GDP, Income, and Spending Plummet: April 27 – May 1

The shutdown late in Q1 inflicted significant damage. Here are the five things we learned from U.S. economic data released during the week ending May 1.

#1The shutdown ended GDP’s winning streak. The Bureau of Economic Analysis’ first estimate of Q1 Gross Domestic Product (GDP) has the U.S. economy contracting 4.8 percent on a seasonally adjusted annualized basis. This was the first quarterly decline in GDP in six years and the most significant contraction in economic activity since the fourth quarter of 2008. Of major GDP components, only fixed residential investment (housing), net exports (mainly because of a sharp drop in imports), and government expenditures made positive contributions. Falling consumption cost 5.26 percentage points in GDP growth, with a sizable portion of that coming from reduced spending on medical services (itself costing 225-basis points in GDP growth), followed by the declining expenditures on food services/accommodations, recreation services, clothing, and transportation services. The BEA will update its Q1 GDP twice over the next two months.

#2Personal income and spending tumbled in March. The Census Bureau reports that personal income dropped 2.0 percent on a seasonally adjusted basis during the month, its largest single-month decline in seven years. Disposable income suffered a matching 2.0 percent loss while real disposable income (which controls for inflation) fell 1.7 percent. (Note that as large as these declines are, they mostly reflect a slowdown in activity that occurred only during the latter half of the month.) Personal spending dove 7.5 percent (the biggest single-month drop in the 61-year history of the data series), with the inflation-adjusted measure off 7.3 percent. Real spending on goods slowed 2.2 percent, split by a 14.8 percent drop for durable goods and a 4.3 percent advance for nondurables. Spending on service fell 9.5 percent (hurt particularly by reduced expenditures on health care, food services/accommodations, and recreation services). The savings rate surged by 5.1 percentage points to 13.1 percent (its highest point since 1981). 

#3The Federal Reserve sees the economic impact of COVID-19 not to be short-lasting. The opening sentence of the Federal Open Market Committee’s (FOMC) statement following its meeting last week was clear on its mission, noting that it “is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.” The statement added that the pandemic “poses considerable risks to the economic outlook over the medium term.” The committee voted unanimously voted to keep the fed funds target rate near zero percent, stating that it “expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” Also, the Fed will continue to purchase both Treasury securities and residential & commercial mortgage-backed securities. At the same time, the Open Market Desk will maintain its expanded overnight and term repurchase agreement operations. 

#4The contraction of the manufacturing sector was widespread in April. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, lost 7.6 points to 41.5, its lowest reading since the depths of the Great Recession (April 2009). A PMI reading below 50.0 indicates a contracting manufacturing sector, and a reading below 42.8 suggests the U.S. economy is in a recession. All five components to the PMI also showed a slowdown in business activity. Only two manufacturing industries reported growth in April: paper products and food/beverages. The press release noted that “transportation equipment and fabricated metal products [were] the weakest of the big six sectors” of manufacturing.

#5Consumer sentiment plunged in April, but the outlook brightened a bit. The Conference Board’s Consumer Confidence Index plummeted 31.9 points during the month to a seasonally adjusted 86.9 (1985=100). The present conditions index, which captures survey respondents’ “assessment of current business and labor market conditions—suffered its largest ever decline, shedding 90.4 points to 76.4. The expectations index added 7.0 points to a reading of 93.8, reflective of some consumers’ belief (hope) of an easing of stay-at-home edicts. In March, 39.2 percent of survey respondents had seen then-current economic conditions as “good.” This percentage plummeted to 20.8 percent in April. The percentage of consumers seeing conditions as “bad” surged from 11.7 percent to 45.2 percent. Interestingly, consumers were much more optimistic about the future, with 40.0 percent expecting business conditions to improve (versus 18.7 percent in March). Also growing, however, was the percentage of respondents expecting conditions to worsen (25.7 percent versus 16.4 percent in March). 

Other U.S. economic data released over the past week:
Jobless Claims (Week ending April 25, First-Time Claims, seasonally adjusted): 3,839,000 (-603,000 vs. the previous week, +3,609,000 vs. the same week a year earlier). 4-week moving average: 5,033,250 (+2235.6% vs. the same week a year earlier).
Construction Spending (March 2020, Value of Construction Put in Place, seasonally adjusted annualized rate): 1.361 trillion (+0.9% vs. February 2020, +4.7% vs. March 2019).
Pending Home Sales (March 2020, Index (2001=100), seasonally adjusted): 88.2 (-20.8% vs. February 2020, -16.3% vs. March 2019).
Agricultural Prices (March 2020, Prices Received by Farmers): +3.1% vs. February 2020, Unchanged vs. February 2019.

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

Layoffs Skyrocketed in Mid-March: March 23 – 27

The first set of data reflecting the impact of the COVID-19 pandemic—jobless data—came out last week. Here are the five things we learned from U.S. economic data released during the week ending March 27.

#1COVID-19 layoffs led to a record number of jobless claims. The Department of Labor reports there were a seasonally adjusted 3.283 million first-time claims made for unemployment insurance benefits during the week ending March 21. The number of initial claims was up by more than 3 million filings from the prior week, 1,164 percent from the same week a year ago, and shatters the previous record of 695,000 claims back in October 1982. The press release noted that job cuts came from many industries, including the service sector (“particularly accommodation and food service”), health care/social assistance, arts/entertainment/recreation, transportation/warehousing, and manufacturing industries. As large as the number was, the data likely are underestimating actual layoff activity (due to capacity issues on claim filing websites and not all laid-off workers being aware of their eligibility for benefits).

#2Growth in personal income held steady in February but sputtered for personal spending. The Bureau of Economic Analysis reports that personal income rose at a seasonally adjusted 0.6 percent in February, matching the previous month’s growth rate. Disposable personal income—which nets out personal taxes—jumped 0.5 percent during the month with the “real” measure—which adjusted for inflation—increased 0.4 percent. Personal consumption expenditures (PCE) grew by a more modest 0.2 percent (matching January’s increase) while real PCE inched up 0.1 percent. Real spending on goods fell by 0.2 percent, including durable goods expenditures slumping 0.7 percent. Edging up was real spending on nondurable goods (+0.1 percent) and services (+0.2 percent). The savings rate bloomed by 3/10ths of a percentage point to +8.2 percent (its highest reading since last March). Over the past year, real disposable income has risen 2.2 percent, while the 12-month comparable for real spending was +3.0 percent.

#3Meanwhile, economic activity picked up in February. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic indicators, added 49-basis points during the month to a reading of +0.16 (its best mark since last November and indicative of economic growth higher than the historical average). Forty-four of the 85 indicators made positive contributions to the CFNAI, with the other 41 measures having negative impacts on the headline index. Also, all of the advance came from production-related indicators, with much smaller positive contributions coming from indicators tied to employment and personal consumption/housing. Measures linked to sales/orders/inventories made a small negative contribution. The CFNAI’s three-month moving average deteriorated by ten-basis points to -0.21. The Federal Reserve Bank of Chicago’s website included this statement: “The data through February were unlikely to have been affected much by the COVID-19 outbreak.” This will not be true for March’s report. 

#4Q4 2019 was likely the final quarter of economic growth for a while. The Bureau of Economic Analysis’ final estimate of Gross Domestic Product (GDP) for the last three months of 2019 finds the U.S. economy expanded 2.1 percent on a seasonally adjusted annualized basis. This matched the two previous estimates of Q4 GDP growth and followed growth rates of +2.1 percent and +2.0 percent during the two prior quarters. GDP increased 2.3 percent for all of 2019, down from gains of 2.9 percent in 2018 and 2.4 percent in 2017. The same report shows corporate profits grew an annualized 2.6 percent in Q4 after contracting 0.2 percent during the prior quarter. For all of 2019, corporate profits were flat when compared to 2018. We will see the first estimate of Q1 data—the first GDP report reflecting coronavirus impacts—on April 29.

#5New home sales slowed in February. The Census Bureau estimates new home sales declined 4.4 percent during the month to a seasonally adjusted annualized rate (SAAR) of 765,000 units. Despite the decline, sales were 14.3 percent above year-ago levels. February sales slumped in the West (-17.2 percent) and Midwest (-7.3 percent) but advanced in the Northeast (+38.9 percent) and South (+1.0 percent). All four Census regions enjoyed year-to-year sales increases. There were 319,000 homes available for sale at the end of the month, off 0.9 percent for the month and 6.7 percent from a year earlier. This was the equivalent to a 5.0 month supply of homes. 

Other U.S. economic data released over the past week:
FHFA House Price Index (January 2020, Purchase-Only Index, seasonally adjusted): +0.3% vs. December 2019, +5.2% vs. January 2019.

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

Personal Incomes Flourished in January: February 24 – 28

The U.S. economy started 2020 with some positive numbers, but questions emerge about the potential impact coming from COVID-19. Here are the five things we learned from U.S. economic data released during the week ending February 28.

#1Personal income rose in January. The Bureau of Economic Analysis reports that nominal (not inflation-adjusted) personal income rose 0.6 percent during the month, its biggest jump in 11 months. Nominal disposable income also advanced 0.6 percent while inflation-adjusted “real” disposable income swelled 0.5 percent. The extra money in the wallet did not, however, translate to significantly increased spending—real personal consumption expenditures (PCE) grew 0.1 percent during the month (the nominal measure advanced 0.2 percent). While durable goods spending surged 0.6 percent and that on services moved forward 0.3 percent, expenditures on nondurables slowed 0.2 percent. The savings rate widened by 4/10ths of a percentage point to +7.9 percent.

#22019 ended with a moderately expanding economy. The Bureau of Economic Analysis’ second estimate of Q4 2019 Gross Domestic Product (GDP) growth matched that of its first estimate with a seasonally adjusted annualized rate (SAAR) of +2.1 percent. This followed a matching +2.1 percent gain during Q3 and a 2.0 percent advance in Q2. The revision reflected a higher than previously believed level of private inventory investment counterbalanced by a smaller estimate of nonresidential fixed investment. Making positive contributions to Q4 growth were (in descending order) imports, personal consumption, government expenditures, and exports. Dragging down economic activity were private inventory investment and nonresidential fixed investment. The BEA will once again update its Q4 GDP estimate on March 26.

#3Signs suggest economic conditions solidified in January. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators, improved by 26-basis points to -0.25. The three-month moving average gained by 14-basis points to a reading of -0.09, its best mark since last August. (A CFNAI reading of 0.00 is indicative of the U.S. economy growing at its historical average. A reading of -0.70 suggests an economic contraction.) Thirty-six of the 85 indicators made a positive contribution to the CFNAI, while the other 49 had a negative impact. All four major categories of indicators showed improved from their December readings, although three of them had overall a negative effect on the headline index: production (-0.23), employment (-0.03) sales/orders/inventories (-0.02), and personal consumption/housing (+0.03). 

#4Consumer Sentiment held firm for now. The Conference Board’s Consumer Confidence Index inched up by 3/10ths of a point in February to a seasonally adjusted 130.7 (1985=100). The present conditions index shed 8.8 points to a reading of 165.1 while the expectations index added 6.4 points to 107.8. 38.6 percent of survey respondents viewed current economic conditions as “good” (versus 40.0 percent in the January survey), while 44.6 percent described jobs as being “plentiful” (versus 47.2 percent in the January survey). In noting the consumers view current economic conditions “quite favorably,” the press release said the results “support spending and economic growth in the near term.”

The University of Michigan’s Index of Consumer Sentiment added 1.2 points in February to a seasonally adjusted 101.0 (1966Q1=100), leaving the measure up 7.2 points from a year earlier. The current conditions index edged up by 4/10ths of a point to 114.8 (February 2019: 108.5) while the expected conditions index added 1.6 points to 92.1 (February 2019). Most notable in the press release was the observation about the impact on sentiment from the news surrounding the coronavirus—while only eight percent of survey respondents noted that COVID-19 was affecting their economic expectations, 20 percent of those who completed the survey early last week (after the release of the CDC warnings and freefall in the stock market) said the news was affecting their outlook. (The press release noted that this difference was not statistically significant.)

#5New home sales surged in January. The Census Bureau reports that new home sales rose 7.9 percent to a seasonally adjusted annualized rate of 764,000 units. This was the highest level of new home sales since June 2007 and represented an 18.6 percent gain from a year earlier. Sales grew during the month in three of four Census regions: Midwest (+30.3 percent), West (+23.5 percent), and Northeast (+4.8 percent). The Midwest suffered a 4.4 percent drop in new home sales. There were 324,000 unsold new homes on the market at the end of January (+0.3 percent versus December 2019 and -4.6 percent versus January 2019), the equivalent to a 5.1 month supply. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 22, 2020, First-Time Claims, seasonally adjusted): 219,000 (+8,000 vs. previous week; -5,000 vs. the same week a year earlier). 4-week moving average: 209,750, -6.6% vs. the same week a year earlier).
Pending Home Sales (January 2020, Index (2001=100), seasonally adjusted): 108.8 (vs. December 2019: 103.4; January 2019: 102.9).
FHFA House Price Index (December 2019, Purchase-Only Index, seasonally adjusted): +0.6% vs. November 2019, +5.2% vs. December 2018.
Agricultural Prices (January 2020, Prices Received by Farmers): -2.2% vs. December 2019, +2.5% vs. January 2019.

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