Despite Continued Strength in Consumer Confidence, Economic Growth Slows: April 24 – 28

The U.S. economy slammed on its brakes during the first quarter as consumer spending faltered. Here are the 5 things we learned from U.S. economic data released during the week ending April 28.

#1Economic growth sputtered during the opening months of 2017. Per the Bureau of Economic Analysis, the Gross Domestic Product (GDP) grew by a paltry seasonally adjusted annualized rate (SAAR) of 0.7 percent during the first quarter of 2017. This was the slowest pace of economic expansion since the first quarter of 2014 when the U.S. economy had contracted 1.2 percent (although it is worth noting that GDP grew by only 0.8 percent during the same quarter a year ago). The feeble growth rate in the economy was largely the product of weakness in consumer spending, which increased only 0.7 percent) during the quarter. As a result, personal consumption expenditures contributed a mere 23-basis points in GDP growth during the quarter, versus a 240-basis point contribution during the previous quarter. Also making positive contributions to GDP growth during the quarter were nonresidential fixed investment (+112-basis point contribution), increased exports (+68-basis point contribution), and residential fixed investment (i.e., housing with a +50-basis point contribution). Drags on the U.S. economy were the decline in private inventories (costing 93-basis points in GDP growth), a rise in imports (costing 61-basis points in GDP growth), and a decrease in government spending (costing 30-basis points in GDP growth). The BEA will revise its estimate of Q1 GDP growth twice in the coming two months.Q1 GDP Contributors-042817

#2Still, there is a measure that suggests economic growth was just above its historical average in March. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic indicators that tracks business activity, shed 19-basis points but remained positive at +0.08. More critically, the three-month moving average for the CFNAI came in at +0.03, which was down 13-basis points from February but also was the fourth straight month in which it was positive. A positive reading in the moving average suggests that the U.S. economy is expanding at a rate greater than its historic average. Forty-eight of the 85 components that make up the CFNAI made positive contributions to the index, with three of four major groupings of these indicators making positive contributions: sales/orders/inventories (adding seven-basis points to the index), production (adding four-basis points to the index), and employment (adding two-basis points to the index). Personal consumption/housing-related index components cost five-basis points in CFNAI growth. 

#3Transportation goods sparked growth in durable goods orders during March. New orders for manufactured durable goods gained 0.7 percent during the month to a seasonally adjusted $238.7 billion, its third consecutive monthly increase. The Census Bureau report indicates new orders for transportation goods rose 2.4 percent, with solid increases in orders for defense aircraft (+26.1 percent) and civilian aircraft (+7.0 percent). New orders for motor vehicles declined for a second straight month with a 0.8 percent contraction. Net of transportation goods, new orders for durable goods slipped 0.2 percent although orders for core capital goods orders inched up 0.2 percent. Growing during the month were new orders for primary metals (+0.8 percent) and electrical equipment (+0.4 percent) while orders fell for computers (-3.8 percent), communications equipment (-1.2 percent), fabricated metal products (-0.8 percent), and machinery (-0.2 percent).

#4New home sales hit an eight-year high in March. The Census Bureau reports that new home sales jumped 5.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 621,000. This was 15.6 percent above year-ago levels and its highest reading since last July (which itself was the post-recession high). Sales grew in three of four Census regions during the month—Northeast (+25.8 percent), West (+16.7 percent), and South (+1.6 percent)—but declined 4.5 percent in the Midwest. All four Census regions enjoyed positive year-to-year sales gains. There were 268,000 new homes available for sale at the end of March, up 1.1 percent from February and 9.8 percent from a year earlier. This translated into a still tight 5.2-month supply of new homes on the market.

#5Consumer sentiment remained near post-recession highs in April, although one measure pulled back during the month. The Conference Board’s Consumer Confidence Index fell by 4.6 points during April to a reading of 120.3 (1985=100). March’s reading was the best reading in the sentiment measure since December 2000. The current conditions lost 3.3 points (to 140.6) while the expectations index shed 5.6 points (to 112.3). 30.2 percent of survey respondents felt that current business conditions were “good” (versus 32.4 percent in March), while 13.8 percent saw them as “bad” (versus 13.1 percent in March). Looking towards the future, 24.8 percent of consumers believe business conditions will improve over the next six months while 10.9 percent expect them to worsen. Related, 23.0 percent of survey respondents expect there will be increased job availability in the coming months versus 13.1 percent anticipating a decline. The press release noted that despite a pullback in April, consumer confidence “still remains at strong levels” and that “consumers remain confident that the economy will continue to expand in the months ahead.”

Meanwhile, the University of Michigan’s Index of Consumer Sentiment edged up by 1/10th of a point to a seasonally adjusted reading of 97.0. Despite essentially holding steady during the month, this puts the index eight full points above its April 2016 reading and keeps it near its post-recession high. The current conditions index dropped by a half-point to 112.7 (April 2016: 106.7) while the forward-looking expectations index jumped 9.4 points to 87.0.  The press release noted that the “partisan divide” that this survey has been demonstrating in recent months narrowed during April, people who identified themselves as Democrats were far more pessimistic than those who are Republicans. The release also stated that the data points towards an anticipated 2.5 percent growth rate in real consumer spending during 2017.

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 22, 2017, First-Time Claims, seasonally adjusted): 257,000 (+14,000 vs. previous week; -4,000 vs. the same week a year earlier). 4-week moving average: 242,250 (-7.4% vs. the same week a year earlier).
Pending Home Sales (March 2017, Index (2001=100), seasonally adjusted): 99.1 (-2.9% vs. February 2017, +1.8% vs. March 2016).
Case-Shiller Home Price Index (February 2017, 20-City Index, seasonally adjusted): +0.7% vs. January 2017, +5.9% vs. February 2016.
FHFA House Price Index (February 2017, Purchase-Only Index, seasonally adjusted): +0.8% vs. January 2017, +6.4% vs. February 2016.
Agricultural Prices (March 2017, Prices Received by Farmers (Index: 2011=100), seasonally adjusted): 94.8 (+3.4% vs. February 2017, +2.4% vs. March 2016).

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

Hiring Came in Like a Lamb During March. What We Learned During the Week of April 3 – 7

Employers hired fewer workers during March and the trade deficit contracted in February. Here are the 5 things we learned from U.S. economic data released during the week ending April 7.

#1The pace of hiring slowed sharply in March. The Bureau of Labor Statistics reports that nonfarm payrolls grew by a seasonally adjusted 98,000 during the month, the fewest number of jobs created in a single month since last May. Some of the slowdown could be linked to this year’s moderate winter weather, which prompted some employers to take on workers earlier than usual. But it is also worth noting that January and February job gains were revised downward by a combined 38,000 jobs. Private sector payrolls grew by 89,000 during the month (down from a 221,000 increase in February), with the gain split between 61,000 jobs in the service sector and 28,000 jobs in the goods-producing side of the economy. Industries with the greatest number of new jobs were professional/business services (+56,000), health care/social assistance (+16,700), manufacturing (+11,000), and mining/logging (+11,000). Meanwhile, retailers shed 29,700 jobs from their payrolls during March. The average workweek held steady during the month at 34.3 hours (March 2016: 34.4 hours). Average weekly earnings grew by $1.71 during March to $896.60 (+2.4 percent versus March 2016).

A separate survey of households painted a somewhat more robust picture of the labor market, including showing the unemployment rate had dropped by 2/10ths of a percentage point to 4.5 percent (its lowest reading in nearly ten years). While 145,000 people entered the labor force during the month (to 160.2 million), the labor force participation rate held firm at 63.0 percent. The median length of unemployment grew by 3/10ths of a week to 10.3 weeks (March 2016: 11.4 weeks) while the count of “involuntary” part-time workers declined by 151,000 to 5.553 million (March 2016: 6.120 million). Finally, the broadest measure of labor underutilization dropped to another post-recession low of 8.9 percent, down 3/10ths of a percentage point from February 2017 and 9/10ths of a percentage point from March 2016. This same measure peaked during the last recession back in April 2010 at 17.1 percent.Labor-Underutilization-2005-2007-040717

#2The trade deficit reversed the previous month’s sharp increase in February. The Census Bureau and Bureau of Economic Analysis reports that exports edged up $0.4 billion to $192.9 billion (+6.7 percent versus February 2016) while imports slowed by $4.3 billion to $236.4 billion (+4.5 percent versus February 2016). As a result, the trade deficit contracted by $4.6 billion to -$43.6 billion. The goods deficit shrank by $4.6 billion to -$65.0 billion (-1.0 percent versus February 2016) while the services surplus edged up by less than $0.1 billion to +$21.4 billion (+6.9 percent vs. February 2016). The former declined in part because of a sharp $3.1 billion drop in imports of imported consumer goods (including cell phones and automobiles). The U.S. had its largest goods deficits with China (-$31.4 billion), the European Union (-$12.0 billion), and Mexico (-$6.2 billion).

#3New factory orders increased for the seventh time in eight months. Per the Census Bureau, new orders for manufactured goods grew 1.0 percent during February to a seasonally adjusted $476.5 billion. This was up 7.3 percent from a year earlier. Like we saw with the preliminary data released a week earlier, much of the increase in new orders was because of a sharp increase in orders for civilian aircraft (+47.5 percent) resulted in a 4.4 percent increase in transportation equipment orders. Net of transportation goods, new orders were up 0.4 percent for the month and 7.5 percent from their February 2016 pace. Durable goods orders expanded 1.8 percent during the month while those of nondurables advanced 0.2 percent. The 12-month comparables for the two were +5.3 percent and +9.2 percent, respectively. Shipments grew for the 11th time in 12 months, with a 0.3 percent increase to $480.0 billion. Unfilled orders just barely ended their three-month losing streak with less than 0.1 percent increase to $1.115 trillion. Inventories expanded for the seventh time in eight months with a 0.3 percent gain to $630.0 billion.

#4Purchasing managers indicate slightly slower economic growth in March. The Purchasing Managers Index (PMI) from the Institute for Supply Management declined by a half point to a seasonally adjusted 57.2. This was the seventh straight month in which the measure was above a reading of 50.0, indicative of an expanding manufacturing sector (although the decline from February suggests slower growth). Three of the five PMI components fell during the month: production (down 5.3 points to 57.6), inventories (down 2.5 points to 49.0), and new orders (down 6/10ths of a point 64.5). Rising were components measuring employment (up 4.7 points to 58.9) and supplier deliveries (up 1.1 points to 55.9). Seventeen of the 18 tracked manufacturing industry sectors reported growth during the month, led by electrical equipment/appliances, printing, and furniture. The press release noted that respondents from all 18-tracked industries reported an increase in new orders.

The headline measure from the ISM’s Report on Business-Nonmanufacturing (NMI) shed 2.4 points during March to a seasonally adjusted reading of 55.2. While this was the NMI’s lowest reading since last October, this was the 87th straight month in which the measure remained above a reading of 50.0. Only one of the NMI’s four components grew during the month:  supplier deliveries (up a full point to 51.5). Declining were components associated with business activity/production (down 4.7 points to 58.9) employment (down 3.6 points to 51.6), and new orders (down 2.3 points to 58.9). Fifteen of 18 tracked industry expanded during the month, led by the management of companies, utilities, and wholesale trade. The press release noted that a “majority of respondents’ comments indicate a positive outlook on business conditions and the overall economy,” but that there also were “several comments about the uncertainty of future government policies on health care, trade and immigration, and the potential impact on business.”

#5Strength in the housing sector pulled up construction spending during February. The Census Bureau reports that the value of construction put in place grew 0.8 percent during February to a seasonally adjusted annualized rate (SAAR) of $1.193 trillion. This was 3.0 percent above the annualized value of construction put into place a year earlier. Private sector spending also expanded at a 0.8 percent rate to $917.3 billion (+6.9 percent versus February 2016), as a 1.8 percent jump in private sector residential spending more than counterbalancing a 0.3 percent drop in nonresidential construction spending. The former included gains in new single-family and multifamily construction spending of 1.2 percent and 1.8 percent, respectively. Public sector construction spending increased 0.6 percent during February to an annualized $275.5 billion. Despite the gain, public sector spending was off 8.0 percent from a year earlier.

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 1, 2017, First-Time Claims, seasonally adjusted): 234,000 (-25,000 vs. previous week; -37,000 vs. the same week a year earlier). 4-week moving average: 250,000 (-7.5% vs. the same week a year earlier).
Vehicle Sales (March 2017, Total Light Vehicle Sales, seasonally adjusted annualized rate): 16.62 million vehicles (-5.5% vs. February 2017, -0.3% vs. March 2016).
Consumer Credit (February 2017, Outstanding Consumer Credit Balances-net of real estate, seasonally adjusted): $3.792 trillion (+$15.2 billion vs. January 2017, +6.3% vs. February 2016).
Wholesale Trade (February 2017, Wholesale Inventories, seasonally adjusted): $594.2 billion (+0.4% vs. January 2017, +3.2% vs. February 2016).
FOMC minutes

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

Home Sales Stay Strong, But Tight Supplies Restrain the Market. What We Learned During the Week of March 20 – 24

Both existing and new home sales stayed near their post-recession highs in February while aircraft carried the day for durable goods orders. Here are the 5 things we learned from U.S. economic data released during the week ending March 24.

#1Rising prices and tight supplies weighed a bit on February existing home sales. The National Association of Realtors reports that sales of previously owned homes slowed 3.7 percent during February to a seasonally adjusted annualized rate of 5.48 million units. Even with the month-to-month slowdown in transactions, sales were 5.4 percent above their February 2016 pace and near their post-recession peak. Sales declined during the month in three of four Census regions: Northeast (-13.8 percent), Midwest (-7.0 percent), and West (-3.1 percent). Sales edged up 1.3 percent in the South during February. All four Census regions enjoyed positive 12-month comparables, with sales up 9.6 percent in the West, 5.9 percent in the South, 2.6 percent in the Midwest, and 1.5 percent in the Northeast. While inventories of unsold homes grew 4.2 percent to 1.75 million units, this was not only 6.2 percent below February 2016 inventories but also represented a ludicrously tight 3.8-month supply. Thus, it is not a surprise that the median sales price of $228,400 was up 7.7 percent from the same time a year ago. NAR’s press release stressed that that foot traffic of prospective buyers was high, but warned that a tight supply of affordable homes was “pushing up price growth and pressuring the budgets of prospective buyers.”

#2Meanwhile, new home sales heat up to their fastest pace since last summer. The Census Bureau estimates new home sales grew 6.1 percent during February to a seasonally adjusted annualized rate of 592,000 units. This was 12.8 percent above February 2016 new home sales and represented the best month for new home sales since last July. Sales grew during the month in three of four Census regions: Midwest (+30.9 percent), West (+7.5 percent), and South (+3.6 percent). There were 266,000 new homes available for sale at the end of February, up 1.5 percent from January and 9.9 percent from February 2016. This represented a still tight 5.4-month supply.Tight-Home-Supplies-032417

#3Durable goods orders jumped in February, but core business investment did not. Per the Census Bureau, new durable goods orders increased 1.7 percent during the month to a seasonally adjusted $235.4 billion. Durable goods orders during the first two months of 2017 totaled $430.5 billion, 1.6 percent above that for the same two months a year earlier. The headline number for February wwss pulled up by a 47.6 percent gain in orders for civilian aircraft. Aircraft orders tend to move sharply up and down each month…in fact, defense aircraft orders fell 12.8 percent during February. Overall transportation goods orders increased 4.3 percent during the month (motor vehicles & parts: -0.8%). Net of transportation goods, durable goods orders rose 0.4 percent during the month with orders during the first two months of 2017, 2.7 percent above that of the first two months of 2016. Orders increased in February for primary metals (+2.3 percent), electrical equipment/appliances (+2.2 percent), computers (+1.6 percent), and machinery (+0.1 percent). Falling during the month were orders for communications equipment (-3.8 percent) and fabricated metal products (-0.4 percent). Also declining were new orders for nondefense, non-aircraft capital goods (a proxy for business investment), slipping 0.1 percent during February. Orders for these goods during the first two months of 2017 were 1.3 percent above that for the first two months of 2016.

#4At least according to one measure, economic activity had improved to its fastest rate in more than two years. The Chicago Fed National Activity Index (CFNAI) jumped 36-basis points during February to a reading of +0.34. The measure is an average of 85 economic indicators, 55 of which had made a positive contribution to the CFNAI during February. All four broad categories of indicators showed improvement from their January readings, led by employment-related indicators (gaining 15-basis points to a contribution of +0.21). Also improving during the month were indicators related to sales/orders/inventories (up nine-basis points to +0.08), personal consumption/housing (up eight-basis points to -0.03), and production-related indicators (up five-basis points to +0.09). The CFNAI’s three-month moving average hit its highest reading since December 2014 with an 18-basis point gain to +0.25. A moving average for the moving average above a reading of 0.00 is indicative of economic growth greater than its historical average.

#5February’s gains in payrolls occurred largely in 11 states. The Bureau of Labor Statistics reports that 11 states enjoyed “statistically significant” nonfarm payroll increases during February, led by Illinois (+25,600), Ohio (+15,200), and New Jersey (+12,600). Payrolls essentially held the same in the other 39 states and the District of Columbia. Versus a year earlier, payrolls were up 31 states (led by California, Florida, and Texas), down in two states (Wyoming and Alaska), and held steady in 17 states and in the District of Columbia.  Meanwhile, the unemployment rate fell in ten states during February, with the largest month-to-month declines in West Virginia (down 4/10ths of a point to 5.2 percent), Mississippi (down 3/10ths of a point to 5.2 percent), Oregon (down 3/10ths of a point to 4.0 percent), and Maine (down 3/10ths of a point to 3.2 percent). The only state with a statistically significant increase in its unemployment rate during the month was Massachusetts (up 2/10ths of a point to 3.4 percent).

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 18, 2017, First-Time Claims, seasonally adjusted): 258,000 (+15,000 vs. previous week; -8,000 vs. the same week a year earlier). 4-week moving average: 240,000 (-8.1% vs. the same week a year earlier).
FHFA House Price Index (January 2017, Purchase-Only Index, seasonally adjusted): Unchanged vs. December 2016, +5.7% vs. January 2016.

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