Consumers Spend, Prices Hit a Target: August 27 – 31

Consumers focused their spending on nondurable goods and services during July. Here are the five things we learned from U.S. economic data released during the week ending August 31.  

#1Consumers continued spending in July while inflation hits the Fed’s target. Real personal consumption expenditures (PCE) increased at a seasonally adjusted 0.2 percent rate during the month. This was down from the 0.3 percent gains reported by the Bureau of Economic Analysis for the three prior months. Spending on goods and services each grew by 0.2 percent during July, with the latter split by a 0.6 percent bump in nondurable goods spending and a 0.5 percent drop in durable goods spending. Nominal (non-price adjusted) PCE grew 0.4 percent for a second consecutive month. Nominal personal and disposable income gained 0.3 percent, with real disposable income rising 0.2 percent. The savings rate slipped by 1/10th of a percentage point to +6.7 percent. Over the past year, real disposable income has increased 2.9 percent while real PCE has expanded 2.8 percent. The same report includes data on inflation—the PCE deflator growing 0.1 percent during July with the core PCE deflator (removing energy and food) gained 0.2 percent. Over the past year, the two price measures have grown by 2.3 percent and 2.0 percent, respectively, with the latter matching the Federal Reserve’s two-percent inflation target.Consumer Spending April - July 2018 083118

#2GDP expanded a smidge faster than previously believed during Q2. The Bureau of Economic Analysis’ second estimate of gross domestic product (GDP) for the months of April, May, and June has the U.S. economy expanding 4.2 percent on a seasonally adjusted annualized basis. This was up from the 4.1 percent gain reported a month earlier and was the best quarter for GDP growth since the third quarter of 2014. The small upward revision was the result of higher than previously believed levels of business investment and private inventory accumulation partially offset by lower than the previously thought level of consumer spending. The sectors of the economy making positive contributions to GDP growth were (in declining order of contribution) were: personal spending (+255-basis points), fixed nonresidential investment (+107-basis points), exports (+110-basis points), government expenditures (+41-basis points), and imports (+7-basis points). Negative contributions came from private inventory accumulation (-97-basis points) and fixed residential investment (-6-basis points).

#3Economic growth “moderated” in July. The Chicago Fed National Activity Index (CFNAI) lost 35-basis points to +0.13 (June 2017: -0.18). Since the CFNAI is a weighted averaged 85 economic measure indexed such that a reading of 0.00 is indicative of the U.S. economy growing at its historical rate, July reading suggests the economy continued to expand during the month but at a slower pace than it had in June. Thirty-four of the 85 indicators improved during the month while 51 had weakened. The components related to production made a total contribution to CFNAI of +0.05 (versus a +0.45 contribution in June). Also making positive contributions were measures related to employment (+0.12 versus a +0.03 contribution in June) and sales/orders/inventories (+0.03 versus a +0.06 contribution in June). The measures linked to personal consumption/housing had a negative contribution of -0.07 (versus -0.06 in June). The CFNAI’s three-month moving average remained positive at +0.05 despite losing 15-basis points from June (June 2017: -0.07).

#4One measure of consumer sentiment surged to an 18-year high while another pulled back. The Conference Board’s Consumer Confidence Index jumped 5.5 points in August to a seasonally adjusted 133.4 (1985=100). The index has not been this high since October 2000. Measures tracking both current and expected business conditions improved—the current conditions index increased from 166.1 to 172.2 while the expectations index added 5.4 points to 107.6. 40.3 percent of survey respondents described current business conditions as “good” while only 9.3 percent see them as “bad.” Similarly, 42.7 percent of respondents saw the availability of jobs as “plentiful” with only 12.7 percent described jobs as being “hard to get.” The press release states that the strong sentiment among consumers “should continue to support healthy consumer spending in the near-term.

Meanwhile, the Index of Consumer Sentiment from the University of Michigan lost 1.7 points during August to a seasonally adjusted 96.2 (1966Q1=100), its worst reading since January. While down 6/10ths of a point from a year earlier, this was a 9/10ths of a point improvement from the preliminary August reading reported several weeks ago. The measure tracking current business conditions shed 4.1 points to its lowest points since November 2016 at 110.3 (August 2017=110.9) while the expectations index slipped by only 2/10ths of a point to 87.1 (August 2017=87.7).

#5Contract signings to purchase a home slipped in July. The National Association of Realtors’ Pending Home Sales Index lost 8/10ths of a point to a seasonally adjusted reading of 106.2 (2001=100), leaving the measure 2.3 percent below its July 2017 reading. The index, which tracks contracts signed to purchase a previously owned home but have not yet closed, improved during the month in the Northeast (+1.0 percent) and Midwest (+0.3 percent), but lost ground in the South (-1.7 percent) and West (-0.9 percent). The index has negative 12-month comparables in all four Census regions: West (-5.8 percent), Northeast (-2.3 percent), Midwest (-1.5 percent), and South (-0.9 percent). NAR’s press release continued to express concern about “inadequate supply” leading to many homebuyers being “unable to afford” homes in some markets.

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 25, 2018, First-Time Claims, seasonally adjusted): 213,000 (+3,000 vs. previous week; -25,000 vs. the same week a year earlier). 4-week moving average: 212,250 (-10.9% vs. the same week a year earlier).
Agricultural Prices (July 2018, Prices Received by Farmers): -3.8% vs. June 2018, -4.3% vs. July 2017).
Case-Shiller Home Price Index (June 2018, 20-City Index, seasonally adjusted): +0.1% vs. May 2018, +6.3% vs. July 2017). 

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

Payrolls Expand, Unemployment Falls: July 30 – August 3

The frantic pace of hiring cooled a bit while the Fed takes a break. Here are the five things we learned from U.S. economic data released during the week ending August 3.  

#1Employers added fewer jobs while the unemployment rate fell during July. The Bureau of Labor Statistics reports nonfarm employers added a seasonally adjusted 157,000 workers during the month. This was down from the sharply upward estimates of May and June job creation of 268,000 and 248,000, respectively, but also represented the 94th straight month of payroll expansion. The private sector added 170,000 jobs during July while the public sector shed 13,000 workers. The former was split between 52,000 new jobs in the goods-producing sector and 118,000 added workers in the service sector. Industries adding the most workers were professional/business services (+51,000), leisure/hospitality (+40,000), manufacturing (+37,000), and health care/social assistance (+33,500). The average hour week slowed by 1/10th of an hour to 34.5 hours (July 2017: 34.4 hours) while mean hourly wages grew by seven cents to 27.05 (July 2017: 26.34). The resulting average weekly earnings of $933.23 was up 3.0 percent from a year earlier.

The unemployment rate slipped by 1/10th of a percentage point to 3.9 percent, just above the 3.8 percent post-recession low achieved in May (July 2017: 4.3 percent). 105,000 people entered the labor market during the July, which kept the labor force participation rate at 62.9 percent. The labor participation rate for adults aged 25-54 eked out a 1/10th of a point increase to 82.1 percent. The median length of unemployment jumped to 9.5 weeks (up 6/10ths of a week from June but still under July 2017’s median of 10.4 weeks). The count of “involuntary” part-time workers—part-time workers who seek a full-time opportunity—dropped by 172,000 to 4.567 million people (July 2017: 3.233 million). Finally, the broadest measure of labor underutilization by the BLS (the “U-6” series) fell to a post-recession low of 7.5 percent, down 3/10ths of a point from June and a full percentage point of July 2017.labor underutilization 080318

#2The Fed does not surprise (i.e., does nothing). The policy statement released following last week’s meeting of the Federal Open Market Committee (FOMC) continued to characterize economic growth as being “at a strong rate” and the labor market as having “continued to strengthen.” Further, it sees core inflation being near its two-percent target rate while consumer and business investment spending having “grown strongly.” Looking towards the future, the Fed sees risks to be “roughly balanced” between those on the upside and downside. As a result, the FOMC voted unanimously to maintain the fed funds target rate at a range between 1.75 and 2.00 percent, a policy that the statement called “accommodative.” The general consensus has the FOMC going for a quarter-point rate hike at its next meeting in September. 

#3The trade deficit grew for the first time in four months during June. The Census Bureau and Bureau of Economic Analysis estimates exports slowed by $1.5 billion to $213.8 billion (+9.8 percent versus June 2017) while imports increased by $1.6 billion to $260.2 billion (+8.6 percent versus June 2017). The resulting trade deficit of -$46.3 billion was up $3.6 billion from May and 3.4 percent larger than June 2017’s deficit. The trade deficit for the first six months of 2018 totaled -$291.2 billion, up 7.2 percent from the same six months in 2017 and 17.7 percent from the first six months in 2016. The goods deficit grew by $3.1 billion during June to -$68.8 billion while the services surplus was virtually unchanged at +$22.5 billion. In the case of the former, exports of goods dropped by $1.7 billion (including declines in exports of pharmaceutical preparations, jewelry, automobiles, and civilian aircraft (and engines)). Imports of goods grew by $1.4 billion, led by increases for pharmaceutical preparations and crude oil. The U.S. had its largest goods deficits with China (-32.5 billion), the European Union (-$12.8 billion), and Mexico (-$6.7 billion).

#4Consumer spending held firm during the last days of spring. Real personal consumption expenditures (PCE) grew 0.3 percent on a seasonally adjusted basis during June, according to the Bureau of Economic Analysis. Spending on durable goods and services each increased 0.4 percent while that on nondurable goods slipped 0.1 percent. Without adjustments for inflation, nominal PCE grew 0.4 percent, matching the change in nominal personal income and nominal disposable income. After adjusting for price variation, real disposable personal income gained 0.3 percent during June. The savings rate remained steady at +6.8 percent (note that both the savings rate and income data series were revised upward with the publication of this report). Over the past year, real spending has grown 2.8 percent (its best 12-month comparable since last November) while real disposable has increased 3.1 percent (its best 12-month comparable since October 2015).

#5Businesses appear concerned about the possible effects of tariffs. The Institute for Supply Management’s Purchasing Managers Index (PMI) shed 2.1 points during the month to a reading of 58.1. This was the 23rd straight month in which the PMI was above a reading of 50.0, indicative of an expanding manufacturing sector. Three of the five PMI components declined during July: supplier deliveries (-6.1 points to 62.1), production (-3.8 points to 62.3), and new orders (-3.3 points to 60.2). Rising were measures for inventories (+2.5 points to 53.3) and employment (up a half point to 56.5). Seventeen of 18 tracked manufacturing industries expanded during the month, led by textile mills, electrical equipment/appliances, and apparel. The press release notes that survey respondents were “overwhelmingly concerned about how tariff-related activity” will impact their business.

The ISM’s measure for business activity in the service sector also slumped as the NMI dropped by 3.4 points to 55.7. Even if this is the lowest reading for the NMI since last August, it represented the 102nd consecutive month with the index indicating an expansion of the service sector. Three of four NMI components fell from the June readings: business activity/production (down 7.4 points to 56.5), new orders (down 6.2 points to 57.0), and supplier deliveries (off 2.5 points to 53.0).  Improving was the measure tracking employment (up 2.5 points to 56.1). Sixteen of 18 tracked nonmanufacturing industries grew during July, led by mining, public administration, and agriculture/forestry/fishing/hunting. The press release blames the “cooling off” of the service sector on concerns about “tariffs and deliveries.” 

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 28, 2018, First-Time Claims, seasonally adjusted): 218,000 (+1,000 vs. previous week; -25,000 vs. the same week a year earlier). 4-week moving average: 214,500 (-11.4% vs. the same week a year earlier).
Factory Orders (June 2018, New Orders for Manufactured Goods, seasonally adjusted): $501.7 billion (+0.7% vs. May 2018, +6.1% vs. June 2017).
Pending Home Sales (June 2018, Index (2001=100), seasonally adjusted): 106.9 (+0.9% vs. May 2018, -2.5%
Vehicle Sales (July 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.77 million vehicles (-2.7% vs. June 2018, -0.1% vs. July 2017).
Construction Spending (June 2018, Value of Construction Put in Place): $1.317 trillion (-1.1% vs. May 2018, +6.1% vs. June 2017).
Conference Board Consumer Confidence (July 2018, Index (1985=100), seasonally adjusted): 127.4 (May 2018: 127.1).
Case-Shiller Home Price Index (May 2018, 20-City Index, seasonally adjusted): +0.2% vs. April 2018, +6.5% vs. May 2017). 

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

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.