Consumer and Business Sentiment is Tested: March 9 – 13

Data released last week show COVID-19’s early impact on consumer and business owner sentiment. Here are the five things we learned from U.S. economic data released during the week ending March 13.

#1Consumer sentiment took a hit in early March. The preliminary March reading of the Index of Consumer Sentiment from the University of Michigan came in at 95.9 (1966Q1=100). This was down 5.1 points from the final February reading and 2.5 points from a year earlier. The current expectations index pulled back 2.3 points to 112.5 (May 2019: 113.3), while the expectations index shed 6.8 points to 85.3. The press release stated that “the initial response to the pandemic has not generated the type of economic panic among consumers” in comparison to the start of the 2008 Great Recession (although data collection for these results did not reflect the impact of this past week’s news). Also interesting is that the data suggest most consumers believe any negative impact on their finances would be temporary. However, it worth watching to see if that sanguine view holds up in the coming weeks and months.

#2Small business owners remained optimistic…at least in early-to-mid February. The Small Business Optimism Index from the National Federation of Independent Business eked out a 2/10ths of a point gain in February to a seasonally adjusted reading of 104.5 (1986=100). The index has been above 100 for 39 straight months and was 3.8 points above its year-ago reading. A closer look at the index components paints a more mixed picture, however. Just four of ten components improved: expectations of the economy to improve, plans to increase employment, expected credit conditions, and current job openings. The other six components pulled back, including expected real sales, whether it is a good time to expand, plans to increase inventories, and plans to make capital outlays. The press release noted that “February was another historically strong month for the small business economy,” but also stressed that the survey closed before “the recent escalation of the coronavirus outbreak and the Federal Reserve rate cuts.”

#3Consumer prices edged up in February. The Bureau of Economic Analysis reports that the Consumer Price Index (CPI) grew a seasonally adjusted 0.1 percent during the month, matching January’s gain and down from the 0.2 percent advance during the three months before that. Food CPI jumped 0.4 percent, with increases in five of six major grocery categories (fruits/vegetables were the exception). Energy CPI declined 2.0 percent, with gasoline prices off 3.4 percent. Core CPI increased by 0.2 percent for the third time in four months. Rising were prices for used cars/trucks (+0.4 percent), apparel (+0.4 percent), shelter (+0.3 percent), transportation services (+0.3 percent), health care services (+0.3 percent), and new automobiles (+0.1 percent). Health care commodities prices declined by 0.6 percent. Over the past year, headline CPI has risen 2.3 percent while the 12-month comparable for core CPI was +2.4 percent. 

#4Wholesale prices fell in February. Final demand Producer Price Index (PPI) slumped a seasonally adjusted 0.6 percent during the month, its largest single-month drop in five years. The Bureau of Labor Statistics’ core wholesale price measure, which removes the impact of food, energy, and trade services, decreased 0.1 percent (its first decline since last June). PPI for final demand goods plummeted 0.9 percent (its biggest drop since September 2015) with declines for energy (-3.6 percent), food (-1.6 percent), and core goods (-0.1 percent). PPI for final demand cooled 0.3 percent, which included the impact of the 0.7 percent decline in trade services (i.e., retailer and wholesaler margins). Headline PPI has grown a relatively modest 1.3 percent over the past year while the core measure has risen 1.4 percent.

#5…as did both import and export prices. The Bureau of Labor Statistics finds import prices declining 0.5 percent in February, its most significant drop since last August. Much of the fall resulted from a sharp 7.7 percent reduction in imported fuel prices (petroleum: -7.7 percent, natural gas: -12.4 percent). Net of fuel, core import prices grew 0.3 percent, boosted by nonfuel industrial supplies/materials, foods/beverages, and capital goods. Meanwhile, export prices fell 1.1 percent, with prices for agricultural exports dropping 2.7 percent (hurt by declines for vegetables, soybeans, and meat). (Note that the import and export price measures do not reflect any seasonal adjustments). 

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 7, 2020, First-Time Claims, seasonally adjusted): 211,000 (-3,000 vs. previous week; -13,000 vs. the same week a year earlier). 4-week moving average: 214,000, -2.6% vs. the same week a year earlier).
Monthly Treasury Statement (February 2020—First 5 Months of FY2020, Federal Government Budget Surplus/Deficit):  -$622.5 billion (vs. FY2019: -$544.2 billion).

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

A Bright Outlook for 2020 (At Least So Far): February 17 – 21

Signs indicate the economic expansion should continue this year. Here are the five things we learned from U.S. economic data released during the week ending February 21.

#1Forward-looking economic data improved in January. The Leading Economic Indicators (LEI) rose by 9/10ths of a point during the month to a reading 112.1 (2016=100). This left the Conference Board measure up 0.9 percent from a year earlier (reflecting the general weakness in the LEI over most of the past year). Eight of ten LEI components made positive contributions, led by jobless claims, building permits, and stock prices. The coincident index added 1/10th of a point to a reading of 107.3 (+1.1 percent versus January 2019), with three of four components making positive contributions (led by nonfarm payrolls). The lagging index held steady at 108.7 (+1.7 percent versus January 2019), with three of seven components making a positive contribution. The press release said the results were consistent with a two percent GDP growth rate, although “the COVID-19 outbreak may impact manufacturing supply chains in the U.S. in the coming months.”

#2Tight supplies continued to constrain home sales. The National Association of Realtors tells us that existing home sales declined 1.3 percent in January to a seasonally adjusted annualized rate (SAAR) of 5.46 million units. Home sales were 9.6 percent above their year-ago sales pace. Sales grew during the month in the Midwest (+2.4 percent) and South (+0.4 percent), held steady in the Northeast, and slumped in the West (-9.4 percent). While inventories of unsold homes increased 2.2 percent to 1.42 million units, they were 10.7 percent below year-ago levels and represented a mere 3.1 month supply. As a result, the median sales price of $266,300 was up 6.8 percent from a year earlier. 

#3Housing starts slowed in January while permitting activity rose. The Census Bureau finds starts of privately-owned homes declined 3.6 percent during the month to a seasonally adjusted rate of 1.567 million units. Even with the drop, starts were a robust 21.4 percent ahead of their year-ago pace. Starts of single-family homes fell 5.9 percent while those for buildings of at least five units gained 3.0 percent. Looking towards the future, the annualized rate of issued building permits grew to an almost 13-year high at 1.551 million permits, up 9.2 percent for the month, and 17.9 percent from a year earlier. Versus a year earlier, permitting for single-family and multi-family units were up 20.2 percent and 16.0 percent, respectively. Completions slowed 3.3 percent to an annualized 1.280 million homes (+1.5 percent versus January 2019). 

#4Homebuilder sentiment slipped in February. The National Association of Home Builders’ Housing Market Index (HMI) lost a point during the month to a seasonally adjusted reading of 74. This was the 68th straight month in which the HMI was above a reading of 50, indicative of more homebuilders’ viewing the housing market as being “good” versus being “poor.” The HMI grew in the Northeast and South but lost ground in both the Midwest and West. Shedding a single point each were measures for single-family home sales (80), expected sales (79), and traffic of prospective buyers (57). The press release noted that “[s]teady job growth, rising wages, and low-interest rates are fueling demand” but that higher costs were weighing on builders.

#5Trade services led to a rise in wholesale prices in January. The Producer Price Index (PPI) for final demand rose a seasonally adjusted 0.5 percent during the month, its largest single-month increase in 15 months. The Bureau of Labor Statistics notes that 90 percent of the rise came from the 0.7 percent jump in services prices, with much of the increase from higher margins at retailers focused on apparel, jewelry, footwear, and accessories. Trade services, reflecting retailer and wholesaler margins, jumped 1.2 percent. PPI for final demand goods grew by a more modest 0.1 percent. This reflects a 0.2 percent increase in foods PPI, a 0.7 percent decline energy wholesale prices, and a 0.3 percent bounce in core PPI. Wholesale prices have grown 2.1 percent over the past year, while the core measure (net of food, energy, and trade services) has advanced 1.5 percent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 15, 2020, First-Time Claims, seasonally adjusted): 210,000 (+4,000 vs. previous week; -3,000 vs. the same week a year earlier). 4-week moving average: 209,000, -8.9% vs. the same week a year earlier).
Treasury International Capital (December 2019, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$60.7 billion (vs. November 2019: +$8.1 billion, vs. December 2018: -$87.7 billion).
FOMC Minutes

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

Retail Sales Up, Industrial Production Down: January 13 – 17

Retail sales ended 2019 on a positive note while job openings fell sharply. Here are the five things we learned from U.S. economic data released during the week ending January 17.

#1Holiday retail sales were decent. The Census Bureau estimates retail and food services sales grew 0.3 percent in December to a seasonally adjusted $529.6 billion. Sales slowed 1.3 percent at auto dealers/parts stores but rose 2.8 percent at gas stations. Net of sales at auto dealers/parts stores and gas stations, core retail sales bloomed 0.5 percent in December and were 5.7 percent of the year-ago pace. A quick look at combined November-December sales—a proxy for the recent holiday season—finds core retail sales were a solid 4.2 percent ahead of that of the prior year. In December, sales rose at retailers focused on apparel (+1.6 percent), building materials (+1.4 percent), sporting goods/hobbies (+0.9 percent), groceries (+0.4 percent), and furniture (+0.1 percent). Restaurant sales eked out a 0.2 percent improvement. Sales fell 0.8 percent at department stores.

#2Industrial production slowed for the third time in four months in December. The Federal Reserve estimates industrial production dropped a seasonally adjusted 0.3 percent, following a 0.8 percent increase in November and two consecutive 0.5 percent decreases in September and October. The headline index drop occurred despite a 0.2 percent improvement in manufacturing output (following a 1.0 percent bounce in November). Durable goods production slowed 0.2 percent (including a 4.6 percent slump in motor vehicle/parts output). In contrast, the output of nondurables expanded by 0.6 percent. Mining output advanced for the first time since August with a 1.3 percent gain while utilities production fell 5.6 percent due to moderate winter weather. Industrial production was 1.0 percent below that of a year earlier while manufacturing output was 1.3 percent behind the year-ago pace. 

#3Job openings shrank in November. The Bureau of Labor Statistics states that there were a seasonally adjusted 6.800 million job openings at the end of the month, down 561,000 from October and 10.8 percent from the year earlier. Even with the decline, there were more job openings than the number of unemployed adults (5.753 million). Private-sector job openings were off 12.7 percent from the same month a year earlier, with sizable year-to-year percentage declines in retail (-32.5 percent), construction (-23.3 percent), manufacturing (-22.6 percent), financial activities (-11.7 percent), accommodations/food services (-9.5 percent), and professional/business services (-7.8 percent). The number of job hires grew by 39,000 in November to 5.821 million, which matched the November 2018 count. 5.648 million people left their jobs in November, down a mere 4,000 from October and up a modest 0.9 percent from a year earlier. 3.536 million people quit their jobs during the month (+39,000 vs. October 2019 and +4.6 percent vs. November 2018) while the number of people laid off declined 46,000 to 1.749 million (-7.4 percent vs. November 2018).

#4Inflation took a holiday in December. The Bureau of Labor Statistics indicates that the Consumer Price Index (CPI) increased 0.2 percent on a seasonally adjusted basis during the month, down from gains of 0.4 percent and 0.3 percent in October and November, respectively. Food CPI grew 0.2 percent while energy CPI jumped 1.4 percent, the latter growing due to gasoline prices jumping 2.8 percent. Net of food and energy, core CPI increased 0.1 percent, its smallest gain since September. Rising were prices for medical care commodities (+1.5 percent) and services (+0.4 percent), apparel (+0.4 percent), shelter (+0.2 percent), and new vehicles (+0.1 percent). Prices fell for used cars/trucks (-0.8 percent) and transportation services (-0.3 percent). Both headline and core CPI have risen 2.3 percent over the past year.

Final demand Producer Price Index (PPI) inched up a seasonally adjusted 0.1 percent in December after holding steady during the prior month. The core measure of wholesale prices, which nets out of food, energy, and trade services, had a matching 0.1 percent increase. PPI for goods grew 0.3 percent. Prices jumped 1.5 percent for wholesale energy (gasoline: +3.7 percent) but fell 0.3 percent for wholesale food. PPI for final demand services held steady in December even as trade services PPI (measuring retailer and wholesaler margins) decreased 0.3 percent. Over the past year, final demand PPI has risen a modest 1.3 percent. In contrast, the 12-month comparable for the core measure has gained 1.5 percent.

#5Housing starts rose to a 13-year high in December. The Census Bureau reports housing starts jumped 16.9 percent during the month to a seasonally adjusted annualized rate of 1.375 million units. This was 40.8 percent ahead of the year-ago starts rate and the measure’s highest mark since October 2006. Starts surged for both single-family (+11.2 percent vs. November 2019, +29.6 percent vs. December 2018) and multi-family units (+32.0 percent vs. November 2019, +74.6 percent vs. December 2018). Looking towards the future, the annualized count of issue housing permits declined 3.9 percent in December to 1.416 million (+5.8 percent vs. December 2018). The annualized count of housing completions grew 5.1 percent during the month to 1.277 million homes, up 19.6 percent from the same month a year earlier. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 11, 2020, First-Time Claims, seasonally adjusted): 204,000 (-10,000 vs. previous week; -13,000 vs. the same week a year earlier). 4-week moving average: 216,250 -3.0% vs. the same week a year earlier).
Import Prices (December 2019, All Imports, not seasonally adjusted): +0.3% vs. November 2019, +0.5% vs. December 2018. Nonfuel Imports: Unchanged vs. November 2019, -1.4% vs. December 2018.
Export Prices (December 2019, All Exports, not seasonally adjusted): -0.2% vs. November 2019, -0.7% vs. December 2018. Non-Agricultural Exports: -0.1% vs. November 2019, -0.6% vs. December 2018.
University of Michigan Surveys of Consumers (January 2020-preliminary, Index of Consumer Sentiment (1966Q1=100), seasonally adjusted):  99.1 (vs. December 2019: 99.3, January 2019: 91.2.
Housing Market Index (January 2020, Index (>50=More homebuilders view the housing market as “good” versus “poor,” seasonally adjusted): 75 (vs. December 2019: 76, January 2019: 58).
Small Business Optimism Index (December 2019, Index (1986=100), seasonally adjusted): 102.7 (vs. November 2019: 104.7, vs. December 2018: 104.4).
Business Inventories (November 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.037 trillion (-0.2% vs. October 2019, +2.8% vs. November 2018.
Treasury International Capital Flows (November 2019, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$7.3 billion (vs. October 2019: +$4.3 billion, November 2018: -$3.0 billion.
Beige Book

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