Manufacturing and Retail Thrived in June: July 16 – 20

A series of economic news points to activity heating up during the first days of summer. Here are the five things we learned from U.S. economic data released during the week ending July 20.  

#1Manufacturing (and industrial production as a whole) rebounded in June. The Federal Reserve indicates manufacturing output gained 0.8 percent on a seasonally adjusted basis during the month, following a 1.0 percent pullback in May. Virtually all of June’s gain was on the durable goods side, where production swelled 1.6 percent. This included a 7.8 percent surge in automobile production (which had slumped 8.6 percent in May) and gains of at least one-percent for computers/electronics, wood products, and aerospace/transportation equipment. Nondurable output eked out a 0.1 percent increase during June. Overall industrial production grew 0.6 percent during the month following May’s 0.5 percent drop. Mining output increased 1.2 percent (with oil and gas extraction leading the way). Meanwhile, utility output slumped 1.5 percent. Over the past year, industrial production has grown 3.8 percent, with positive 12-month comparables for manufacturing (+1.9 percent), mining (+12.9 percent), and utilities (+5.0 percent).Industrial Production Manufacturing 072018

#2Retail sales remained solid as we entered the summer. The Census Bureau estimates retail and food service sales grew 0.5 percent during the month to a seasonally adjusted $506.8 billion. This was 6.6 percent ahead of the year-ago sales pace. Net of sales at auto dealers/parts stores (+0.9 percent) and gas stations (+1.0 percent, thanks to higher prices at the pump), core retail sales increased by a still decent 0.3 percent during the month and has grown 5.6 percent over the past year. The report also featured significant upward revisions to May sales, showing the headline and core sales rising 1.3 percent and 1.2 percent, respectively. Sales improved during June at retailers focused on health/personal care (+2.2 percent), building materials (+0.8 percent), and furniture (+0.6 percent). Sales also jumped 1.5 percent at restaurants/bars. But the news was not positive everywhere, with sales slumping at sporting goods/hobby stores (-3.2 percent), apparel retailers (-2.5 percent), electronics/appliance retailers (-0.4 percent), and grocery stores (-0.2 percent). 

#3Forward-looking economic indicators point to an accelerating U.S. economy in June. The Conference Board’s Leading Economic Index (LEI) added a half point to a seasonally adjusted reading of 109.8 (+5.8 percent versus June 2017). Seven of the ten components of the LEI made positive contributions during the month, led by new orders as measured by the Institute for Supply Management and the interest rate spread. The coincident index gained by 3/10ths of a point to 103.9 (+2.3 percent versus June 2017), aided by positive contributions for all four its components (including industrial production and nonfarm payrolls). The lagging index also increased by 3/10ths of a point (to a reading of 105.4, +2.7 percent versus June 2017). Four of the seven lagging index components made positive contributions, including those for the amount of outstanding commercial & industrial loans and the average length of unemployment. The press release said that the results do “not suggest any considerable growth slowdown in the short-term.”

#4Housing construction slowed in June. The Census Bureau reports that housing starts sank 12.3 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.173 million units. This represented a 4.2 percent decline from the June 2017 pace. Single-family home starts dropped 9.1 percent to 858,000 units (SAAR), just 0.2 percent under the year-ago pace while multifamily units started fell 20.2 percent to 304,000 units (-15.3 percent versus June 2017). Also declining was the annualized number of building permits, down 2.2 percent for the month to 1.301 million permits (-3.0 percent versus June 2017). The rate of housing completions held firm for the month at 1.261 million homes, which was nevertheless 2.3 percent ahead of that from a year earlier.

#5Homebuilders have remained confident this summer. The Housing Market Index (HMI) from the National Association of Home Builders held steady at a seasonally adjusted reading of 68. Not only was this the third time over the past four months in which the HMI was at 68, it also was the 49th consecutive month the index was above a reading of 50 (indicative of more homebuilders viewing the housing market as being “good” versus being “poor.” The HMI improved in the Midwest, was unchanged in the Midwest but lost ground in both the West and Northeast. The index measuring current sales of single-family homes remained at 74 while the expected sales index shed two points to 73. The index tracking the traffic of prospective buyers added two points to 52. The press release noted that even with the solid level of confidence, homebuilders are “burdened by rising construction material costs.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 14, 2018, First-Time Claims, seasonally adjusted): 207,000 (-8,000 vs. previous week; -32,000 vs. the same week a year earlier). 4-week moving average: 220,500 (-9.7% vs. the same week a year earlier).
Business Inventories (May 2018, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.937 trillion (+0.4% vs. April 2018, +4.4% vs. May 2017).
Treasury International Capital Flows (May 2018, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$20.3 billion (vs. April 2018: +$22.6 billion, vs. May 2017: +$95.5 billion).
Beige Book

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

Hiring Remains Firm, Trade Deficit Shrinks: July 2 – 6

Employers continued to hire in June while the trade deficit fell to a 1.5 year low in May. Here are the five things we learned from U.S. economic data released during the week ending July 6.  

#1The labor market remained hot during the open days of summer. Nonfarm employers expanded their payrolls by 213,000 workers, per the Bureau of Labor Statistics. While down from the 244,000 added jobs in May, it essentially matched the 213,700 monthly average of the past year. Private sector employers added 202,000 jobs during June, split by 53,000 workers in the goods-producing side of the economy and 149,000 positions in the service sector. Industries adding the most jobs during the month were professional/business services (+50,000), manufacturing (+36,000), health care/social assistance (+34,700), and leisure/hospitality (+25,000). Retailers, on the other hand, shed 21,600 workers during the month. The average workweek remained at 34.5 hours (June 2017: 34.4 hours) while average hourly wages inched up by five cents. The resulting average weekly earnings of $903.81 was up 3.0 percent.Job Gains-2008-2018 070618

A separate survey of households found the unemployment rate jumping 2/10ths of a percentage point to 4.0 percent (June 2017: 4.3 percent). The good news is that this was the result of 601,000 people entering the labor force during the month. As a result, the labor force participation rate also grew by 2/10ths of a percentage point to 62.9 percent. Labor force participation remains below pre-recession levels, although that partially (but not totally) reflects an aging populace. The labor force participation rate for adults 25 to 54 was 88.9 percent in June, down 2/10ths of a percentage point from May but up 4/10ths of a percentage point from a year earlier. There is some progress still needed here too—the 25-54 participation rate was about two full percentage points higher during the previous economic expansion. Falling to post-recession lows were the median length of unemployment (8.9 weeks) and the number of people with a part-time job seeking a full-time opportunity (4.743 million people). The BLS’s broadest measure of labor underutilization (the “U-6” series) shed 2/10ths of a percentage point to 7.8 percent, matching its post-recession low.

#2The trade deficit narrowed to its smallest reading in 19 months. The Census Bureau and the Bureau of Economic Analysis report that exports grew by $4.1 billion to $215.3 billion (+11.7 percent versus May 2017) while imports increased by a more modest $1.1 billion to $258.4 billion (+8.3 percent versus May 2017). As a result, the trade deficit contracted by $3.0 billion to -$43.1 billion, down 6.0 percent from a year earlier and its smallest reading since October 2016. The goods deficit narrowed by $2.6 billion to -$65.8 billion (off 1.5 percent from May 2017) while the goods surplus widened by $450 million to +$22.7 billion (up 8.5 percent from May 2017). The former included the impact of a $3.6 billion rise in exported goods (including sizable gains for civilian aircraft and soybeans). The U.S. had its largest goods deficits in May with China (-$32.0 billion), the European Union (-$11.9 billion), and Japan (-$5.7 billion).

#3Factory orders grew during May, thanks to a gain in nondurable goods. New orders of manufactured goods increased 0.4 percent during the month to a seasonally adjusted $498.2 billion. This represented the Census Bureau measure’s third gain in four months, leaving new factory orders up 9.2 percent from a year earlier. Durable goods orders decreased 0.4 percent (an improvement from the 0.6 percent decline previously reported). Falling were orders for transportation goods (-1.1 percent), fabricated metals (-1.1 percent), primary metals (-0.3 percent), and computers/electronics (-0.2 percent) while machinery (+1.2 percent) and furniture orders (+1.1 percent) both increased. Nondurable goods orders grew 1.1 percent during the month. Nondefense capital goods net of aircraft—a proxy of business investment—inched up 0.3 percent. Shipments grew for the 12th time in 13 months with a 0.6 percent increase to $496.1 billion (+7.2 percent versus May 2017). Durable goods shipments gained by less than 0.1 percent while those of nondurables rose 1.1 percent. Unfilled orders grew for the sixth time in seven months (+0.5 percent to $1.161 trillion) while inventories expanded for the 19th time in 20 months (+0.2 percent to $668.4 billion)

#4Purchasing managers signal business activity expanded during June. The Institute for Supply Management’s Purchasing Managers Index (PMI) added 1.5 points to a seasonally adjusted reading of 60.2. This was the 22nd straight month in which the PMI has been above a reading of 50.0, which is indicative of an expanding manufacturing sector. Three of five PMI components improved from their May readings: supplier deliveries (up 6.2 points to 68.2), production (up 8/10ths of a point to 62.3), and inventories (up 6/10ths of a point to 50.8). The new orders and employment components each suffered small declines. Respondents from 17 of the 18 tracked manufacturing sectors reported growth during June, led by textile mills, wood products, and nonmetallic mineral products. Survey respondents expressed concerns about “employment resources and supply chains [that] continue to struggle,” and “how tariff related activity is and will continue to affect their business.”

The ISM’s measure for the nonmanufacturing sector of the economic added a half point to a seasonally adjusted 59.1. The NMI has been above the expansionary/contractionary threshold for 101 consecutive months. Only two of the NMI’s four components gained during the month: new orders (up 2.7 points to 63.2) and business activity/production (up 2.6 points to 63.9). The employment and supplier deliveries components both lost ground during June. Seventeen of 18 tracked service sector industries grew during the month, led by mining, wholesale trade, and retail. The press release reported that while survey respondents were “optimistic,” they were concerned about “tariffs, capacity constraints, and delivery.”

#5Construction spending grew in May. The Census Bureau estimates the seasonally adjusted annualized value of construction put into place increased 0.4 percent during the month to $1.309 trillion. This was 4.5 percent ahead of the year-ago rate. Private sector spending grew 0.3 percent to an annualized $1.005 trillion (+4.4 percent versus May 2017). Private sector residential construction spending expanded 0.8 percent during the month while private sector nonresidential construction spending slowed 0.3 percent (including falling activity in both the manufacturing and commercial sectors). Public sector spending was at an annualized $301.1 billion, up 0.7 percent for the month and 4.7 percent over the past year.

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 30, 2018, First-Time Claims, seasonally adjusted): 231,000 (+3,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 224,500 (-8.2% vs. the same week a year earlier).
Vehicle Sales (June 2018, Light Vehicle Sales, seasonally adjusted annualized rate): 17.47 million vehicles (+3.3% vs. May 2018, +4.6% vs. June 2017).
FOMC Meeting Minutes

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.