Consumers Spend, Prices Hit a Target: August 27 – 31

Consumers focused their spending on nondurable goods and services during July. Here are the five things we learned from U.S. economic data released during the week ending August 31.  

#1Consumers continued spending in July while inflation hits the Fed’s target. Real personal consumption expenditures (PCE) increased at a seasonally adjusted 0.2 percent rate during the month. This was down from the 0.3 percent gains reported by the Bureau of Economic Analysis for the three prior months. Spending on goods and services each grew by 0.2 percent during July, with the latter split by a 0.6 percent bump in nondurable goods spending and a 0.5 percent drop in durable goods spending. Nominal (non-price adjusted) PCE grew 0.4 percent for a second consecutive month. Nominal personal and disposable income gained 0.3 percent, with real disposable income rising 0.2 percent. The savings rate slipped by 1/10th of a percentage point to +6.7 percent. Over the past year, real disposable income has increased 2.9 percent while real PCE has expanded 2.8 percent. The same report includes data on inflation—the PCE deflator growing 0.1 percent during July with the core PCE deflator (removing energy and food) gained 0.2 percent. Over the past year, the two price measures have grown by 2.3 percent and 2.0 percent, respectively, with the latter matching the Federal Reserve’s two-percent inflation target.Consumer Spending April - July 2018 083118

#2GDP expanded a smidge faster than previously believed during Q2. The Bureau of Economic Analysis’ second estimate of gross domestic product (GDP) for the months of April, May, and June has the U.S. economy expanding 4.2 percent on a seasonally adjusted annualized basis. This was up from the 4.1 percent gain reported a month earlier and was the best quarter for GDP growth since the third quarter of 2014. The small upward revision was the result of higher than previously believed levels of business investment and private inventory accumulation partially offset by lower than the previously thought level of consumer spending. The sectors of the economy making positive contributions to GDP growth were (in declining order of contribution) were: personal spending (+255-basis points), fixed nonresidential investment (+107-basis points), exports (+110-basis points), government expenditures (+41-basis points), and imports (+7-basis points). Negative contributions came from private inventory accumulation (-97-basis points) and fixed residential investment (-6-basis points).

#3Economic growth “moderated” in July. The Chicago Fed National Activity Index (CFNAI) lost 35-basis points to +0.13 (June 2017: -0.18). Since the CFNAI is a weighted averaged 85 economic measure indexed such that a reading of 0.00 is indicative of the U.S. economy growing at its historical rate, July reading suggests the economy continued to expand during the month but at a slower pace than it had in June. Thirty-four of the 85 indicators improved during the month while 51 had weakened. The components related to production made a total contribution to CFNAI of +0.05 (versus a +0.45 contribution in June). Also making positive contributions were measures related to employment (+0.12 versus a +0.03 contribution in June) and sales/orders/inventories (+0.03 versus a +0.06 contribution in June). The measures linked to personal consumption/housing had a negative contribution of -0.07 (versus -0.06 in June). The CFNAI’s three-month moving average remained positive at +0.05 despite losing 15-basis points from June (June 2017: -0.07).

#4One measure of consumer sentiment surged to an 18-year high while another pulled back. The Conference Board’s Consumer Confidence Index jumped 5.5 points in August to a seasonally adjusted 133.4 (1985=100). The index has not been this high since October 2000. Measures tracking both current and expected business conditions improved—the current conditions index increased from 166.1 to 172.2 while the expectations index added 5.4 points to 107.6. 40.3 percent of survey respondents described current business conditions as “good” while only 9.3 percent see them as “bad.” Similarly, 42.7 percent of respondents saw the availability of jobs as “plentiful” with only 12.7 percent described jobs as being “hard to get.” The press release states that the strong sentiment among consumers “should continue to support healthy consumer spending in the near-term.

Meanwhile, the Index of Consumer Sentiment from the University of Michigan lost 1.7 points during August to a seasonally adjusted 96.2 (1966Q1=100), its worst reading since January. While down 6/10ths of a point from a year earlier, this was a 9/10ths of a point improvement from the preliminary August reading reported several weeks ago. The measure tracking current business conditions shed 4.1 points to its lowest points since November 2016 at 110.3 (August 2017=110.9) while the expectations index slipped by only 2/10ths of a point to 87.1 (August 2017=87.7).

#5Contract signings to purchase a home slipped in July. The National Association of Realtors’ Pending Home Sales Index lost 8/10ths of a point to a seasonally adjusted reading of 106.2 (2001=100), leaving the measure 2.3 percent below its July 2017 reading. The index, which tracks contracts signed to purchase a previously owned home but have not yet closed, improved during the month in the Northeast (+1.0 percent) and Midwest (+0.3 percent), but lost ground in the South (-1.7 percent) and West (-0.9 percent). The index has negative 12-month comparables in all four Census regions: West (-5.8 percent), Northeast (-2.3 percent), Midwest (-1.5 percent), and South (-0.9 percent). NAR’s press release continued to express concern about “inadequate supply” leading to many homebuyers being “unable to afford” homes in some markets.

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 25, 2018, First-Time Claims, seasonally adjusted): 213,000 (+3,000 vs. previous week; -25,000 vs. the same week a year earlier). 4-week moving average: 212,250 (-10.9% vs. the same week a year earlier).
Agricultural Prices (July 2018, Prices Received by Farmers): -3.8% vs. June 2018, -4.3% vs. July 2017).
Case-Shiller Home Price Index (June 2018, 20-City Index, seasonally adjusted): +0.1% vs. May 2018, +6.3% vs. July 2017). 

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

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.