The Fed Takes a Pause…So Do Consumers: December 9 – 13

FOMC voting members signal that the rate cuts are over, at least for now. Here are the five things we learned from U.S. economic data released during the week ending December 13.

#1The Fed left alone its short-term interest target and expects not making any changes in 2020 either. The policy statement released after last week’s Federal Open Market Committee (FOMC) meeting contained the exact verbiage from last October in describing the state of the U.S. economy. This included noting a “strong” labor market and an economy expanding at a “moderate rate.” As a result, the FOMC voting members agreed unanimously to keep the fed funds target at a range of 1.50 percent and 1.75 percent. The committee saw their monetary policy as “appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective.”

Economic projections released in conjunction with the policy statement indicated that FOMC members do not expect to change course in 2020. The median forecast found the U.S. economy growing 2.0 percent next year with an unemployment rate of 3.5 percent and inflation slightly below the Fed’s 2.0 percent target. The same forecast has no fed funds rate cuts next year. Thirteen of 17 FOMC members expect the fed funds target rate will hold steady in 2020 while four voting members anticipate a quarter-point rate increase.

#2The start of the holiday season retail sales fails to impress. The Census Bureau estimates retail food services sales grew 0.2 percent during the month to a seasonally adjusted $528.0 billion, off from October’s 0.4 percent increase. Boosting the headline sales figures were advances at both car dealers/parts stores (+0.5 percent) and gas stations (+0.7 percent). Net of sales at both car dealers and gas stations, core retail sales were unchanged in November. Sales slumped at health/personal care stores (-1.1 percent), apparel retailers (-0.6 percent), department stores (-0.6 percent), sporting goods/hobby retailers (-0.5 percent), and restaurant/bars (-0.3 percent). Sales grew at stores focused on electronics/appliances (+0.7 percent), and groceries (+0.3 percent), and furniture (+0.1 percent). Both the headline and core retail sales measures have risen a good, but not great 3.3 percent over the past year.

#3Consumer prices rose in November. The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) grew at a 0.3 percent seasonally adjusted rate, following October’s 0.4 percent rise. Energy CPI rose 0.8 percent, down from October’s 2.7 percent surge (gasoline: +1.1 percent versus October 2019), while food CPI edged up 0.1 percent. Net of both energy and food, core CPI increased 0.2 percent, matching October’s advance. Prices rose for used cars/trucks (+0.6 percent), medical care services (+0.4 percent), shelter services (+0.3 percent), apparel (+0.1 percent), and medical care commodities (+0.1 percent). New vehicle prices slipped 0.1 percent. Over the past year, CPI has risen 2.1 percent while core CPI has risen 2.3 percent.

#4Wholesale prices mellowed in November. The Producer Price Index (PPI) for final demand held steady during the month on a seasonally adjusted basis following a 0.4 percent gain in October. Also holding constant was the Bureau of Labor Statistics’ core measure of wholesale prices (final demand PPI net of foods, energy, and trade services), after inching up 0.1 percent during the prior month. Wholesale prices jumped 1.1 percent for food (boosted by eggs and vegetables) and 0.6 percent for energy (gasoline: +2.3 percent). Core goods PPI climbed 0.2 percent, its biggest single-month gain since July. PPI for final demand services dropped 0.3 percent, pulled down a 0.6 percent slump in PPI for trade services. Over the past year, final demand PPI has grown by a mild 1.1 percent while the core measure had a 12-month comparable of +1.3 percent.

#5Small business owners were more positive in November. The Small Business Owner Optimism Index, from the National Federation of Independent Business, added 2.3 points during the month to a seasonally adjusted reading of 104.7 (1986=100). This was the measure’s best reading since July and left it just 1/10th of a point below that of a year earlier. Seven of ten index components improved in November, led by sizeable gains for those related to earnings trends, whether it is a good time to expand, current inventories, and current job openings. Only two index components slipped: expected real sales and plans to increase inventories. The press release said that small business “[o]wners are aggressively moving forward with their business plans.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 7, 2019, First-Time Claims, seasonally adjusted): 252,000 (+49,000 vs. previous week; +39,000 vs. the same week a year earlier). 4-week moving average: 224,000 (-0.4% vs. the same week a year earlier).
Import Prices (November 2019, All Imports, not seasonally adjusted): +0.2% vs. October 2019, -1.3% vs. November 2018. Nonfuel Imports: -0.1% vs. October 2019, -1.4% vs. November 2018.
Export Prices (November 2019, All Exports, not seasonally adjusted): +0.2% vs. October 2019, -1.3% vs. November 2018. Nonagricultural Exports: Unchanged vs. October 2019, -1.6% vs. November 2018.
Productivity (Nonfarm Labor Productivity, 2019Q3, seasonally adjusted annualized rate): -0.2% vs. 2019Q2, +1.5% vs. 2018Q3.
Business Inventories (October 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): +0.2% vs. September 2019, +3.1% vs. October 2018. 

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

Retail Sales Gain, Manufacturing Does Not: November 11 – 15

Retail sales made a small comeback in October while manufacturing let up again. Here are the five things we learned from U.S. economic data released during the week ending November 15.

#1Retail sales bounced back in October. Retail and food services sales grew 0.3 percent during the month to a seasonally adjusted $526.5 billion. This followed a 0.3 percent drop in September for the Census Bureau measure. Sales rose at both auto dealers & parts stores (+0.5 percent) and gas stations (+1.1 percent). Net of both, core retail sales inched up 0.1 percent after slipping 0.1 percent during the prior month. Sales gained at general merchandisers (+0.4 percent) and grocery stores (+0.4 percent) but stumbled at stores focused on apparel (-1.0 percent), furniture (-0.9 percent), sporting goods/hobbies (-0.8 percent), building materials (-0.5 percent), and electronics/appliances (-0.4 percent). Retail sales have risen 3.1 percent over the past year, while core retail sales have a more robust 12-month comparable of +3.7 percent.

#2A now-ended strike dampened manufacturing output in October. The Federal Reserve estimates that manufacturing output fell 0.6 percent during the month following a 0.5 percent decline in September. Durable goods product slumped 1.2 percent, harmed in part by the now-settled General Motors strike. Net of automobiles, durable goods manufacturing slowed 0.2 percent. Nondurables output held steady during the month. Overall industrial production had its worst month in 17 months with a 0.8 percent decline. Mining output declined 0.7 percent while utilities production plummeted 2.6 percent. Manufacturing production was 1.5 percent below that of a year earlier, while overall industrial production was 1.1 percent behind its October 2018 pace. 

#3Higher gasoline prices heated up not only consumer inflation in October… The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) jumped 0.4 percent on a seasonally adjusted basis during the month, the biggest single-month gain since March. Gasoline prices surged 3.7 percent, pushing up energy CPI 2.7 percent. Food CPI jumped 0.2 percent (its highest one-month gain since May). Net of energy and food, core CPI increased 0.2 percent. Rising in October were prices for used cars/trucks (+1.3 percent), medical care commodities (+1.2 percent), medical care services (+0.9 percent), shelter (+0.1 percent), and transportation services (+0.1 percent). Prices decreased for apparel (-1.8 percent) and new vehicles (-0.2 percent). CPI has risen 1.8 percent over the past year, while the core measure has a 12-month comparable of +2.3 percent.

#4…But also wholesale prices. Final demand Producer Price Index (PPI) also rose a seasonally adjusted 0.4 percent in October, the biggest gain in six months for the Bureau of Labor Statistics gauge. The core measure, which nets out energy, food, and trade services, had a more modest 0.1 percent increase. Goods PPI jumped 0.7 percent, half of which came from a 7.3 percent surge in wholesale gasoline prices. Netting out gains for energy (+2.8 percent) and food (+1.3 percent), core goods PPI held steady in October. Final demand services PPI gained 0.3 percent, pushed up by a 0.8 percent rise in trade services (wholesale and retail margins). Headline PPI has grown a relatively modest 1.1 percent over the past year while the core measure has risen 1.5 percent.

#5Optimism improved slightly among small business owners. The Small Business Owner Optimism Index from the National Federation of Independent Business added 6/10ths of a point during October to a seasonally adjusted reading of 102.4 (1986=100). While this was the first increase in three months, the measure remained five full points below its year-ago mark. Eight of the index’s ten components improved during the month, led by gains for measures tied plans to increase both inventories and capital outlays. Two components dropped during the month: earnings trends and current job openings. The press release noted small business owners “are not experiencing the predicted turmoil” of a recession.

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 9, 2019, First-Time Claims, seasonally adjusted): 225,000 (+14,000 vs. previous week; +2,000 vs. the same week a year earlier). 4-week moving average: 217,000 (-1.0% vs. the same week a year earlier).
Import Prices (October 2019, All Imports, not seasonally adjusted): -0.5% vs. September 2019, -3.0% vs. October 2018. Nonfuel Imports: -0.2% vs. September 2019, -1.4% vs. October 2018.
Export Prices (October 2019, All Exports, not seasonally adjusted): -0.1% vs. September 2019, -2.2% vs. October 2018. Nonagricultural Exports: -0.1% vs. September 2019, -2.7% vs. October 2018.
Monthly Treasury Statement (October 2019, Federal Budget Deficit): -$134.5 billion (vs. October 2018: -$100.5 billion).
Business Inventories (September 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.042 trillion (unchanged vs. August 2019, +3.7% vs. September 2018).

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

Tame Inflation in September: October 7 – 11

The running theme of last week’s economic data was softness. Here are the five things we learned from U.S. economic data released during the week ending October 11.

#1Consumer prices held steady in September. The Consumer Price Index (CPI) failed to increase for the first time since January and was up by “only” 1.7 percent over the past year, per the Bureau of Labor Statistics. Food prices edged up 0.1 percent while energy prices fell 1.4 percent (gasoline prices: -2.4 percent versus September 2018). Net of food and energy, core CPI grew 0.1 percent, its smallest increase since May. Despite the softness, the core measure has risen 2.4 percent over the past year. Prices jumped 0.4 percent for health care services and 0.3 percent for shelter and transportation services. Prices slumped for used trucks/cars (-1.6 percent), health care commodities (-0.6 percent), apparel (-0.4 percent), and new vehicles (-0.1 percent).

#2…While wholesale prices slid. The Producer Price Index (PPI) for final demand fell 0.3 percent on a seasonally adjusted basis in September, its biggest decline since January. The Bureau of Labor Statistics’ core measure—which removes food, energy, and trade services—held steady during the month after rising 0.4 percent in August. Wholesale energy prices fell 2.5 percent versus August (gasoline: -7.2 percent), while food prices increased (boosted in part by higher meat prices). Core goods prices slipped 0.1 percent. Over the past year, PPI has risen 1.4 percent while the core measure also remained below the two percent target at +1.7 percent.

#3The number of available jobs fell to a 1.5-year low in August. The Bureau of Labor Statistics estimates that there were a seasonally adjusted 7.051 million open jobs at the end of the month, down 123,000 from July and 4.0 percent from a year earlier. (Some context: even with the drop, the number of openings remained quite strong by historical standards.) The private sector was responsible for 6.320 million job openings, off 4.4 percent from August 2018 levels. Weighing down the number of job openings were year-to-year drops in wholesale trade (-17.9 percent), financial activities (-16.3 percent), accommodation/food services (-10.7 percent), professional/business services (-8.4 percent), retail (-8.2 percent), and manufacturing (-3.4 percent). Hiring also slowed—falling by 199,000 jobs to 5.779 million (-0.8 percent versus August 2018)—as did separations, with 228,000 fewer people departing their jobs in August (and off 2.4 percent from a year earlier). The count of people leaving their jobs—a proxy for workers’ confidence in the labor market—slowed by 142,000 during the month (but still 1.5 percent ahead of the year-ago pace) to 3.526 million. Layoffs, however, were essentially unchanged for the month at 1.787 million (-1.2 percent versus August 2018).

#4Small business owner sentiment moderated slightly in September. The Small Business Optimism Index, from the National Federation of Independent Business, shed 1.3 points during the month (after losing 1.8 points in August) to a seasonally adjusted 104.7 (1986=100). The measure was 6.1 points below its year-ago mark. Seven of the ten index’s components fell during the month, led by declines on whether it is a good time to expand, plans to increase employment, and expectations for the economy to improve. The press release noted that the index remained at high levels but that the tariffs were “adversely affecting many small firms.”

#5Growth in consumer credit slowed as summer ended. The Federal Reserve reports that consumer had a seasonally adjusted $4.141 trillion in outstanding debt balances at the end of August, up $17.9 billion for the month and 5.0 percent over the past year. This was down from the $23.0 billion increase in July. (These figures do not include mortgages and other real estate-backed debt). Outstanding balances of nonrevolving credit (e.g., auto and student loans) expanded by $19.9 billion to $3.062 trillion (+5.5 percent versus August 2018). Contracting, however, were revolving credit balances (e.g., credit cards), which shrank by $2.0 billion to $1.079 trillion (+3.8 percent versus August 2018).

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 5, 2019, First-Time Claims, seasonally adjusted): 210,000 (-10,000 vs. previous week; -2,000 vs. the same week a year earlier). 4-week moving average: 213,750 (+0.1% vs. the same week a year earlier).
University of Michigan Surveys of Consumers (October 2019-preliminary, Index of Consumer Sentiment (1966Q1=100), seasonally adjusted): 96.0 (vs. September 2019: 93.2, vs. October 2018: 98.6).
Import Prices (September 2019, All Imports, not seasonally adjusted): +0.2% vs. August 2019, -1.6% vs. September 2018. Nonfuel Imports: -0.1% vs. August 2019, -1.1% vs. September 2018.
Export Prices (September 2019, All Exports, not seasonally adjusted): -0.2% vs. August 2019, -1.6% vs. September 2018. Nonagricultural Exports: -0.1% vs. August 2019, -1.9% vs. September 2018.
Wholesale Trade (August 2019, Merchant Wholesalers Inventories, seasonally adjusted): +0.2% vs. July 2019, +6.2% vs. August 2018.
FOMC Minutes

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