Manufacturing and Retail Thrived in June: July 16 – 20

A series of economic news points to activity heating up during the first days of summer. Here are the five things we learned from U.S. economic data released during the week ending July 20.  

#1Manufacturing (and industrial production as a whole) rebounded in June. The Federal Reserve indicates manufacturing output gained 0.8 percent on a seasonally adjusted basis during the month, following a 1.0 percent pullback in May. Virtually all of June’s gain was on the durable goods side, where production swelled 1.6 percent. This included a 7.8 percent surge in automobile production (which had slumped 8.6 percent in May) and gains of at least one-percent for computers/electronics, wood products, and aerospace/transportation equipment. Nondurable output eked out a 0.1 percent increase during June. Overall industrial production grew 0.6 percent during the month following May’s 0.5 percent drop. Mining output increased 1.2 percent (with oil and gas extraction leading the way). Meanwhile, utility output slumped 1.5 percent. Over the past year, industrial production has grown 3.8 percent, with positive 12-month comparables for manufacturing (+1.9 percent), mining (+12.9 percent), and utilities (+5.0 percent).Industrial Production Manufacturing 072018

#2Retail sales remained solid as we entered the summer. The Census Bureau estimates retail and food service sales grew 0.5 percent during the month to a seasonally adjusted $506.8 billion. This was 6.6 percent ahead of the year-ago sales pace. Net of sales at auto dealers/parts stores (+0.9 percent) and gas stations (+1.0 percent, thanks to higher prices at the pump), core retail sales increased by a still decent 0.3 percent during the month and has grown 5.6 percent over the past year. The report also featured significant upward revisions to May sales, showing the headline and core sales rising 1.3 percent and 1.2 percent, respectively. Sales improved during June at retailers focused on health/personal care (+2.2 percent), building materials (+0.8 percent), and furniture (+0.6 percent). Sales also jumped 1.5 percent at restaurants/bars. But the news was not positive everywhere, with sales slumping at sporting goods/hobby stores (-3.2 percent), apparel retailers (-2.5 percent), electronics/appliance retailers (-0.4 percent), and grocery stores (-0.2 percent). 

#3Forward-looking economic indicators point to an accelerating U.S. economy in June. The Conference Board’s Leading Economic Index (LEI) added a half point to a seasonally adjusted reading of 109.8 (+5.8 percent versus June 2017). Seven of the ten components of the LEI made positive contributions during the month, led by new orders as measured by the Institute for Supply Management and the interest rate spread. The coincident index gained by 3/10ths of a point to 103.9 (+2.3 percent versus June 2017), aided by positive contributions for all four its components (including industrial production and nonfarm payrolls). The lagging index also increased by 3/10ths of a point (to a reading of 105.4, +2.7 percent versus June 2017). Four of the seven lagging index components made positive contributions, including those for the amount of outstanding commercial & industrial loans and the average length of unemployment. The press release said that the results do “not suggest any considerable growth slowdown in the short-term.”

#4Housing construction slowed in June. The Census Bureau reports that housing starts sank 12.3 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.173 million units. This represented a 4.2 percent decline from the June 2017 pace. Single-family home starts dropped 9.1 percent to 858,000 units (SAAR), just 0.2 percent under the year-ago pace while multifamily units started fell 20.2 percent to 304,000 units (-15.3 percent versus June 2017). Also declining was the annualized number of building permits, down 2.2 percent for the month to 1.301 million permits (-3.0 percent versus June 2017). The rate of housing completions held firm for the month at 1.261 million homes, which was nevertheless 2.3 percent ahead of that from a year earlier.

#5Homebuilders have remained confident this summer. The Housing Market Index (HMI) from the National Association of Home Builders held steady at a seasonally adjusted reading of 68. Not only was this the third time over the past four months in which the HMI was at 68, it also was the 49th consecutive month the index was above a reading of 50 (indicative of more homebuilders viewing the housing market as being “good” versus being “poor.” The HMI improved in the Midwest, was unchanged in the Midwest but lost ground in both the West and Northeast. The index measuring current sales of single-family homes remained at 74 while the expected sales index shed two points to 73. The index tracking the traffic of prospective buyers added two points to 52. The press release noted that even with the solid level of confidence, homebuilders are “burdened by rising construction material costs.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 14, 2018, First-Time Claims, seasonally adjusted): 207,000 (-8,000 vs. previous week; -32,000 vs. the same week a year earlier). 4-week moving average: 220,500 (-9.7% vs. the same week a year earlier).
Business Inventories (May 2018, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.937 trillion (+0.4% vs. April 2018, +4.4% vs. May 2017).
Treasury International Capital Flows (May 2018, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$20.3 billion (vs. April 2018: +$22.6 billion, vs. May 2017: +$95.5 billion).
Beige Book

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

The Fed Moves, Likely to Repeat Twice More in 2018: June 11 – 15

The Fed raises its target for short-term interest rates as inflation moves ever so closer to targeted levels. Here are the five things we learned from U.S. economic data released during the week ending June 15.  

#1The Fed boosts short-term interest rates and appears ready to do so twice more again this year. The policy statement released following this past week’s meeting of the Federal Open Market Committee (FOMC) characterized economic activity as “rising at a solid rate” and that the labor market “continued to strengthen” with core inflation moving closer to the Fed’s two-percent target rate. The statement also noted that risks to future economic activity as being ”roughly balanced.” As a result, the committee voted unanimously to boost the fed funds rate by 25-basis points to a range between 1.75 and 2.00 percent. This was the FOMC’s second rate hike of 2018 but keeps the short-term interest target in a range the committee views as “accommodative.”

Accompanying the policy statement were the updated economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, which highlight a more optimistic view of near-term conditions. For example, the median forecast for 2018 economic growth increased by 1/10th of a percentage point to +2.8 percent and the expected unemployed rate dropped by 2/10ths of a percentage point to 3.6 percent. The forecasters also see a greater firming of inflation with the core PCE deflator (the Fed’s preferred measure of inflation) at +2.1 percent, up from the prior forecast of +1.9 percent. As a result, the median forecast for the fed funds target rate suggests two more quarter-point rate hikes this year (up from a single additional rate bump previously anticipated). Further, the median forecast points to three quarter-point hikes in 2019 and one rate hike in 2020.FOMC Fed Funds Forecast--2018-2020

#2Inflation continued to build steadily in May. The Consumer Price Index (CPI) grew 0.2 percent on a seasonally adjusted basis for the third time in four months, per the Bureau of Labor Statistics. Energy prices jumped 0.9 percent, as gasoline prices gained 1.7 percent. Food CPI held steady during the month. Net of energy and food, core CPI increased 0.2 percent and has grown 2.2 percent over the past year. (The 12-month comparable for the headline index was +2.8 percent). Jumping during the month were prices for medical commodities (+1.3 percent), new vehicles (+0.3 percent), and shelter (+0.3 percent) while prices declined during the month for used cars/trucks (-0.9 percent) and medical care services (-0.1 percent).

Meanwhile, the Producer Price Index (PPI) for final demand soared 0.5 percent (seasonally adjusted), its fastest rate of growth since January. The core measure, which nets out energy, food, and trade services, grew at a more modest 0.1 percent for a second consecutive month. Wholesale prices for final demand goods swelled 1.0 percent, led by the 4.6 percent surge in wholesale energy prices (PPI for gasoline: +9.8 percent). Final demand food PPI eked out a 0.1 percent increase.  Net of energy and food, core final demand goods PPI gained 0.3 percent. PPI for final demand services increased 0.3 percent for the fourth time in five months, which included the impact of a 0.9 percent advance in prices for trade services (reflecting larger retailer and wholesaler margins). Over the past year, final demand PPI has jumped 3.1 percent during which the core wholesale price measure (net of energy, food, and trade services) has risen 2.6 percent.

#3Retail sales surged in May. The Census Bureau estimates retail and food sales were at a seasonally adjusted $502.0 billion, up 0.8 percent from April and 5.9 percent from a year earlier. Motor vehicle sales jumped 0.5 percent while higher prices at the pump resulted in a 2.0 percent rise in gas station sales. Net of sales at auto dealers/parts stores and gas stations, core retail sales rose 0.8 percent to $443.1 billion (+5.1 percent versus April 2017). May was a good month for building material/garden supplies stores (+2.4 percent), department stores (+1.5 percent), apparel retailers (+1.3 percent), restaurants/bars (+1.3 percent), and health/personal care retailers (+0.5 percent). Sales slowed during the month at furniture stores (-2.4 percent) and sporting goods/hobby retailers (-1.1 percent).

#4Manufacturing decelerated in May. Per the Federal Reserve’s Industrial Production report, manufacturing output slumped 0.7 percent on a seasonally adjusted basis, leaving it 1.7 percent ahead of its year-ago pace. The report links much of the decline to a “major fire at a parts supplier” that had disrupted truck assemblies. Net of vehicle production, manufacturing slowed by a more modest 0.2 percent. Output of durables fell 1.2 percent (motor vehicles production plummeted 6.5 percent) while that of nondurable slipped 0.1 percent. Overall industrial production decreased 0.1 percent during the month but was up 3.5 percent over the past 12 months. Mining output grew for the fourth straight month (+1.8 percent versus April 2018 and +12.6 percent versus May 2017), led by increased oil and gas extraction. Higher demand for electricity led to a 1.0 percent increase in output at utilities.

#5Small business owners’ optimism blossomed during the spring. The National Federation of Independent Business’ Index of Small Business Optimism jumped by 3.0 points to a seasonally adjusted reading of 107.8. Not only was this a post-recession high for the sentiment measure, it also was its second-best reading in the index’s second-best reading ever (a 45-year history). Eight of the index’s ten components improved from their April readings, led by expected real sales (+10 points), expectations for the economy (+7 points), on whether it is a good time to expand (+7 points), and earning trends (+4 points). While noting difficult in their ability to find qualified workers to hire, the press release stated employers “now have more resources to commit to attracting candidates.” 

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 9, 2018, First-Time Claims, seasonally adjusted): 218,000 (-4,000 vs. previous week; -22,000 vs. the same week a year earlier). 4-week moving average: 224,250 (-8.1% vs. the same week a year earlier).
Import Prices (May 2018, All Imports, not seasonally adjusted): +0.6% vs. April 2018, +4.3% vs. May 2017. Nonfuel imports: +0.2% vs. April 2018, +1.9% vs. May 2017.
Export Prices (May 2018, All Exports, not seasonally adjusted): +0.6% vs. April 2018, +4.9% vs. April 2018, Nonagricultural Exports: +0.5% vs. April 2018, +4.9% vs. May 2017.
University of Michigan Consumer Sentiment (June 2018-preliminary, Index of Consumer Sentiment, seasonally adjusted): 99.3 (vs. May 2018: 98.0, June 2017: 95.0).
Business Inventories (April 2018, Manufacturing and Trade Inventories, seasonally adjusted): $1.930 trillion (+0.3% vs. March 2018, +4.4% vs. April 2017).
Monthly Budget Statement (May 2018, U.S. Budget Surplus/Deficit): -$146.8 billion (vs. May 2017: -$88.4 billion). Deficit over first 8 months of FY 2019: -$532.2 billion (vs. +23.0% vs. first 8 months of FY 2018).

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

Factories and Consumers Were Active in April: May 14 – 18

Manufacturing rebounded while retail held firm in April. Here are the five things we learned from U.S. economic data released during the week ending May 18.

#1Manufacturing output picked up in April. The Federal Reserve estimates manufacturing production gained 0.5 percent on a seasonally adjusted basis during the month after being unchanged in March. Manufacturing output has increased 1.8 percent over the past year. Durable goods production grew 0.4 percent during the month while that for nondurables expanded 0.5 percent. Leading the former were substantial increases for machinery, aerospace equipment, electrical equipment/appliances, and computers/electronics. Boosting the latter were apparel and petroleum/coal. Overall industrial production increased 0.7 percent in April, matching March’s gain and having risen 3.5 percent over the past year. Production at utilities jumped 1.8 percent during April while mining output swelled 1.1 percent (with oil/gas extraction leading the latter).Industrial Production 2016-18 051818

#2Retail sales remained stout in April even as gas prices rise. The Census Bureau reports that retail and food services sales totaled a seasonally adjusted $497.6 billion, up 0.3 percent for the month and 4.7 percent from the April 2017 sales pace. Sales at auto dealers and parts stores inched up 0.1 percent while that as gas stations rose 0.8 percent (because of higher prices at the pump). Net of both, core retail sales increased 0.3 percent during April. Reporting higher sales during the months were retailers focused on apparel (+1.4 percent), furniture (+0.8 percent), groceries (+0.5 percent), and building materials (+0.4 percent). Sales slowed at health/personal care stores (-0.4 percent), restaurants/bars (-0.3 percent), electronics/appliance retailers (-0.1 percent), and sporting goods/hobby stores (-0.1 percent). Nonstore retailers (e.g., internet retailers) saw sales grow 0.6 percent during April and rise 9.6 percent over the past year.

#3Housing starts slowed in April, with less activity for multi-family units. The Census Bureau pegs the seasonally adjusted annualized rate (SAAR) of housing starts for April at 1.287 million units, off 3.7 percent for the month but still 10.5 percent ahead of the year-ago pace. Dragging down the measure was the 12.6 percent drop in starts of multifamily units (to an annualized 374,000 units). Single-family home starts edged up 0.1 percent to an annualized 894,000 units. Looking towards future activity, there were an annualized 1.352 million issued permits to build new homes. While this represented a 1.8 percent decrease from March, it was 7.7 percent above April 2017 levels. Single-family home permits were 0.9 percent higher than that of March. Home completions increased 2.8 percent during the month to an annualized 1.257 million units (+14.8 percent versus April 2017).

#4Homebuilders remained confident about the housing market during May. The National Association of Home Builders’ Housing Market Index (HMI) added two points during the month to a seasonally adjusted reading of 70. This was the 47th consecutive month with an HMI above a reading of 50 (indicative of a greater percentage of builders viewing the housing market as “good” as opposed to “bad”) and places the sentiment measure ahead of its 12-month average of 68.6. While the HMI improved in the Midwest, it lost ground in the both in the South and West and was unchanged in the Northeast. The index measuring current sales of single-family homes added two points (to 76) while measures of expected sales over the next six months (77) and traffic of prospective buyers (51) matched their April readings. The press release notes that demand for homes should remain strong due to “[t]ight housing inventory, employment gains and demographic tailwinds.”

#5Forward-looking indicators suggest continued economic growth for the remainder of 2018. The Conference Board’s Leading Economic Index added 4/10ths of a point in April to a reading of 109.4 (2016=100). The LEI has increased 6.4 percent over the past year. Eight of the ten components to the LEI made positive contributions, led by the interest rate spread and the average number of hours worked in manufacturing. The coincident index gained by 3/10ths of a point to 103.5 (+2.2 percent versus April 2017), with all four components of the coincident index making positive contributions in April. Also adding 3/10ths of a point was the lagging index, with the 104.7 reading being 2.5 percent ahead of that from a year earlier. The press release stated that the leading indicators data “suggest solid growth should continue in the second half of 2018.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 12, 2018, First-Time Claims, seasonally adjusted): 222,000 (+11,000 vs. previous week; -16,000 vs. the same week a year earlier). 4-week moving average: 213.250 (-12.0% vs. the same week a year earlier).
State Employment (April 2018, Nonfarm Payrolls, seasonally adjusted): 3 states experienced significant increases in payrolls vs. March 2018. 28 states experienced significant payrolls increases vs. April 2017 while 1 experienced a significant decline.
Business Inventories (March 2018, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.930 trillion (Unchanged vs. February 2018, +3.8% vs. March 2017).
Treasury International Capital Flows (March 2018, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$18.6 billion (vs. February 2018: -$57.7 billion, vs. March 2017: -$35.5 billion).

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