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.

Job Creation, Consumer Spending Rise: May 28 – June 1

The labor market continued to chug along this spring. Here are the five things we learned from U.S. economic data released during the week ending June 1.

#1Job creation accelerated while the unemployment rate fell to another post-recession low in May. The Bureau of Labor Statistics reports that nonfarm payrolls expanded by a seasonally adjusted 223,000 jobs during the month, its largest single-month increase in three months and its 92 consecutive monthly gain. Public sector employers added 218,000 workers to their payrolls during the month while public sector payrolls expanded by 5,000. Industries adding the most jobs during May were health care/social assistance (+31,700), retail (+31,100), construction (+25,000), leisure/hospitality (+21,000), transportation/warehousing (+18,700), and manufacturing (+18,000). The average workweek held steady at 34.5 hours (May 2017: 34.4 hours) while the average for weekly earnings of $928.74 represented a 3.0 percent increase from that of a year earlier.

Nonfarm Payrolls 2014-2018-060118

Based on a separate survey of households, the unemployment rate slipped by 1/10th of a percentage point to 3.8 percent. The unemployment rate has not been this low since April 2000. The size of the labor force grew by a mere 12,000 while the labor force participation rate dropped by 1/10th of a percentage point to 62.7 percent (near its lowest reading in 40+ years). The labor force participation rate of adults aged 25-54 also declined by 1/10th of a percentage point to 81.9 percent. The typical length of unemployment was 9.2 weeks, down from 9.8 weeks in April and 10.4 weeks a year earlier. The broadest measure of labor underutilization—the U-6 series—shrank by 2/10ths of a percentage point to 7.6 percent. The same measure was at 8.4 percent a year earlier.

#2GDP growth slightly less robust during Q1 than previously thought. The Bureau of Economic Analysis estimates the Gross Domestic Product (GDP) for the first three months of 2018 was at $19.957 trillion on a seasonally adjusted annualized rate (SAAR). After adjusted for inflation, real GDP grew 2.2 percent (SAAR) during Q1, just below the 2.3 percent increase reported a month earlier and under the 2.9 percent growth rate achieved during the final three months of 2017. The biggest positive contributors to Q1 GDP growth were (in descending order) nonresidential fixed investment (adding 105-basis points to GDP growth), personal spending (+71-basis points), government expenditures (+20-basis points), change in private inventories (+13-basis points), and net exports (+8-basis points). Residential fixed investment cost eight-basis point of GDP growth during the quarter. Corporate profits slipped 0.6 percent during Q1 but were 4.3 percent ahead of that from Q1 2017. The BEA will revise its Q1 GDP estimate again later this month.

#3Personal spending rose for a second straight month in April. Real personal consumption expenditures (PCE) grew 0.4 percent on a seasonally adjusted basis following a 0.5 percent bump in March. The Bureau of Economic Analysis reports that spending on goods and services each gained 0.4 percent, with the increases for the former split by +0.3 percent and +0.4 percent for durable and nondurable goods, respectively. The increase in spending outpaced the 0.2 percent gain in real disposable income. Funding the difference was a contraction in the savings rate (down 2/10ths of a percentage point +2.8 percent). Over the past year, real PCE has grown 2.7 percent while real disposable income has expanded 1.9 percent. The same report finds inflation—as measured by the PCE deflator—growing 0.2 percent during April and rising 2.0 percent over the past year. The same comparbles for the core deflator (which removes both energy and food) were +0.2 percent and +1.8 percent, respectively.

#4Purchasing and supply executives report manufacturing activity accelerated in May. The Institute for Supply Management’s Purchasing Managers Index (PMI) added 1.4 points during the month to a seasonally adjusted reading of 58.7. This was the 21st straight month in which the PMI was above a reading of 50.0, indicating an expanding manufacturing sector. Four of five components of the index improved from their April readings: production (up 4.3 points to 61.5), new orders (up 2.5 points to 61.2), employment (up 2.1 points to 56.3), and supplier deliveries (up 9/10ths of a point to 62.0). The inventories index lost 2.7 points to 50.2. Sixteen of 18 tracked manufacturing sectors expanded during the month, led by textiles, nonmetallic mineral productions, and electrical equipment. The press release noted that survey respondents indicated that demand was “robust” but that tightness in both the labor market and supply chain are weighing on activity.

#5The private sector drove April construction spending. The Census Bureau places the seasonally adjusted annualized rate (SAAR) of construction put in place at $1.310 trillion, up 1.8 percent for the month and 7.6 percent from a year earlier. Private sector construction spending rose 2.8 percent to an annualized $1.014 trillion (+7.6 percent versus April 2017). Private sector residential construction spending jumped 4.5 percent, even though single-family home construction was flat during the month. Nonresidential spending increased 0.8 percent during April. Public sector construction spending slowed 1.3 percent during the month to an annualized $296.1 billion. Even with the decline, public sector spending has grown 7.7 percent over the past year. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 26, 2018, First-Time Claims, seasonally adjusted): 221,000 (-13,000 vs. previous week; -32,000 vs. the same week a year earlier). 4-week moving average: 222.250 (-7.9% vs. the same week a year earlier).
Vehicle Sales (May 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.91 million units (-1.5% vs. April 2018, +0.7% vs. May 2017).
Conference Board Consumer Confidence (May 2018, Index (1985=100), seasonally adjusted): 128.0 (vs. April 2018: 125.6).
Pending Home Sales (April 2018, Index (2001=100), seasonally adjusted): 106.4 (vs. March 2018 = 107.8, vs. April 2018 = 108.7).
Agricultural Prices (April 2018, Prices Received by Farmers, not seasonally adjusted): -2.2% vs. March 2018, -3.1% vs. April 2017).
Beige Book

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.