Solid Consumer Spending, Inflation Under Target: June 24 – 28

Consumer spending held firm in May. Here are the five things we learned from U.S. economic data released during the week ending June 28.

#1Personal spending and prices grew at a moderate rate in May. The Bureau of Economic Analysis estimates real personal consumption expenditures (PCE) increased 0.2 percent on a seasonally adjusted basis during the month, matching April’s gain. Real spending on durable goods jumped 0.4 percent, boosted by a 1.6 percent bounce for durable goods (spending on nondurables slowed 0.2 percent), while services expenditures increased 0.2 percent. Nominal (not inflation adjusted) spending rose 0.4 percent in May, funded by 0.5 percent increases for both nominal personal income and nominal disposable income. After adjusting for price variations, real disposable gained 0.3 percent.  The savings rate held steady at 6.1 percent. Over the past year, real personal spending has risen 2.7 percent, while real disposable income has a 12-month comparable of +2.3 percent. The PCE deflator—a measure of inflation—gained 0.2 percent during the month, with the core measure (which nets out energy and food) also growing 0.2 percent. The year-to-year increases for both measures were below the Federal Reserve’s two-percent inflation target with gains of +1.5 percent and +1.6 percent, respectively.

#2Another revision reaffirmed Q1’s robust economic growth. The Bureau of Economic Analysis’ third estimate of Gross Domestic Product (GDP) has the U.S. economy expanding at a seasonally adjusted annualized rate of 3.1 percent. This matches the GDP estimate reported a month earlier and was just below the initial 3.2 percent estimate for Q1 economic growth indicated two months ago. Q1 GDP growth contributors (in descending order) were net exports, consumption, change in private inventories, nonresidential fixed investment, and government expenditures. The same report found that corporate profits (net of inventory valuation and capital consumption expenditures) fell 2.6 percent during the quarter. We will get our first glance of second-quarter GDP on July 26.

#3Concerns about trade tariffs weighed on consumer sentiment in June. The Consumer Confidence Index from the Conference Board fell by 9.8 points during the month to a seasonally adjusted 121.5 (1985=100), its lowest reading since September 2017. The present conditions index lost 8.1 points to a reading of 162.6 while the expectations index plummeted by 10.9 points to 94.1. Even with the pullback, a far higher percentage of survey respondents viewed current business conditions as “good” (36.7 percent) versus being “bad (10.9 percent). Consumers were less confident about the future—18.1 percent of survey respondents expect business conditions to improve over the next six months, while 13.1 percent expect them to worsen. The press release tied the pullback in sentiment to “the escalation in trade and tariff tensions.”

The University of Michigan’s Index of Consumer Sentiment declined by 1.8 points during June to a seasonally adjusted reading of 98.2. While a slight 3/10ths of a point improved from the preliminary June report published a few weeks ago, it matched its June 2018 mark. The present conditions index gained 1.9 points to 111.9 (June 2018: 116.5) while the expectations index slumped by 5.2 points to 89.3 (June 2018: 89.3). The press release noted that the decline in the headline index was about higher income survey respondents “who more frequently mentioned the negative impact of tariffs.”

#4There were more home purchase contract signings in May. The National Association of Realtors’ Pending Homes Sales Index (PHSI) ticked up 1.1 points during the month to a seasonally adjusted reading of 105.4 (2001=100). The index of contracts signed to purchase a previously owned home grew in three of four Census regions, with the West being the exception. The PHSI was off 0.7 percent from a year earlier with negative 12-month comparables in three of four Census regions (in this case, the South was the exception). The press release stated that homebuyers were “anxious” to take advantage of the recent decline in mortgage interest rates.

#5Homebuilder confidence slipped slightly in June. The National Association of Home Builders’ Housing Market Index (HMI) lost two points during the month to a seasonally adjusted reading of 64. This was the 60th consecutive month in which the HMI was above a reading of 50, indicative of more homebuilders’ seeing the housing market as being “good” versus being “poor.” The HMI improved in the Midwest, held steady in the South, but lost ground in both the Northeast and West. Also slipping in June were measures for current sales of single-family homes (71), expected home sales (70), and traffic of prospective buyers (48). The press release reports that housing demand was “sound,” but also that builders report concern about “trade issues” and rising development and construction costs.

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 22, 2019, First-Time Claims, seasonally adjusted): 227,000 (+10,000 vs. previous week; -4,000 vs. the same week a year earlier). 4-week moving average: 221,250 (+0.4% vs. the same week a year earlier).
New Home Sales (May 2019, New Home Sales, seasonally adjusted annualized rate): 626,000 (-7.8% vs. April 2019, -3.7% vs. May 2018).
FHFA House Price Index (April 2019, Purchase-Only index, seasonally adjusted): +0.4% vs. March 2019, +5.2% vs. April 2018.
Case-Shiller Home Price Index (April 2019, 20-City Index, seasonally adjusted): Unchanged vs. March 2019, +2.5% vs. April 2018.
Agricultural Prices (May 2019, Prices Received by Farmers): -1.1% vs. April 2019, -3.1% vs. May 2018.

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

Hiring and Consumer Spending Bloomed This Spring: April 29 – May 3

The labor market continued to create jobs in April. Here are the five things we learned from U.S. economic data released during the week ending May 3.

#1Hiring accelerated while the unemployment rate fell to a 50-year low in April. The Bureau of Labor Statistics estimates nonfarm employers added a seasonally adjusted 263,000 workers during the month. This was the most jobs added since January and was above the average 213,000 monthly gain over the past year. Private employer payrolls expanded by 236,000, split by 202,000 jobs in the service sector and 34,000 in the goods-producing side of the economy. Industries with sizable payroll gains included professional/business services (+76,000), health care/social assistance (+52,600), leisure/hospitality (+34,000), and construction (+33,000). Hourly earnings averaged $27.77 (+3.2 percent versus April 2018) while mean weekly earnings have risen 2.9 percent over the past year to $955.29.

The separate household survey finds the unemployment falling to its lowest point since December 1969 at 3.6 percent. Some of the drop in the unemployment rate reflects the impact of the labor force shrinking by 490,000 people. The typical length of unemployment narrowed by 2/10ths of a week to 9.4 weeks (April 2018: 9.8 weeks) while the count of “involuntary” part-time workers grew by 155,000 to 4.654 million (April 2018: 4.952 million). Finally, the broadest measure of labor underutilization—the U-6 series—remained at its post-recession low of 7.3 percent.

#2Personal spending enjoyed a spurt in March. Real personal consumption expenditures (PCE) rose 0.9 percent during the month, following smaller 0.3 percent and 0.1 percent increases in January and February, respectively. The Bureau of Economic Analysis indicates spending on goods jumped 1.4 percent, led by strong gains for both durable (+2.9 percent) and nondurable (+0.8 percent) goods, while services spending had a more modest 0.3 percent bump. Without controlling for prices, nominal PCE swelled 0.9 percent. The higher expenditures occurred despite a modest increase in nominal personal income (+0.1 percent). Nominal disposable income was unchanged for the month while, after adjusted for price variations, real disposable income contracted 0.2 percent. As a result, the savings rate narrowed by 8/10ths of a percentage point to +6.5 percent. Over the past year, real personal spending has risen 2.9 percent while real disposable income has grown 2.3 percent. The PCE deflator (a measure of inflation) had grown 2.0 percent over the past year, while the core measure (which nets out energy and food) had increased 1.8 percent. The latter was below the Federal Reserve’s two-percent interest rate target. 

#3With inflation tracking below the target, the Fed held firm (as expected). The policy statement released following the week’s Federal Open Market Committee (FOMC) noted the U.S. economy “rose at a solid rate” and that the labor market “remains strong.” But it also warned that core inflation had “declined and [was] running below two percent.” As a result, the FOMC voting members voted unanimously to keep the fed funds target at a range between 2.25 and 2.50 percent. The statement also emphasized that it would “patient” before it makes a move to raise or lower the short-term interest rate target in the future.

#4Purchasing managers signal a slightly slower growth rate in economic activity in April. The Institute for Supply Management’s PMI, the headline index from its Manufacturing Report on Business, lost 2.5 points during the month to a reading of 52.8. Even though this was the PMI’s lowest reading since October 2016, this was the 32nd straight month in which the measure indicated an expanding manufacturing sector. Three of the five PMI lost ground from their March readings: new orders, employment, and production. Showing improvements were indicators measuring inventories and supplier deliveries. Thirteen of 18 manufacturing industries expanded during the month, led by textiles and electrical equipment/appliances.

The ISM’s measure for activity in the nonmanufacturing side of the economy pulled back by 6/10ths of a point to 55.5, the NMI’s lowest reading since August 2017 but its 111th month above a reading of 50.0. Just a single component of the NMI improved from its March reading—business activity/production—while the other three declined in April: employment, supplier deliveries, and new orders. Fifteen of 18 tracked nonmanufacturing industries grew during April, led by transportation/warehousing, professional/scientific/technical services, and construction. The press release noted that survey respondents were “still mostly optimistic about overall business conditions, but concerns remain about employment resources.”

#5Meanwhile, factory orders rebounded in March. The Census Bureau reports that new orders for manufactured goods jumped 1.9 percent during the month to a seasonally adjusted $508.2 billion, following a 0.3 percent drop in February and holding steady in January. Orders for transportation goods rose 7.0 percent, boosted by gains for civilian aircraft (+31.0 percent), defense aircraft (+17.7 percent), and motor vehicles (+1.5 percent). Net of transportation goods, new factory orders increased a still-robust 0.8 percent, following a 0.3 percent gain in February. Durable goods orders jumped 2.6 percent while nondurable goods rose 1.1 percent. Less favorable was data on new orders for nondefense, non-aircraft capital goods—a proxy for business investment—which held steady in March after gains of 1.0 percent and 0.3 percent in January and February, respectively.

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 27, 2019, First-Time Claims, seasonally adjusted): 230,000 Unchanged vs. previous week; +17,000 vs. the same week a year earlier). 4-week moving average: 212,500 (-3.1% vs. the same week a year earlier).
Conference Board Consumer Confidence (April 2019, Index (1985=100), seasonally adjusted): 129.2 (vs. March 2019: 124.2.
Construction Spending (March 2019, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.282 trillion (-0.9% vs. vs. February 2019, -0.8% vs. March 2018).
Pending Home Sales (March 2019, Index (2001=100), seasonally adjusted): 105.8 (+3.8% vs. February 2019, -1.2% vs. March 2018).
Case-Shiller Home Price Index (February 2019, 20-City Index, seasonally adjusted): +0.2% vs. January 2019, +3.0% vs. February 2018.
Productivity (2019Q1, Labor Productivity, seasonally adjusted): +3.6% vs. 2018Q4, +2.4% vs. 2018Q1.
Agricultural Prices (March 2019, Prices Received by Farmer): +2.8% vs. February 2019, -3.4% vs. March 2018 

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

A Slowdown in Growth: March 25 – 29

Economic activity was lukewarm in Q4 and early 2019. Here are the five things we learned from U.S. economic data released during the week ending March 29.

#1Q4 economic growth was less robust than previously believed. The Bureau of Economic Analysis’ third release of fourth quarter 2018 gross domestic product (GDP) finds the U.S. economy grew 2.2 percent on a seasonally adjusted annualized basis. This was a downward revision from the Q4 GDP report published a month ago that had indicated a 2.6 percent increase, and it was below Q3’s 3.4 percent annualized gain. Even with the downward revision, GDP grew 2.9 percent for all of 2018, ahead of increases of 2.2 percent and 1.6 percent for 2017 and 2016, respectively. The downward revision was the result of lower than previously believed levels of personal consumption expenditures, government spending, and business spending. The same report indicates that business profits slipped 0.4 percent from Q3 to an annualized $2.311 trillion. Corporate earnings for all of 2018 were $2.263 trillion, up 7.8 percent from 2017. The first view of Q1 2019 GDP comes out in late April, with early indications suggesting a weaker report (see next).GDP 2007-2018 032919

#2Meanwhile, economic activity appears to have been tepid in February. The Chicago Fed National Activity Index lost four basis points during the month to a reading of -0.29. This was the third consecutive month in which the CFNAI was negative, indicative of below-average economic growth. Of the 85 data points included in the CFNAI, only 38 made positive contributions, and just 37 indicators showed improvement from their January readings. Among the four major categories of indicators, two improved from the previous month: production (up 13-basis points to a contribution of -0.16) and sales/orders/inventories (up two-basis points to +0.02). Slipping in February were measures related to employment (down 17-basis points to a -0.10 contribution) and personal consumption/housing (down three-basis points to -0.03). The CFNAI’s three-month moving average fell to its lowest reading since October 2016, shedding 18-basis points to a reading of -0.18 (again, indicative of below-average economic growth). 

#3Real personal spending slightly grew in January. Real personal consumption expenditures (PCE) increased 0.1 percent on a seasonally adjusted basis during the month following December’s 0.6 percent decline, per the Bureau of Economic Analysis. Spending grew for both nondurable goods (+0.5 percent) and services (+0.2 percent) but plummeted 1.6 percent for durable goods. Nominal (not inflation adjusted) spending also grew 0.1 percent. The modest gain in spending occurred despite a 0.1 percent drop in nominal personal income and with disposable income (both nominal and real) falling 0.2 percent. Over the past year, real disposable income has grown 3.0 percent while real PCE increased 2.3 percent. January’s saving rate of 7.5 percent was off 2/10ths of a percentage point from December.

#4The trade deficit narrowed (but remained rather wide) in January. The Census Bureau and the Bureau of Economic Analysis reports that exports grew by $1.9 billion to $207.3 billion (+3.0 percent versus January 2018) during January while imports shrank by $6.8 billion to $258.5 billion (+1.6 percent versus January 2018). The resulting trade deficit of -$51.1 billion was down $8.8 billion from the previous month and 3.7 percent smaller than that of January 2018. The goods deficit plummeted by $8.2 billion to -$73.3 billion (down 2.8 percent from a year earlier) while the services surplus grew by $0.5 billion to +$22.1 billion (off 0.7 percent over the previous year). The former was the result in a $1.8 billion gain in exported goods (due to increased food and automotive exports) and a $6.5 billion decline in imported goods (due to a decrease in imports of capital goods and crude oil). The U.S. had its biggest goods deficits with China (-$33.2 billion), the European Union (-$13.1 billion), and Mexico (-$7.2 billion).

#5Differing stories from two measures of consumer sentiment. The Conference Board’s Consumer Confidence Index shed 7.3 points during March to a seasonally adjusted reading of 124.1 (1985=100). Also falling were indices for present conditions (slumping 12.2 points to 160.6) and expected conditions (off 4.0 points to 99.8). Dropping hard was the percentage of survey respondents who viewed current business conditions as “good,” declining from 40.6 percent to 33.4 percent. However, only 13.6 percent of consumers viewed current conditions as “poor.” The press release characterized sentiment as “volatile,” as consumers “have had to weather volatility in the financial markets, a partial government shutdown and a very weak February jobs report.”

Presenting a different story was the University of Michigan’s Index of Consumer Sentiment, which added 4.6 points during March to a seasonally adjusted reading of 98.4 (1966Q1=100). The present conditions grew by 4.8 points to 113.3 (March 2018: 121.2) while the expectations index rose by 4.4 points to 88.8 (which matched its reading from a year earlier). The press release noted that the improvement in the headline measure “was entirely due to households with incomes in the bottom two-thirds of the income distribution.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 23, 2019, First-Time Claims, seasonally adjusted): 211,000 (-5,000 vs. previous week; -6,000 vs. the same week a year earlier). 4-week moving average: 217,250 (-1.6% vs. the same week a year earlier).
New Home Sales (February 2019, New Houses Sold, seasonally adjusted annualized rate): 667,000 (+4.9% vs. January 2019, +0.6% vs. February 2018).
Housing Starts (February 2019, Housing Starts, seasonally adjusted annualized rate): 1.162 million (-8.7% vs. January 2019, -9.9% vs. February 2018).
Pending Home Sales (February 2019, Index (2001=100), seasonally adjusted): 101.9 (-1.0% vs. January 2019, -4.9% vs. February 2018).
Case-Shiller Home Price Index (January 2019, 20-City Index, seasonally adjusted): +0.1% vs. December 2018, +3.6% vs. January 2018).
FHFA Housing Price Index (January 2019, Purchase-Only Index, seasonally adjusted): +0.6% vs. December 2018, +5.6% vs. January 2018. 

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