Personal Spending – What We Learned About the U.S. Economy Last Week

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

May 5, 2018May 5, 2018Kevin Roth

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.

The 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 2/10^ths 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 1/10^th 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 7/10^ths 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 2/10^ths of a percentage point decline to 7.8 percent.

The 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.

Personal 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 2/10^ths 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.

Aircraft 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).

Factory 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 15^th 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 16^th 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.

Q4 GDP Revised Up, Consumer Spending Paused: March 26 – 30

March 31, 2018March 31, 2018Kevin Roth

Q4 GDP was revised upward, but consumer spending has been sluggish during the first two months of 2018. Here are the five things we learned from U.S. economic data released during the week ending March 30.

A new estimate finds that the U.S. economy expanded during Q4 more quickly than previously reported. The Bureau of Economic Analysis’ third estimate of Gross Domestic Product (GDP) finds the U.S. economic swelled 2.9 percent on a seasonally adjusted annualized rate (SAAR) during the final three months of 2017. This was up from the 2.5 percent annualized growth rate reported a month earlier. With the upward revision, BEA now estimates the U.S. economy expanded 2.3 percent for all of 2017, which was an improvement from the 1.5 percent growth rate in 2016 but below 2015’s 2.9 percent gain. The latest revision to Q4 GDP was the result of higher than previously believed levels of personal spending and private inventory investment. Positive contributors to GDP growth during the quarter were personal spending, fixed investment, and government spending, while net exports and private inventory accumulation were both drags on economic growth. Corporate profits slipped 0.1 percent during Q4 following a 4.3 percent bump during Q3.

The U.S. economy gained momentum in February. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators, surged by 86-basis points during the month to a seasonally adjusted reading of +0.88. This was the CFNAI’s best reading since last October. Much of the gain came from production-related economic indicators, which made a +0.50 contribution to the CFNAI (a big improvement from January when the same measures had made a negative -0.15 contribution). Also making positive contributions during the month were indicators tied to employment (+0.31) and sales/orders/inventories (+0.09). Dragging down the CFNAI were indicators related to consumption/housing (-0.02). In all, 63 of the 85 economic indicators made positive contributions to the CFNAI. The CFNAI’s 3-month moving average gained by 21-basis points to +0.37. Since the CFNAI is indexed such that a reading of 0.00 means the U.S. economy is growing at its historical level, the +0.37 moving average indicates the U.S. economy is expanding at an above average rate.

Personal spending failed to grow for a second consecutive month. The Bureau of Economic Analysis finds real personal consumption expenditures (PCE) were unchanged during February after having contracted 0.2 percent during January. Even with the recent lack of increases, real PCE has increased 2.8 percent over the past year, matching January’s 12-month comparable. Real spending on services and goods also was steady during February, with the latter split between a 0.6 percent increase in spending on durable goods and a 0.3 percent contraction for nondurables. Over the past year, spending on goods has grown 4.3 percent while that on services was 2.1 percent ahead of year-ago levels. Real disposable personal income gained 0.2 percent during February, slower than January’s 0.6 percent advance. Over the past year, real disposable income has increased 2.1 percent. The gap between spending and income has been covered by a slowdown in savings, although this has recovered in recent months. The personal savings rate was at +3.4 percent in February, up 2/10^ths of a percentage point from January. Finally, the Federal Reserve’s preferred gauge of inflation continues to gradually creep up. The PCE deflator has grown 1.8 percent over the past year while the core measure (which removes the impact of energy and food) gained 1.6 percent over the same 12 months.

Two measures of consumer sentiment moved in opposite directions during March, although both indicate that Americans remain optimistic. The Conference Board’s Consumer Confidence Index shed 2.3 points during the month to a seasonally adjusted reading of 127.7 (1985=100). Despite losing a step during the month, the measure remained 2.8 points ahead of its year-ago reading and stayed close to the 18-year high achieved in February. The present conditions index lost 1.3 points during March to a reading of 159.9 while the expectations index shed three full points to 106.2. 37.9 percent of survey respondents described current business conditions as “good” versus 13.4 percent seeing them as “bad.” Similarly, 39.9 percent of consumer saw the number of available jobs as “plentiful” while only 14.9 percent viewed them as “hard to get.” The press release noted that the results suggest “suggest further strong [economic] growth in the months ahead.”

The University of Michigan’s Index of Consumer Sentiment added 1.7 points during March to a seasonally adjusted 101.5 (1966Q1=100). While this was a small pullback from the preliminary March reading reported a few weeks earlier, this final reading represented a 14-year high point for the sentiment measure and a 4.5 point improvement over the previous year. The current conditions index jumped 6.3 points to a record-high of 121.2 (March 2017: 113.2) while the expectations index slipped 1.2 points to 88.8 (March 2017: 86.5). The press release indicates that the index readings suggest a real growth rate in real personal spending of 2.6 percent from mid-2018 to mid-2019.

Pending home sales picked up in February. The National Association of Realtors says that its measure of contract signings to purchase a previously owned home gained 3.1 percent during the month to a seasonally adjusted index reading of 107.5 (2001=100). Even with the gain, this was 4.1 percent under the year-ago contract signing pace. The index improved during February in all four Census regions, led by a 10.3 percent bounce in the Northeast. The Pending Home Sales Index also grew 3.0 percent in the South, 0.7 percent in the Midwest and 0.4 percent in the West. All four regions had negative 12-month comparables, spanning from a 9.5 percent drop in the Midwest to a 1.5 percent year-to-year slowdown in the South. The press release notes that the “minuscule” number of homes on the market and “its adverse effect on affordability” as weighing on the housing market.

Other U.S. economic data released over the past week:
– Jobless Claims (week ending March 24, 2018, First-Time Claims, seasonally adjusted): 215,000 (-12,000 vs. previous week; -38,000 vs. the same week a year earlier). 4-week moving average: 224,500 (-11.1% vs. the same week a year earlier).
– Case-Shiller House Price Index (January 2018, 20-City Index, seasonally adjusted): +0.8% vs. December 2017, +6.4% vs. January 2017.
– Agricultural Prices (February 2018, Prices Received by Farmers (Index (2011=100)): 90.8 (+5.7% vs. January 2018, -0.2% vs. February 2017).

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

Small Q4 GDP Revision, Consumers Take a Rest: February 26 – March 2

March 2, 2018March 2, 2018Kevin Roth

A modest downward revision to Q4 GDP growth while consumers slowed down in January. Here are the five things we learned from U.S. economic data released during the week ending March 2.

The U.S. economy grew at a slightly slower pace during Q4 than previously believed. The Bureau of Economic Analysis’ (BEA) second estimate of October-December 2017 Gross Domestic Product (GDP) has the U.S. economy expanding at a 2.5 percent seasonally adjusted annualized rate. This was just below the 2.6 percent gain reported a month ago and reaffirms the final three months of 2017 served as the slowest quarter of economic expansion since Q1 2017. GDP grew 2.3 percent for all of 2017, an improvement over the 1.5 percent growth rate for 2016 but below 2015’s 2.9 percent gain. The positive contributors to Q4 economic growth were personal spending (adding 258-basis points to GDP growth), exports (+84-basis points), nonresidential fixed investment (+82-basis points), government expenditures (+49-basis points), and residential fixed investment (+47-basis points). A 14 percent gain in imports produced a 197-basis point drag on Q4 GDP growth. BEA will revise its estimate of Q4 GDP growth once again later this month.

Consumers slowed down their spending in January, opting to put away more money. The Bureau of Economic Analysis (BEA) estimates “real” personal consumption expenditures (PCE) slipped 0.1 percent on a seasonally adjusted basis following gains of 0.2 percent and 0.5 percent during the two previous months. Pulling down the inflation-adjusted measure of spending was a sharp 1.6 percent decline in spending on durable goods. Nondurable goods spending was unchanged during the month while that on services eked out a 0.1 percent gain. Over the past year, real PCE has grown 2.7 percent, led by a 7.1 percent increase in durable goods spending, along with gains for nondurables and services of 2.9 percent and 2.0 percent, respectively. January’s pause in spending occurred even as real disposable personal income jumped 0.6 percent, in part reflecting the lowered federal tax withholding. Real disposable personal income has risen 2.3 percent over the past 12 months. Instead of driving more spending, the increased disposable income appears to have gone into the bank as the savings rate jumped by 7/10^ths of a percentage point to +3.2 percent (its highest point since last August).

Durable goods orders declined in January. New orders for manufactured durable goods dropped 3.7 percent during the month to a seasonally adjusted $239.7 billion, per the Census Bureau. Plummeting were new orders for civilian aircraft (-26.4 percent) and defense aircraft (-45.6 percent), pulling down transportation goods orders 10.0 percent (motor vehicles orders edged up 0.1 percent). Net of transportation goods, new orders decreased 0.3 percent in January following gains of 0.7 percent and 0.4 percent in December and November, respectively. Rising during the month were orders for computers/electronic products (+0.6 percent) and fabricated metal products (+0.5 percent) while orders for primary metals (-0.9 percent), electrical equipment/appliances (-0.8 percent), and machinery (-0.4 percent). Orders for nondefense capital goods net of aircraft (a proxy of business investment) slowed for a second straight month with a 0.2 percent drop. Durable goods shipments grew for the eighth time in nine months (+0.2 percent) to $247.0 billion. Unfilled orders contracted for the fourth consecutive month with a 0.3 percent decrease to $1.141 trillion while inventories expanded for the 18^th time in 19 months with a 0.3 percent increase to $408.5 billion.

Consumer confidence rises in February. The Conference Board’s Consumer Confidence Index jumped 6.5 points to a seasonally adjusted 130.8 (1985=100), the sentiment measure’s highest reading since November 2000. Improving during the month were measures for both current conditions (up 7.7 points to 154.7) and expected conditions (adding 5.7 points to 109.7). 35.8 percent of survey respondents characterize current business conditions as “good” versus only 10.8 percent seeing them as “bad.” 25.8 percent of respondents expect conditions will improve over the next six months versus a mere 9.4 percent expecting a deterioration. The press release said that “consumers remain quite confident that the economy will continue expanding at a strong pace in the months ahead.”

The Index of Consumer Sentiment from the University of Michigan jumped four full points to a seasonally adjusted reading of 99.7 (1966Q1=100), its second best reading since 2004. The same measure was at 96.3 a year earlier. The current conditions index added 4.4 points to 114.9 (February 2017: 111.5) while the expectations index added 3.7 points to 90.0 (February 2017: 86.5). The press release tied the strong sentiment to Americans’ “favorable assessments of jobs, wages, and higher after-tax pay.” Further, the group indicates that current levels of optimism suggest real personal spending will grow 2.9 percent during 2018.

New home sales slumped for a second straight month. The Census Bureau reports that new home sales fell 7.8 percent in January to a seasonally adjusted annualized rate (SAAR) of 593,000 units. This left new home sales 1.0 percent below its year-ago pace. Sales plummeted during the month in the Northeast (-33.3 percent) and the South (-14.2 percent) but gained in the Midwest (+15.4 percent) and West (+1.0 percent). Inventories of unsold new homes improved, growing 2.4 percent during the month to 301,000 homes. This was 15.3 percent above the year-ago inventory and translated into a 6.1 month supply. The median sales price of new homes sold has grown 2.5 percent over the past year to $323,000

Other U.S. economic data released over the past week:
– Jobless Claims (week ending February 24, 2018, First-Time Claims, seasonally adjusted): 210,000 (-10,000 vs. previous week; -17,000 vs. the same week a year earlier). 4-week moving average: 220,500 (-8.0% vs. the same week a year earlier).
– Chicago Fed National Activity Index (January 2018, Index (0.00=U.S. expanding at its historical rate, seasonally adjusted): +0.12 (down 2-basis points vs. December 2017, up 31-basis points vs. January 2017).
– Pending Home Sales (January 2018, Index (2001=100), seasonally adjusted): 104.1 (vs. December 2017: 109.8, vs. January 2017: 108.7).
– Vehicle Sales (February 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 17.08 million vehicles (-0.5% vs. January 2018, -2.1% vs. February 2017).
– Construction Spending (January 2018, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.263 trillion (essentially unchanged vs. December 2017, +3.2% vs. January 2017).
– ISM Report on Business—Manufacturing (February 2018, Purchasing Managers Index (>50=expanding Manufacturing Activity): 60.8 (vs. January 2018: 59.1, February 2017: 57.7).
– FHFA House Price Index (December 2017, Purchase-Only Index, seasonally adjusted): +0.3% vs. November 2017, +6.5% vs. December 2016.
– Case-Shiller Home Price Index (December 2017, 20-City Index, seasonally adjusted): +0.6% vs. November 2017, +6.3% vs. December 2016).
– Agricultural Prices (February 2017, Prices Received by Farmers): -6.2% vs. December 2017, +0.2% vs. January 2017.

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

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