3.6 percent (thanks to moderate summer weather during June). Overall industrial production has grown a modest 1.3 percent over the past year while 12-month comparable for manufacturing output was a tepid +0.4 percent.

#4Housing starts slowed in June, thanks to multifamily units. The Census Bureau places its seasonally adjusted annualized estimate of housing starts at 1.253 million units, a 0.9 percent decline from May but up 6.2 percent from a year earlier. Even if the headline figure declined, starts of single-family homes grew 3.5 percent—those of multifamily units fell 9.4 percent. Looking towards the future, the annualized count of issued housing permits slumped 6.1 percent to 1.220 million (-6.6 percent versus June 2018). Issued permits for future single-family homes edged up 0.4 percent but plummeted 20.7 percent for properties of five or more units. Housing completions dropped 4.8 percent during June to an annualized 1.161 million units.

#5Homebuilder sentiment solidified in July. The National Association of Home Builders’ Housing Market Index (HMI) added one point during the month to a seasonally adjusted 65. This was a rebound from the two-point drop in June and the 61st straight month of the HMI staying above a reading of 50, indicative of more builders seeing the housing market as “good” versus being “poor.” The HMI grew in the West and South but lost ground in the Midwest and Northeast. Adding a point each were indices that track single-family home sales (72), expected home sales (71), and traffic of prospective buyers (48). The press release noted builders were reporting “solid demand for single-family homes.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 13, 2019, First-Time Claims, seasonally adjusted): 216,000 (+8,000 vs. previous week; +4,000 vs. the same week a year earlier). 4-week moving average: 218,750 (-0.1% vs. the same week a year earlier).
Import Prices (June 2019, All Imports, not seasonally adjusted): -0.9% vs. May 2019, -2.0% vs. June 2018. Nonfuel Imports: -0.3% vs. May 2019, -1.4% vs. June 2018.
Export Prices (June 2019, All Exports, not seasonally adjusted): -0.7% vs. May 2019, -1.6% vs. June 2018. Nonagricultural Exports: -1.1% vs. May 2019, -1.6% vs. June 2018.
University of Michigan Surveys of Consumers (July 2019-preliminary, Index of Consumer Sentiment, seasonally adjusted): 98.4 (June 2019: 98.2, July 2018: 97.9).
Treasury International Capital Flows (May 2019, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): -$5.7 billion (vs. April 2019: +$36.4 billion, vs. May 2018: +$20.2 billion.
State Employment (June 2019, Nonfarm Payrolls, seasonally adjusted): Vs. May 2019: Increased in 4 states, essentially unchanged in 46 states and the District of Columbia.  Vs. June 2018: Increased in 28 states, essentially unchanged in 22 states and the District of Columbia.
Business Inventories (May 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.036 trillion (+0.3% vs. April 2019, +5.3% vs. May 2018.
Beige Book

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