Trade Data Holds Steady in July: September 4 – 8

The trade picture barely changed during July, but the service sector perked up in August. Here are the five things we learned from U.S. economic data released during the week ending September 8.

#1The trade deficit held steady during July. The Census Bureau and Bureau of Economic Analysis tell us that exports slowed $0.6 billion to a seasonally adjusted $194.4 billion (+4.9 percent versus July 2016) and that import activity slipped by $0.4 billion to $238.4 billion (+5.1 percent versus 2016). The resulting trade deficit of $43.7 billion was up a mere $0.1 billion from June but was up 5.8 percent from a year earlier. The goods deficit was essentially unchanged at -$65.3 billion while the services surplus shrank by $0.2 billion to +$21.6 billion. While civilian aircraft exports grew by $1.1 billion, exports slowed for consumer goods and automotive vehicles. Capital goods imports increased $1.3 billion (largely of computers and associated accessories) while imports of crude oil and passenger cars both declined. The United States had its largest goods trade deficits in July with China, the European Union, Japan, and Mexico.trade deficit 2013-2017-090817

#2A slowdown in transportation goods pulled down factory orders during July. Per the Census Bureau, new orders for manufactured goods fell 3.3 percent during the month to a seasonally adjusted $466.4 billion. Transportation goods orders plummeted 19.2 percent, thanks to a 70.8 percent drop in orders for manufactured goods and a 0.9 percent decline in orders for automobiles. Net of transportation goods, core factory orders gained 0.5 percent during July to a seasonally adjusted $392.2 billion. Growing during the month were new orders for electrical equipment/appliances (+2.6 percent), computers/electronics (+2.1 percent), furniture (+1.9 percent), fabricated metal products (+0.5 percent), nondurable goods (+0.4 percent), and primary metals (+0.2 percent). Shipments grew 0.3 percent during July, with shipments of non-transportation goods increasing 0.4 percent. Unfilled orders contracted 0.3 percent while inventories expanded 0.2 percent.

#3Business activity in the service sector picked up during August. The headline index from the Institute for Supply Management’s Non-Manufacturing Report on Business grew by 1.4 points during to a seasonally adjusted reading of 55.3, regaining some of the measure’s losses from July. The NMI has been above a reading of 50.0—indicative of an expanding service sector—for 92 straight months. Three of the NMI’s four components improved during the month: business activity, new orders, and employment. The component for supplier deliveries declined during the month. Fifteen of 18 tracked service sector industries reported growth during the month, led by retail, information, and management of companies/support services. The press released noted that a “majority of respondents are optimistic about business conditions going forward.”

#4Q2 productivity growth was a bit better than previously believed. The Bureau of Labor Statistics upwardly revised its estimate of nonfarm business sector productivity growth from the 0.9 percent gain reported a month ago to a 1.5 percent increase, with output growing 4.0 percent and the number of hours worked rising 2.5 percent. Productivity gains have varied greatly quarter-to-quarter and, as a result, output per hour worked has increased by only 1.3 percent over the past year. Manufacturing sector productivity rose 2.9 percent during the quarter (up from the 2.5 percent previously reported), led by a 3.8 percent bump in output per hour for durable goods (this was unchanged from the initial estimate released a month ago). Nondurable goods production increased 0.5 percent during Q2, an improvement from the original estimate of a 0.1 percent contraction.

#5Hurricane Harvey led to a surge in jobless claims during the final days of August. The Department of Labor estimates that there were a seasonally adjusted 298,000 first time claims made for unemployment insurance benefits during the week ending September 2. This was up 62,000 from the previous week and 41,000 claims from the same week a year earlier. The state of Texas—site of Harvey’s prolonged landfall—suffered from 63,742 first time claims, up a sharp 51,637 claims from the previous week. The state with the second largest biggest week-to-week increase in first-time claims was Michigan, which saw its first-time claims count grow by a mere 3,283. The boost in unemployment resulting from Harvey is expected to be fleeting, but of course, Hurricane Irma will have similar (if also likely temporary) negative impact on the labor market over the coming weeks. Even with the surge in first-time claims, the four-week moving average of first-time claims of 250,250 was still down 3.6 percent from the moving average of the same week a year earlier.

Other U.S. economic data released over the past week:
Consumer Credit (July 2017, Outstanding Consumer Credit Balances-net of real-estate backed loans, seasonally adjusted): $3.754 trillion (+$18.5 billion vs. June 2017, +5.9% vs. July 2016).
Wholesale Inventories (July 2017, Inventories of Merchant Wholesalers, seasonally adjusted): $602.4 billion (+0.6% vs. June 2017, +3.3% vs. July 2016).
Beige Book

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

Job Creation and Wage Growth Slowed in August: August 28 – September 1

Manufacturing and construction sectors were responsible for more than a third of August’s net job creation. Here are the five things we learned from U.S. economic data released during the week ending September 1.  

#1Employers added fewer workers during August while wage growth momentum sputtered. Nonfarm payrolls expanded by 156,000 workers during the month following gains of 189,000 and 210,000 during July and June, respectively. The number of jobs created during August reported by the Bureau of Labor Statistics was below the average monthly job gains over the past year of 174,750. The private sector added 165,000 jobs during the month, split between 70,000 in the goods producing side of the economy and 95,000 in the service sector. Industries adding the most workers during the month were professional/business services (+40,000 jobs), manufacturing (+36,000, including 13,700 in motor vehicle manufacturing), construction (+28,000), and health care/social assistance (+16,600). The average work week totaled 34.4 hours, off 1/10th of an hour from July but 1/10th of an hour from a year earlier. Average hourly earnings grew by a mere three cents during the month to $26.39 (+2.5 percent versus August 2016). Average weekly earnings of $907.82 was off $1.60 from July but remained percent above a year ago levels.

A separate survey of households has the unemployment rate edging up 1/10th of a percentage point to a still low 4.4 percent. A year earlier, the unemployment rate was 4.9 percent. 77,000 people entered the labor force during the month, leaving the labor force participation rate at 62.9 percent (August 2016: 62.8 percent). The median length of unemployment slipped by 1/10th of a week to 10.5 weeks (August 2016: 10.9 weeks) while the count of “involuntary” part-time workers–these are part-timers seeking a full-time job–shrank by 27,000 to 5.255 million (August 2016: 6.027 million). Finally, the BLS’s broadest measure of labor underutilization (U-6 series) held firm during the month at 8.6 percent. A year earlier, the same measure was at 9.7 percent.Job Creation, Unemployment Rate 2011-2017-090117

#2The U.S. economy expanded more quickly than previously believed during Q2. The Bureau of Economic Analysis raised its estimate of second quarter 2017 annualized growth in the Gross Domestic Product (GDP) from a 2.7 percent gain, as reported a month ago, to a 3.0 percent increase. This represents the fastest pace of economic growth since Q2 2015. The upward revision was the product of higher than previously believed levels of consumption and nonresidential fixed investment (although government expenditures were lower than previously thought). By far the biggest contributor to Q2’s economic expansion was personal consumption expenditures, which added 228 basis points to the quarter’s GDP growth. Also adding to GDP growth were nonresidential fixed investment (adding 85 basis points), exports (adding 45 basis points), federal government spending (adding 13 basis points) and the change in private inventories (adding two basis points). Drags on Q2 economic growth were fixed residential investment (costing 26-basis points in growth), imports (costing 23 basis points), and state/local government spending (costing 18 basis points). Corporate profits (with inventory valuation and capital consumption adjustments) grew 1.3 percent during the quarter to a seasonally adjusted annualized rate of $2.136 trillion. This had followed a 2.1 percent drop during Q1 and was up 7.0 percent from the same quarter a year earlier.

#3Personal spending grew at a moderate pace in July. The Bureau of Economic Analysis estimates real personal consumption expenditures (PCE) grew 0.2 percent on a seasonally adjusted basis, matching June’s gain but slower than May’s 0.3 percent increase. Consumers increased their real spending on goods by 0.4 percent and that on services by 0.2 percent. The former was split by a 0.8 percent spending increase on durable goods and a 0.3 percent bump in nondurables spending. Over the past year, real PCE has increased 2.7 percent, split between gains for goods and services spending of 3.6 percent and 2.3 percent, respectively. Without adjustments for inflation, nominal PCE grew 0.3 percent, supported by a 0.4 percent increase in nominal personal income and a 0.3 percent gain in nominal disposable personal income. Real personal income increased 0.2 percent during July after having been unchanged in June. Real disposable income has grown by 1.3 percent over the past year. The savings rate slipped by 1/10th of a percentage point to +3.5 percent.

#4Purchasing managers report higher manufacturing sector activity in August. The PMI from the Institute for Supply Management increased by 2.5 points during the month to a seasonally adjusted reading of 58.8. This was the 12th straight month in which the measure was above a reading of 50.0 (indicative of an expanding manufacturing sector) and its highest reading since April 2011. Four of the five components of the PMI improved during the month: inventories (up 5.5 points to 55.5), employment (up 4.7 points to 59.9), supplier deliveries (up 1.7 points to 57.1), and production (up 4/10ths of a point to 61.0). The new orders index slipped by 1/10th of a point to 60.3. Fourteen of 18 tracked manufacturing industries expanded during the month, led by textiles, petroleum/coal products, and machinery. The press release said that survey respondents’ comments had reflected “expanding business conditions.”

#5Consumers grew more confident during August. The Conference Board’s Consumer Confidence Index added 2.9 points during the month to seasonally adjusted 122.9. This was the index’s second straight monthly increase and its best reading since March (which had been its 16-year high). Indices for present and expected business conditions both grew during the month: the former up 5.8 points to 151.2 and the latter increasing by a full point to 104.0. 34.5 percent of survey respondents described current economic conditions as “good” while 13.1 percent said that they were “bad.” Looking towards the future, 22.4 percent of consumer expect business conditions will improve over the next six months while 7.3 percent anticipate conditions will deteriorate. The press release said the data suggest consumers “do not anticipate an acceleration in the pace of economic activity in the months ahead.”

The Index of Consumer Sentiment from the University of Michigan grew by 3.4 points during August to a seasonally adjusted 96.8. This placed the index seven full points above its year ago reading. The increase in the headline index resulted largely from the 7.2 point gain in the Index of Consumer Expectations (+9.0 points versus August 2016). The Current Economic Conditions index shed 2.5 points to 110.9 (+3.9 points versus August 2016). The press release notes that the headline index “has been higher during the first eight months of 2017 than in any year since 2000, which was the peak year of the longest expansion in U.S. history.” The press release also stated that current news events are not weighing significantly on sentiment as “surprisingly few consumers made any reference to Charlottesville, North Korea or Harvey—although the ultimate extent of the damage from Harvey was unknown at the time of the last interviews.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 26, 2017, First-Time Claims, seasonally adjusted): 236,000 (+1,000 vs. previous week; -24,000 vs. the same week a year earlier). 4-week moving average: 236,750 (-9.3% vs. the same week a year earlier).
Construction Spending (July 2017, Value of Construction Put into Place, seasonally adjusted annualized rate): $1.212 trillion, (-0.6% vs. June 2017, +1.8% vs. July 2016).
Vehicle Sales (August 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.14 million units (-3.7% vs. July 2017, -6.3% vs. August 2016).
Agricultural Prices (July 2017, Prices Received by Farmers (Index (2011=100)), seasonally adjusted): 95.3 (-2.9% vs. June 2017, +5.3% vs. July 2016).

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

Inventories and Prices Impair Home Sales: August 21 – 25

Tight inventories were hampering home sales in July. Here are the five things we learned from U.S. economic data released during the week ending August 25.

#1Existing home sales slipped in July as inventories remained tight. The National Association of Realtors tells us that existing home sales slowed 1.3 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.44 million units. This was 2.1 percent above the annualized sales rate of a year earlier. Sales grew during July in two Census regions—West (+5.0 percent) and South (+2.2 percent)—but fell in both the Northeast (-14.5 percent) and Midwest (-5.3 percent). Two regions also have positive 12-month sales comparables: West (+5.0 percent) and South (+3.6 percent). Inventories of unsold homes remained very tight, with only 1.92 million homes available for sale at the end of July. This was down 1.0 percent from June, 9.0 percent from a year earlier, and the equivalent to a mere 4.2 month supply. NAR’s press release notes that “the negative effect of not enough inventory to choose from and its pressure on overall affordability [have] put the brakes on what should’ve been a higher sales pace.”Existing and New Home Sales July17-082517.png

#2New home sales also dropped during July. Per the Census Bureau, sales of new single-family homes were at a seasonally adjusted annualized rate (SAAR) of 571,000 units. This was down 9.4 percent from June and off 8.9 percent from the same month a year earlier. Sales fell in three in four Census regions: Northeast (-23.8 percent), West (-21.3 percent), and South (-4.1 percent). New home sales increased 6.2 percent in the Midwest. Similarly, three of four Census regions have experienced year-to-year sales declines, including the Northeast (-13.5 percent), Midwest (-12.7 percent), and South (-11.7 percent). New home sales were 1.7 percent above their July 2016 rate. Inventories of new homes grew 1.5 percent to a seasonally adjusted 276,000 units. This translated into a 5.8 month supply of new homes on the market. As a result, the median sales price of new homes sold during the month—$313,700—was 6.3 percent above that of a year earlier.

#3The pace of economic expansion slowed during July. The Chicago Fed National Activity Index (CFNAI) shed 17-basis points during the month to slip to a negative -0.01 reading. This was the third time over the past five months in which the CFNAI was negative, indicative of the U.S. economy growing slower than its historical average. The CFNAI is a weighted average of 85 economic measures. During July, 42 of the measures made a positive contribution to the CFNAI during July. Among the four broad categories of economic measures, only those related to employment made a positive contribution (adding nine basis points to the index). Weighing on the index were components associated with consumption/housing (costing six basis points), production (costing two basis points), and sales/orders/inventories (costing a basis point). The CFNAI’s three-month moving average, with smooths some of the month-to-month volatility in the index, lost 14-basis points during the month to -0.05. This was the moving average’s lowest reading since March.

#4A sharp decline in airplane orders weighed heavily on durable goods orders in July. New orders for manufactured durable goods slumped 6.8 percent to a seasonally adjusted $229.2 billion, according to the Census Bureau. This was the largest decline in durable goods orders in almost three years. The drop was partially the product of new orders for civilian aircraft tumbling 70.7 percent (note that aircraft order data tend to be very volatile month-to-month), contributing to 19.0 percent decrease in transportation goods orders (also not helping was a 1.2 percent fall in new orders for motor vehicles). Net of transportation goods, new durable goods orders gained 0.5 percent to $154.8 billion. Rising during the month were orders for electrical equipment/appliances (+2.6 percent), computers/electronics (+1.6 percent), and fabricated metal products (+1.0 percent). New orders fell, however, for machinery (-1.4 percent). A proxy for core business investment—civilian non-aircraft capital goods orders—gained 0.4 percent. Shipments grew for a third straight month (+0.4 percent), unfilled order lost ground for the third time in four months (-0.3 percent), and inventories expanded for the 12th time in 13 months (+0.3 percent).

#5Home prices continue to rise far more quickly than the general rate of inflation. The Federal Housing Finance Agency’s purchase-only Home Price Index edged up 0.1 percent during June and has risen by 6.5 percent over the past year. The measure of prices of homes that have been purchased at least twice (hence a repeat purchase index) gained in five of nine Census regions during the month, led by the East South Central (+1.3 percent) and Pacific (+0.7 percent) regions. Prices held firm in the Middle Atlantic but fell in three regions: West South Central (-0.5 percent), South Atlantic (-0.2 percent), and East North Central (-0.1 percent). All nine Census regions have positive 12-month comparables, with prices growing by the largest percentage over the past year in the Pacific (+9.8 percent), Mountain (+7.9 percent), East South Central (+7.1 percent) regions.

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 19, 2017, First-Time Claims, seasonally adjusted): 234,000 (+2,000 vs. previous week; -26,000 vs. the same week a year earlier). 4-week moving average: 237,750 (-9.4% vs. the same week a year earlier).
Mortgage Delinquencies (2017 Q2, Delinquency Rate of Outstanding Mortgages, seasonally adjusted): 4.24% (vs. 2017Q1: 4.71%, vs. 2016Q2: 4.66%).
Temporary and Contract Workers (2017Q2, Average Number of Temporary and Contract Workers per week): 3.13 million workers (+1.9% vs. 2017Q1, -1.4% vs. 2016Q2).

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