Economic Growth Continued, Housing Slowed a Bit. What We Learned During the Week of May 21 – 25

Home sales edged down in April. Here are the five things we learned from U.S. economic data released during the week ending May 25.

#1Sales of previously owned homes slowed in April. The National Association of Realtors reports that existing home sales declined 2.5 percent to a seasonally adjusted annualized rate of 5.46 million units. This was 1.4 percent below the year-ago sales pace. Sales failed to grow in any of the four Census regions, with declines in three of the regions: Northeast (-4.4 percent), West (-3.3 percent), and South (-2.9 percent). Over the past year, sales increased only in the South (+2.2 percent). Tight inventories remained the primary culprit, although the number of homes available for sales expanded 9.8 percent during April to 1.80 million units. This was nevertheless 6.3 percent fewer than the number of homes available for sale a year ago and translated into a mere 4.0 month supply. As a result, the median price of homes sold has risen 5.3 percent over the past year to $257,900. The press release warns that “[t]he current pace of price appreciation far above incomes is not sustainable in the long run.”

#2…As did those of new homes. Sales of new single-family homes slipped 1.5 percent during April to 662,000 on a seasonally adjusted annualized basis, per the Census Bureau. Even with April’s drop, new home sales tracked 11.6 percent ahead of its year-ago pace. Much of the decline occurred in the West, where new home sales slumped 7.9 percent during the month. Sales improved 11.1 percent in the Northeast and 0.3 percent in the South. All four Census regions enjoyed positive year-to-year new home sales gains. There were 300,000 new homes available for sale at the end of April, up 0.7 percent for the month and 12.4 percent from a year earlier. This was the equivalent to a 5.4 month supply. 

#3Economic growth appears to have been solid in April. The Chicago Fed National Activity Index (CFNAI) added two-basis points during the month to a seasonally adjusted +0.34. The CFNAI is a weighted index of 85 economic indicators adjusted such that a reading of 0.00 is indicative of the U.S. economy expanding at its historical rate. Fifty of the 85 indicators made positive contributions to the CFNAI. Among the four major categories of CFNAI components, two made positive contributions: those related to production (up eight basis points to +0.27) and employment (up six basis points to +0.10). The other two major groupings of components made smaller contributions: sales/orders/inventories (down six basis points to +0.02) and personal consumption/housing (down seven basis points to -0.05). The CFNAI’s three-month moving average rose by 23 basis points to +0.46, its best reading since last November.

#4Outside of civilian aircraft, durable goods orders rose in April. The Census Bureau reports that new orders for manufactured durable goods were at a seasonally adjusted $248.5 billion, down 1.7 percent from March. Much of the decline can be tied to the 29.0 percent drop in new orders for civilian aircraft, which had pulled down transportation goods orders 6.1 percent during the month. Net of transportation goods, new orders jumped 0.9 percent to $161.4 billion. Rising during the month were new orders for electrical equipment/appliances (+2.6 percent), fabricated metals (+2.0 percent), motor vehicles (+1.8 percent), primary metals (+1.3 percent), and computers/electronics (+1.1 percent). Durable goods shipments slipped 0.1 percent during March to $246.7 billion but jumped 1.0 percent after netting out transportation goods.

#5Consumer sentiment slightly eased in May. The University of Michigan Index of Consumer Sentiment lost 8/10ths of a point to 98.0. The same measure of consumer confidence was at 97.1 a year earlier. The current conditions index pulled back by 3.1 points to 111.8 (May 2017: 111.7) while the expectations index moved up by 7/10ths of a point to 89.1 (May 2017: 87.7). The press release stated that the survey results suggest real personal consumption will rise 2.6 percent over the next year. The Conference Board will publish its May consumer confidence survey results during the upcoming week.

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 12, 2018, First-Time Claims, seasonally adjusted): 234,000 (+11,000 vs. previous week; -3,000 vs. the same week a year earlier). 4-week moving average: 219,750 (-7.9% vs. the same week a year earlier).
FHFA House Price Index (March 2018, Purchase-Only Index, seasonally adjusted): +0.1% vs. February 2018, +6.7% vs. March 2017.
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The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.

The Unemployment Rate Drops Below 4%: April 30 – May 4

Employers continued to add workers while the unemployment rate fell to its lowest point since 2000. Here are the five things we learned from U.S. economic data released during the week ending May 4.  

#1The unemployment rate dropped to a 17.5 year low, but job creation lags a bit. The Bureau of Labor Statistics has nonfarm payrolls growing by a good, but not great 164,000 during April (seasonally adjusted), following increases of 135,000 and 324,000 in March and February. Private sector employers added 168,000 workers during the month, split by 49,000 jobs in the goods-producing side of the economy and 119,000 in the service sector. Industries adding the most workers to their payrolls during April were professionals/business services (+54,000), health care/social assistance (+29,300), manufacturing (+24,000), leisure/hospitality (+18,000), and construction (+17,000). The average workweek remained at 34.5 hours while average hourly earnings added four cents to $26.84. As a result, average weekly earnings grew by $1.38 to $925.98 (+2.8 percent versus April 2018).

Based on a separate household survey, the unemployment slipped by 2/10ths of a percentage point to 3.9 percent, its lowest point since December 2000. Taking some of the steam from this news was that 239,000 people left the labor force during the month, resulting in the labor force participation rate slipping by 1/10th of a percentage point to 62.8 percent. Falling by the same amount was the labor force participation rate for adults aged 25-54 (to 82.0 percent). The median length of unemployment jumped by 7/10ths of a week to 9.8 weeks (April 2017: 10.3 weeks). The BLS’s broadest measure of labor underutilization (the U-6 series) hit another post-recession low with a 2/10ths of a percentage point decline to 7.8 percent.Unemployment Rate 1998-2018 050418

#2The Fed stays put in May, likely to act in June. The policy statement released following this past week’s meeting of the Federal Open Market Committee (FOMC) continued to characterize economic growth as “moderate” and job gains as “strong.” Further, while household spending had “moderated,” business investment continued to grow “strongly.” Finally, core inflation measures continued to approach the Fed’s two-percent target. The FOMC voting members voted unanimously to keep the fed funds target rate between 1.5 and 1.75 percent, a rate the committee considers to be “accommodative.” The statement notes that conditions likely will “warrant further gradual increases” in its short-term interest rate target. The general consensus has the next rate hike at its June 12-13 meeting.

#3Personal spending rebounds in March. The Bureau of Economic Analysis reports that real personal consumption expenditures (PCE) rose 0.4 percent on a seasonally adjusted basis during the month following declines in both January and February. Real spending on durable goods jumped 1.1 percent while expenditures for nondurables and services each gained 0.3 percent. As prices were flat during the month, nominal PCE also grew 0.4 percent during the month. The increased spending was prompted a 0.3 percent gain in both nominal personal income and disposable income. After adjusting for inflation, real disposable income grew by 0.2 percent. Funding the difference was the 2/10ths of a percentage point drop in the savings rate to +3.1 percent. Over the past year, real PCE has increased 2.4 percent while disposable income has gained 1.7 percent.

#4Aircraft exports prompt a sharp narrowing of the trade deficit in March. Per the Census Bureau and Bureau of Economic Analysis, exports increased by $4.2 billion during the month to $208.5 billion (+8.8 percent versus March 2017) while imports slowed by $4.6 billion to $257.5 billion (+8.9 percent versus March 2017). As a result, the trade deficit contracted by 15.2 percent during the month to -$49.0 billion, which was still 9.5 percent larger than that of a year earlier. The goods deficit shrank by $7.5 billion to -$69.5 billion while the services surplus expanded by $1.3 billion to +$20.5 billion. The former was boosted by increased exports of civilian aircraft (+1.9 billion), foods/feeds (+$1.0 billion), and industrial supplies/materials (+$0.9 billion) and decreased imports of capital goods (-$3.6 billion), consumer goods (-$0.9 billion), and crude oil (-$0.5 billion). The U.S. had its biggest goods deficits with China (-$35.4 billion), the European Union (-$12.4 billion), and Mexico (-$7.0 billion).

#5Factory orders grew for the seventh time in eight months during March. The Census Bureau estimates new orders for manufactured goods increased 1.6 percent during the month to a seasonally adjusted $507.7 billion (+8.1 percent versus March 2017). Transportation goods—and, in particular, civilian aircraft—were a major reason for the increase. Net of transportation goods, factory orders increased 0.3 percent during the month and was 6.6 percent ahead of its year-ago pace. Durable goods orders jumped 2.5 percent during March while those for nondurables gained 0.5 percent. Shipments increased for the 15th time in 16 months with 0.4 percent growth to $502.8 billion. Non-transportation goods shipments gained 0.2 percent. The value of manufacturers’ unfilled orders gained 0.8 percent to $1.154 trillion (its sixth increase in seven months) while inventories expanded 0.3 percent to $677.3 billion (its 16th increase over the past 17 months). 

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 28, 2018, First-Time Claims, seasonally adjusted): 211,000 (+2,000 vs. previous week; -31,000 vs. the same week a year earlier). 4-week moving average: 221,500 (-9.3% vs. the same week a year earlier).
Productivity (Q1 2018-preliminary, Nonfarm Labor Productivity, seasonally adjusted): +0.7% vs. Q3 2017, +1.3% vs. Q1 2017).
ISM Report on Business-Manufacturing (April 2018, PMI (Index (>50=expanding manufacturing sector)), seasonally adjusted): 57.3 (-2.0 points vs. March 2018).
ISM Report on Business-Nonmanufacturing (April 2018, NMI (Index (>50=expanding service sector)), seasonally adjusted): 56.8 (-2.0 points vs. March 2018).
Construction Spending (March 2018, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.285 trillion (-1.7% vs. February 2018, +3.6% vs. March 2017).
Vehicle Sales (April 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 17.17 million units (-1.8% vs. March 2018, +0.8% vs. April 2017).
Pending Home Sales (March 2018, Index (2001=100), seasonally adjusted): 107.6 (+0.4% vs. February 2018, -3.0% vs. March 2017).

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

GDP Growth Downshifted in Q1: Week of April 23 – 27

Slower growth in consumer spending pulls back economic expansion during early 2018. Here are the five things we learned from U.S. economic data released during the week ending April 27.

#1The U.S. economic growth decelerated during Q1. The Bureau of Economic Analysis’ advance estimate of Gross Domestic Product (GDP) had the U.S. economy expanding at a seasonally adjusted annualized rate (SAAR) of +2.3 percent. While this was the 16th consecutive quarter of GDP growth, it was the most modest pace of economic expansion in a year. The biggest culprit was a slowdown in the growth rate of consumer spending, which contributed only 73-basis points to Q1 GDP growth after having added 275-basis points during the final three months of 2017. Most other GDP components made positive contributions: fixed nonresidential investment (+0.76), change in private inventories (+0.43), net exports (+0.20), and government expenditures (+0.20). The only component that did not make a positive contribution was fixed residential investment, which had made neither a positive or negative contribution. The BEA will release its estimate of Q1 GDP growth twice over the next two months.2018 Q1 GDP contributors-042718

#2Economic indicators point to the economy expanding at a slower rate in March. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic indicators, shed 88-basis points during the month to a reading of +0.10. Forty-four of the 85 economic indicators made positive contributions to the CFNAI. Only two of the four major categories of economic indicators made net positive contributions (those associated with production and sales/orders/inventories) while measures tied to employment and personal consumption/housing pulled down the headline index. Experiencing a far less significant decline was the CFNAI’s three-month moving average, losing four basis points to +0.27. A reading above 0.00 is indicators of economic growth greater than the historical average.

#3Sales of both existing and new homes increased in March. Sales of previously owned homes grew 1.1 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.60 million units, per the National Association of Realtors. This was 1.2 percent below the year-ago sales pace. Sales grew in the Northeast (+6.3 percent) and Midwest (+5.7 percent) but slowed in the West (-3.1 percent) and South (-0.4 percent). Inventories remained extraordinarily tight but improved during the month—the 1.67 million homes available for sale at the end of March was a 5.7 percent gain from the prior month but still 5.7 percent fewer than that of a year earlier and translated into a mere 3.6 month supply. The median sales price of $250,400 represented a 5.8 percent increase over the previous year. Despite the upturn in home sales activity, the press release noted the “woefully low” supply of homes that was causing prices to rise “above what some would-be buyers can afford.”

The Census Bureau estimates the seasonally adjusted annualized sales pace of new home sales was at 694,000 in March, up 4.0 percent for the month and 8.8 percent over the past year. Virtually all of the month-to-month gain occurred in the West, where new home sales surged 28.3 percent. The 301,000 new homes available for sale at the end of March matched that of February, was 13.2 percent larger than that of a year earlier and was the equivalent to a 5.2 month supply. The median sales price of new homes was $337,200 in March, up 4.8 percent from the same month a year earlier.

#4Two surveys paint slightly different (if still solid) pictures of consumer sentiment. The Conference Board’s Consumer Sentiment Index added 1.7 points during April to a seasonally adjusted 128.7 (1985=100), leaving the measure near its post-recession high achieved in February. The present conditions index added 1.5 points to 159.6 while the expectations index gained 1.9 points to 108.1. 35.2 percent of survey respondents characterized current business conditions as “good” while only 11.3 percent saw them as “bad.” Similarly, 38.1 percent of consumer perceive the availability of jobs as being “plentiful” while 15.2 percent see them as “hard to get.” The press release noted that only six percent of consumers were “expecting their incomes to decline over the coming months,” the lowest percentage saying so since December 2000.

Losing pace was the Index of Consumer Sentiment, as measured by the University of Michigan. The index shed 2.6 points during April to a seasonally adjusted 98.8 (1966Q1=100). This was a full point improvement from the preliminary April reading reported a few weeks earlier and left the measure 1.8 points ahead of its year-ago mark. The current conditions index dropped 6.3 points to 114.9 while the expectations index pulled back by 4/10ths of a point to 88.4. The press release noted the survey respondents mostly had positive opinions about the recently enacted tax reform policies but were more pessimistic about the effects of recently proposed import tariffs.

#5A surge in aircraft orders led to a jump in durable goods orders in March. The Census Bureau reports that new orders for manufactured durable goods surged 2.6 percent during the month to a seasonally adjusted $254.9 billion. This was the fourth increase in durable orders over the past five months. Civilian aircraft orders swelled 44.5 percent during March, leading to a 7.6 percent increase in overall transportation goods orders. Net of transportation goods, however, new orders were unchanged for the month. Also gaining during the month were new orders for primary metals (+1.4 percent), computer/electronic products (+1.3 percent), and electrical equipment/appliances (+0.1 percent). Falling were new orders for machinery (-1.7 percent) and nondefense capital goods net of aircraft (-0.1 percent). The latter is a proxy for business investment and has declined in three of the past four months.

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 21, 2018, First-Time Claims, seasonally adjusted): 209,000 (-24,000 vs. previous week; -43,000 vs. the same week a year earlier, and the fewest since December 1969). 4-week moving average: 229,250 (-6.0% vs. the same week a year earlier).
Case-Shiller Home Price Index (February 2018, 20-City Index, seasonally adjusted):  +0.7% vs. January 2018, +6.8% vs. February 2017.
FHFA House Price Index (February 2018, Purchase-Only Index, seasonally adjusted): +0.6% vs. January 2018, +7.2% vs. February 2017.
Agricultural Prices (March 2018, Prices Received by Farmers (Index (2011=100)): 94.9 (+4.5% vs. February 2018, +0.9%).

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