The U.S. Economy Expanded During the Summer, Held Firm in September: October 23 – 27

GDP enjoyed a second consecutive quarter of robust growth during the summer. Here are the five things we learned from U.S. economic data released during the week ending October 27.  

#1The U.S. economy expanded solidly during Q3. The Gross Domestic Product (GDP) grew a seasonally adjusted annualized rate (SAAR) of 3.0 percent during the months of July, August, and September. This follows the Bureau of Economic Analysis’ estimate of GDP growing 3.1 percent during Q2, marking the two best consecutive quarters of economic growth since the second and third quarters of 2014. Positive contributors to Q3 economic growth were consumption (adding 162-basis points to GDP growth), the change in private inventory accumulation (+73-basis points), business fixed investment (+49-basis points), exports (+28-basis points), imports (+12-basis points), and federal government expenditures (+8-basis points). Dragging down Q3 GDP growth were residential fixed investment (cost 24-basis points in GDP growth) and state/local government expenditures (-9-basis points). The BEA report did not contain any comment on whether the recent hurricanes had hindered overall economic growth. The BEA will revise its estimate of Q3 GDP growth twice over the next two months.GDP Growth 2010-2017 102717

#2Economic activity appears to have improved in September. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic indicators, jumped by 54-basis points to a reading of +0.17. (A reading of 0.00 would have indicated economic growth at the historical average.) This was the measure’s best reading since June. Fifty-four of the CFNAI’s components improved from the August’ readings, with all four major categories of components advancing during the month. Among the big 4 categories, the largest surge came from those related to production with its contribution to CFNAI rising from -0.33 in August to +0.10 in September. Much smaller improvements came with components related to employment (up five-basis points to +0.06), personal consumption/housing (up four-basis points to -0.07), and sales/orders/inventories (up a basis point to +0.07). The CFNAI’s three-month moving average—which smooths out some of the month-to-month volatility in the index—held steady at a reading of -0.16.

#3Durable goods orders grew in September. The Census Bureau tells us that new orders for manufactured durable goods blossomed 2.2 percent during the month to a seasonally adjusted $238.7 billion. Some of the gain comes from a sharp 31.5 percent increase in new orders for civilian aircraft. Transportation goods gained 5.1 percent for the month, also reflecting smaller increased orders for defense aircraft (+0.7 percent) and motor vehicles (+0.1 percent). Net of transportation goods, core durable goods orders increased 0.7 percent during September, matching its August gain and just below its July increase of 0.8 percent. Rising during the month were new orders for communications equipment (+4.8 percent) and fabricated metal products (+1.7 percent). New orders fell for computers/related products (-5.5 percent), machinery (-0.2 percent), and primary metals (-0.1 percent). Durable goods shipments grew for the fourth time in five months with a 1.0 percent bounce to $240.5 billion. Net of transportation goods, durable goods shipments increased 1.2 percent. Growing for the first time in three months was the value of unfilled orders (+0.2 percent) while durable goods orders inventories expanded for the 14th time in fifteen months (+0.5 percent).

#4New home sales jumped during September. Per the Census Bureau, new home sales rose 18.9 percent during the month to a seasonally adjusted annualized rate (SAAR) of 667,000 units. This was the fastest pace of new home sales since right before the start of the last recession in October 2007. Sales jumped by double-digit percentages in three of four Census regions: Northeast (+33.3 percent), South (+25.8 percent), and Midwest (+10.6 percent). Sales grew by a more modest 2.9 percent in the West. New home sales were 17.0 percent above their September 2016 pace. There were 279,000 new homes available for sale at the end of September, matching the count from the prior month but up 15.3 percent from a year earlier. This translated into a 5.0-month supply (its lowest point since March). 

#5Consumer sentiment surged to a 17 year high in October. The University of Michigan’s Index of Consumer jumped 5.6 points during the month to a seasonally adjusted 100.7. This was up 13.5 points from the same month a year earlier and the measure’s best reading since November 2000. Indices for both current and expectations both rose from their September mark, with the former up 4.8 points to 116.5 and the latter adding 6.1 points to 90.5. The current conditions index has not been this high since May 2000 while the expectations index hit its best reading since January 2015. The press statement noted that more than half of survey respondents “expected good times during the year ahead and anticipated the expansion to continue uninterrupted over the next five years.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 21, 2017, First-Time Claims, seasonally adjusted): 233,000 (+10,000 vs. previous week; -22,000 vs. the same week a year earlier). 4-week moving average: 239,500 (-5.0% vs. the same week a year earlier).
Pending Home Sales (September 2017, Index (2001=100), seasonally adjusted): 106.0 (unchanged vs. August 2017; -3.5% vs. September 2016).
FHFA House Price (August 2017, Purchase-Only Index, seasonally adjusted): +0.7% vs. July 2017; +6.6% vs. August 2016).

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

The Labor Market’s 7-Year Winning Streak Ended Last Month: October 2 – 6.

Employment in leisure & hospitality and in retail fell after the recent hurricanes. Here are the five things we learned from U.S. economic data released during the week ending October 6.  

#1Hurricanes Harvey and Irma weighed heavily on September employment data. For the first time since September 2010, nonfarm payrolls contracted during the month, shrinking by a seasonally adjusted 33,000 jobs. The Bureau of Labor Statistics’ report points out that both hurricanes detrimentally impacted nonfarm payrolls based on its survey of establishment employment during the week that includes September 12 (note that hurricane Irma made landfall in Florida on September 10). The consensus view is that the payroll hit is likely to be fleeting. Private sector employment contracted by 40,000 jobs, with an increase of 9,000 on the goods-producing side of the economy and a decline of 49,000 in the service sector. Taking a particularly large hit was leisure/hospitality, where payrolls shrank by 111,000. Also shedding jobs were information (-9,000) and retail (-2,900). Adding workers were transportation/warehousing (+21,800), health care/social assistance (+13,100), professional/business services (+13,000), and financial activities (+10,000). The average hours worked held steady at 34.4 hours while average hourly earnings increased by 12 cents to $26.55 (September 2016: $25.81). Average weekly earnings have grown 2.9 percent over the past year.

The separate survey of households saw the unemployment rate the unemployment rate drop by 2/10ths of a percentage point to a seasonally adjusted 4.2 percent. This was the measure’s lowest point since February 2000 (although these numbers may be affected by data collection issues in storm-affected areas). The median length of unemployment slipped by 2/10ths of a week to 10.3 weeks (matching its year-ago mark) while the count of part-time workers seeking a full-time opportunity fell to another post-recession low at 5.122 million (September 2016: 5.874 million). Finally, the broadest measure labor underutilization reported by the BLS (the U-6 series) shed 3/10ths of a percentage point to 8.3 percent. The last time the U-6 series was this low was June 2007. Do not be surprised to see many of the numbers in this report be subject to unusually large revisions in the coming months with improved data collection.labor underutilization 2005-17 100717

#2The trade deficit narrowed slightly during August. The Census Bureau and the Bureau of Economic Analysis indicate that exports grew by $0.8 billion during the month to a seasonally adjusted $195.3 billion (+4.2 percent versus August 2016) while imports slowed $0.4 billion to $237.7 billion (+4.0 percent versus August 2016). The resulting difference of -$42.4 billion was the smallest trade deficit since last September. The three-month moving average for the trade deficit—$43.2 billion—was at its lowest point since last November but was up 2.6 percent from the same time a year ago. The goods deficit contracted by $0.9 billion during August to -$64.4 billion while the goods surplus expanded by $0.3 billion to +$22.0 billion. Taking a closer at the former finds goods exports growing by $0.6 billion, with increased exports of consumer goods (including pharmaceuticals) and telecommunication equipment and a decline in exports of fuel oil and foods/beverages. Imports of goods slowed by $0.4 billion, with declining imports of industrial suppliers/materials and capital goods. Vehicle imports grew by $0.5 billion. The U.S. had its largest goods trade deficits with China (-$29.7 billion), the European Union (-$10.9 billion), Japan (-$6.3 billion), and Mexico (-$5.8 billion).

#3Purchasing managers report increased business activity during September. The Institute for Supply Management says that its Purchasing Managers Index (PMI) added a full two points during the month to a reading of 60.8. This was the 13th straight month in which the index was above a reading of 50.0—indicative of an expanding manufacturing sector—and the measure’s highest reading since May 2004. Four of five PMI components improved during the month: supplier deliveries (up 7.3 points to 64.4), new orders (up 4.3 points to 64.6), production (up 1.2 points to 62.2), and employment (up 4/10ths of a point to 60.3). The index for inventories shed three full points to 52.5. Seventeen of 18 tracked manufacturing industries expanded during the month, led by textile mills, machinery, and nonmetallic mineral products. The press release noted that respondents’ comments “reflect expanding business conditions” and that the recent hurricanes had affected supply chain prices.

The ISM’s headline measure for the service sector stayed above a reading of 50.0 for a 93rd consecutive month. The NMI surged by 4.5 points during September to a seasonally adjusted 59.8. All four index components improved from their August readings: supplier deliveries (up 7.5 points to 58.0), new orders (up 5.9 points to 63.0), business activity/production (up 3.8 points to 61.3), and employment (up 6/10ths of a point to 56.8). Fifteen of 18 tracked nonmanufacturing segments of the economy expanded during September, led by retail trade, management/support services of companies, and information. The press release reported that survey respondents’ comments “indicate a good outlook for business conditions” even with “the impact on the supply chain from the recent hurricanes.”

#4Factory orders grew in August. The Census Bureau reports that new orders for manufactured goods grew 1.2 percent during the month to a seasonally adjusted $471.7 billion. As noted here last week, orders for civilian aircraft rebounded from July’s huge drop with a 44.8 percent surge. This led to a 5.1 percent overall gain in transportation goods (new orders for automobiles increased 0.7 percent). Net of transportation goods, new orders grew 0.4 percent during the month. Durable goods orders jumped 2.0 percent during August while those for nondurable gained 0.4 percent. Civilian, non-aircraft capital goods orders—a proxy for business investment—increased 1.1 percent during the month. Shipments grew for the eighth time in nine months with a 1.2 percent bump to $471.7 billion. Net of transportation goods, shipments gained 0.6 percent. Unfilled orders edged up by less than 0.1 percent to $1.133 trillion while inventories expanded for the ninth time in ten months with a 0.4 percent increase.

#5Construction spending grew in August. Per the Census Bureau, the value of construction put into place increased 0.5 percent during the month to a seasonally adjusted annualized rate (SAAR) of $1.218 trillion. This was 2.5 percent above the annualized rate of construction spending from a year earlier. Private sector construction spending grew 0.4 percent during August to a SAAR of $954.8 billion (+4.7 percent vs. August 2016). Private sector residential construction gained 0.4 percent, with gains of 0.3 percent and 0.9 percent for new-single and multi-family homes, respectively. Private sector nonresidential spending rose 0.5 percent, with increases across most categories of construction (manufacturing and communication being the exceptions). Public sector construction spending jumped 0.7 percent during the month to a SAAR of $263.5 billion, which was nevertheless 5.1 percent below its year-ago spending pace. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 30, 2017, First-Time Claims, seasonally adjusted): 260,000 (-12,000 vs. previous week; +13,000 vs. the same week a year earlier). 4-week moving average: 268,250 (+6.2% vs. the same week a year earlier).
Vehicle Sales (September 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 18.57 million units (+15.1% vs. August 2017, +4.8% vs. September 2016).
Wholesale Inventories (August 2017, Merchant Wholesale Inventories, seasonally adjusted): $608.1 billion (+0.9% vs. July 2017, +4.5% vs. August 2016).
Consumer Credit (August 2017, Outstanding Non-Real Estate Backed Consumer Loans, seasonally adjusted): $3.766 trillion (+$13.1 billion vs. July 2017; +5.5% vs. August 2016).

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

Economic Activity Eased During the End of Summer: September 25 – 29

Personal spending and overall economic activity both slowed in August. Here are the five things we learned from U.S. economic data released during the week ending September 29.

#1Personal spending paused in August. “Real” personal consumption expenditures (PCE) slipped 0.1 percent on a seasonally adjusted basis during the month, the first monthly decline in the inflation-adjusted measure of consumer spending since January. Real spending on goods fell 0.5 percent (also its largest drop since January), as spending on durable goods dropped 1.0 percent while that on nondurables slowed 0.2 percent. Real spending on services edged up 0.1 percent. Over the past year, real PCE has grown 2.5 percent, with 12-month comparables of +3.1 percent and +2.2 percent for spending on goods and services, respectively. The same Bureau of Economic Analysis report finds nominal (not adjusted for inflation) personal income had increased 0.2 percent during August while nominal disposable income grew 0.1 percent and real disposable income slipped 0.1 percent. Real disposable income has risen 1.2 percent over the past year. The personal saving rate was at +3.6 percent, matching July’s rate. The report’s closely watched measure of inflation—the PCE deflator—grew 0.2 percent during the month and had increased 1.2 percent over the past year. Net of energy and food, the core PCE deflator inched up 0.1 percent during the month and had risen 1.3 percent since August 2016. Both 12-month comparables were well below the Federal Reserve’s two-percent interest rate target.Change in Personal Consumption Expenditures 2016-7 092917

#2There was another small upward revision to Q2 economic growth. The Bureau of Economic Analysis upgraded its estimate of second-quarter 2017 growth in the Gross Domestic Product (GDP) from a 3.0 percent seasonally adjusted annualized gain to a 3.1 percent increase (the original Q3 estimate had a 2.6 percent increase). The small upward revision was the result of higher than previously believed levels of private sector inventory accumulation. This was the fastest month of economic growth since the first quarter of 2015. Positive contributors to Q3 GDP growth were personal consumption expenditures (PCE, adding 224-basis points to GDP growth), nonresidential fixed investment (+54 basis points), exports (+21-basis points), federal government spending (+13-basis points), and the change in private inventories (+12-basis points). Dragging down GDP growth were fixed residential investment (housing, costing 30-basis points in GDP growth), imports (-22-basis points), and state/local government expenditures (-16-basis points). Corporate profits from current production edged up 0.7 percent during the quarter to a SAAR of $2.123 trillion.

#3However, economic data suggest economic growth slowed in August. The Chicago Fed National Activity Index (CFNAI) fell by 34-basis points to a reading of -0.31. The CFNAI is a weighted index of 85 economic measures indexed so that a reading of 0.00 would be indicative of economic growth at the historical average. Hence, August’s reading is consistent with below average economic activity. This was the CFNAI’s lowest reading since May 2016. Only 35 of the 85 index components made a positive contribution to the CFNAI, but 45 components improved from their July’s readings. Among the four broad categories of components, two made negative contributions to the CFNAI: those associated with production (-0.36 contribution) and personal consumption/housing (-0.06). Boosting the CFNAI were components tied to sales/orders/inventories (+0.06) and employment (+0.05). The CFNAI’s three-month moving average was negative for the first time since March as it shed four-basis points to a reading of -0.04.

#4Consumer sentiment chilled in the autumn air of September. The Conference Board Consumer Confidence Index inched back 6/10ths of a point to a seasonally adjusted reading of 119.8 (1985=100). The index of current conditions fell back by 2.3 points to 146.1 while the expectations index added a half point to 102.2. A slightly smaller percentage of survey respondents characterized current business conditions as being “good” (33.9 percent, off 6/10th of a percentage point) while a few more said that they were “bad” (up 6/10ths of a percentage point to 13.8 percent). Twice as many respondents expected business conditions would improve over the next six months than believe they will deteriorate (19.8 percent versus 9.9 percent). The press release noted that sentiment weakened in both hurricane impacted Texas and Florida, but also that the overall results indicate “the economy will continue expanding at its current pace.”

The Index of Consumer Sentiment from the University of Michigan lost 1.7 points to a seasonally adjusted reading of 95.1 (1966Q1=100). Whereas the measure remained 3.9 points above its September 2016 reading, it has stayed within a tight four-point range since February. The current conditions index added 8/10ths of a point to 111.7 (September 2016: 104.2) while the expectations index shed 3.3 points to 84.4 (September 2016: 82.7). The press release stated that confidence has remained resilient despite “a long list of issues that could have derailed the overall level of consumer confidence, including the unprecedented partisan divide, North Korea, Charlottesville, and the hurricanes.” The release also noted that the results were consistent with consumer spending growing “2.6% in 2017 and in the 1st half of 2018.”

#5Durable goods orders rebounded in August. The Census Bureau estimates new orders for manufactured durable goods grew 1.7 percent during the month to a seasonally adjusted $232.8 billion. Nearly every month, the headline number is heavily influenced by transportation goods orders (and, specifically, aircraft orders), which tend to be quite volatile month-to-month. New orders for civilian aircraft surged 44.8 percent, leading to a 4.9 percent overall gain in transportation goods (new orders for automobiles increased 1.5 percent). Net of transportation goods, new orders grew 0.2 percent during the month, which included gains for communications equipment (+4.0 percent), machinery (+0.3 percent), primary metals (+0.3 percent). On the flipside, orders fell for computers (-1.3 percent), fabricated metal products (-0.4 percent), and electrical equipment/appliances (-0.1 percent). New orders for non-defense durable goods gained 2.2 percent during August while those of non-defense, non-aircraft capital goods (a proxy for business investment) rose 0.4 percent. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 23, 2017, First-Time Claims, seasonally adjusted): 272,000 (+12,000 vs. previous week; +19,000 vs. the same week a year earlier). 4-week moving average: 277,750 (+8.9% vs. the same week a year earlier).
New Home Sales (August 2017, New Residential Sales, seasonally adjusted annualized rate): 560,000 (-3.4% vs. July 2017, -1.2% vs. August 2016).
Pending Home Sales (August 2017, Index (2001=100), seasonally adjusted): 106.3 (-2.6% vs. July 2017, -2.6% vs. August 2016).
Agricultural Prices (August 2017, Prices Received by Farmers (Index: 2011=100)): 93.4 (-2.0% vs. July 2017, +4.1% vs. August 2016).

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