New-home sales declined 8.9% in October. The force of that decline was offset somewhat by an 8.0% upward revision to September. However, even with those revisions, there is a clear downtrend in new-home sales that has been in place ever since late-2017, as the chart here makes clear.
Orders for durable goods declined 4.4% in October, on top of a -0.8% revision to September estimates. That headline number includes extremely volatile orders for aircraft. The more closely watched durables measure focuses on nondefense durables orders excluding transportation equipment (thus aircraft). That measure showed a 0.2% gain in October, but even its gain was more than offset by a -0.6% revision to September.
Our control sales measure excludes motor vehicles dealers, building materials stores, and gas stations (but includes restaurants). It rose only 0.25% in October, and that gain was almost fully offset by a -0.22% revision to September, leaving October control sales essentially unchanged from the level for September announced a month ago.
Today we assess growth prospects for 2019. The US economy has beaten our forecast, but we still contend that the improvement seen in the past two years is more narrowly focused and more tenuous than is generally stated. We expect likely slower growth in 2019 as some of the fortuitous factors recently boosting growth begin to fade.
Payroll jobs bounced nicely in October, following muted gains in September. Private-sector payroll jobs rose by 246,000, following a September gain of 121,000. There was a +13,000 revision to the level of private payroll jobs in both August and September.
Real GDP grew at a 3.5% rate in 3Q18, with the GDP deflator showing 1.4% inflation, so that nominal GDP grew at an annualized rate of 4.9%. Consumer spending grew nicely in the quarter, up at a 4.0% rate. However, the real factor driving good 3Q18 growth was inventories, which rose strongly and contributed 2.1% of the total GDP growth. In other words, real final sales—or real final demand—that is, GDP excluding inventories, rose at a 1.4% pace.
Private-sector jobs were reported this morning as rising 121,000 in September, with a +34,000 revision to the August level. For our preferred measure, private-sector jobs excluding construction and retailing, the rise was 108,000, along with a +14,000 revision to August. The latter gains compare to trend growth rates of about 170,000 per month over 2013-16 for our preferred measure.
Personal income rose 0.3% in August, from a July level essentially unrevised from the estimates released a month ago, and ditto for disposable income. The private-sector wage and salary income component of personal income (43% of total personal income) rose a more respectable 0.5% from an also unrevised July estimate.
Headline housing starts rose a healthy-sounding 9.2% in August, on top of a +0.5% revision to the July estimate. Single-family housing starts rose 1.9%, with July estimates revised by -0.2%. Single-family starts are clearly the more "watchable" measure within this report, and while August starts showed an increase, that gain is only a slight offset to declines shown earlier in the year. On net, housing activity looks like it is pausing, after growing decently over 2014-17.
Headline retail sales rose 0.1% in August, though July’s estimated sales total was revised upward by 0.2%. We focus more on a "control" sales measure that excludes motor vehicles, building materials, and gasoline, but includes restaurants. Those measures rose by 0.2% (rounded up from 0.15%), along with a 0.4% upward revision to July.
Headline private-sector jobs rose by 204,000 jobs in August, but that was off a July number revised down by 59,000 from what was announced a month ago. Our preferred jobs measure, private-sector excluding construction and retailing, rose by 187,000 in August, with a 28,000 downward revision to July’s previously reported level.
Disposable personal income rose by 0.3% in July, while private-sector wages and salaries rose by 0.4%. Both measures showed only negligible revisions to June data. Also released today was detail on July consumer spending. Total real consumer spending rose by 0.2%, with a -0.1% revision to the June print.
Orders for durable goods declined -1.7% in July, with June orders levels revised down by 0.2%. Excluding the volatile transportation equipment sector, where aircraft orders routinely jump 30% up or down from month to month, orders were up a slight 0.2%, with a similarly slight (-0.051%) revision to June. For "core" capital goods (excluding aircraft), orders rose by 1.4%, with a 0.3% upward revision to June.
Total retail sales rose by 0.5% in July, though with a -0.4% revision to June. We closely track a "control" measure of retail sales that excludes vehicle dealers, service stations, and building materials stores. That measure showed a 0.6% gain, with only a negligible downward revision to June.
The Consumer Price Index (CPI) rose 0.2% in July, or 2.7% annualized, and was up 2.9% over the past 12 months. The closely watched core CPI, excluding food and energy prices, also rose 0.2%, 3.0% annualized, and was up 2.4% over the last 12 months. These July inflation rates were higher than what we had seen in the previous five months, though less of a bounce than that recorded for January 2018.
July payroll job data today showed something for everybody, with private-sector payrolls up only a disappointing 170,000, but the already strong June gain revised up by a whopping 53,000. We focus on a job measure that excludes the especially volatile construction and retailing sectors. That series reported a gain of 144,000, with an upward revision of 47,000 to June.
The initial estimate of 2Q18 GDP growth came in at 4.1%, paced by strong growth in consumer spending and by a hefty contribution from foreign trade, with US exports up strongly and imports up only slightly. The 2Q18 growth number was one-half a percentage point above the 3.6% we had estimated and 0.2 percentage points above the 3.9% estimates that we had seen from other analysts.
Headline retail sales rose by 0.5% in June. The "control" measure we track, sales excluding cars, gas stations, and building materials, rose 0.2%. The bigger story was revisions to the May gains, with both headline and control sales revised upward by 0.5%, to 1.3% and 1.1% gains, respectively.
Headline Consumer Price Index (CPI) inflation occurred at a 0.1% monthly rate in June, seasonally adjusted, which comes to 1.55% annualized and 2.80% over the last 12 months. For so-called core inflation, excluding food and energy, the seasonally adjusted June increase was 0.2%, 1.96% annualized, and 2.23% over the last 12 months.*
Private-sector nonfarm payroll jobs rose by 202,000 in June, with 37,000 of upward revisions to the May level. We focus on a measure of private-sector payroll jobs that excludes the volatile construction and retailing sectors. That measure rose by 211,000, with 55,000 of upward revisions to May. Both measures are displayed in the accompanying chart.
Inflation-adjusted consumer spending declined in May, on top of a -0.1% revision to the April estimate. Goods spending rose nicely, in line with the retail sales data reported here on June 14. The "core" goods spending measure we track, excluding motor vehicles, rose 0.4%, with a 0.2% upward revision to April. However, "core" services spending, excluding utilities and medical care, rose less than 0.1%, with a -0.2% revision to April. These measures are shown in the accompanying chart.
Housing starts were reported this morning to have risen in May, with single-family starts up 3.9% and multi-family starts up 5.0%. Both measures saw slight downward revisions on net to previous months' data. The increases in multi-family starts continue a pattern of wild month-to-month swings within a generally flat trend. For single-family starts, the May gains continue a pattern of modest growth, with a lot of month-to-month "chop."
Total retail sales showed a robust 0.8% gain in May, while the less volatile control sales measure we track rose an also nice 0.6%. Today’s data included benchmark revisions that the Census Bureau imparted going back a few years, so revisions to recent months’ data are not informative. However, as you can see in the accompanying chart, retail sales now look to show some net acceleration since fall 2017, which did not show up in the data pre-revisions.
Data released today on the April US merchandise trade balance showed the trade deficit holding in April at -$67.3 billion for the month, or at an annual rate of -$808.3 billion per year, compared to -$68.5 billion in March and equivalent to a rate of -$822.2 billion per year. Both these prints are big improvements over the readings through February, which were in the range of -$900 billion per year.
Private-sector payroll jobs showed a gain of 213,000 in May, with a 15,000 upward revision to the April level. Strip out the volatile construction and retailing sectors—to get my "core" jobs measure—and the May gain was 162,000, with an 11,000 DOWNward revision to April. The May performance for this core jobs measure was just below the average for the last few years, though a bit better than what we have seen on average over the last eight months.
Durable goods orders declined 1.6% in April, with essentially no revision to the previously announced March estimate. Excluding the volatile transportation equipment component, however, durables orders rose 0.9%, with a 0.6% upward revision to March.
Headline retail sales showed a 0.3% gain in April, on top of a 0.3% upward revision to the March estimate. For the "control" sales measure we track, sales were also up 0.3%, with a 0.4% upward revision to March.
The Consumer Price Index (CPI) for inflation registered a 0.2% increase in April, for a 2.5% rate over the last 12 months, while the "core" CPI inflation measure came in at 0.1% in April, for a 2.1% 12-month rate. Core inflation excludes volatile food and energy prices and so is more closely tracked by analysts.
Private-sector jobs rose 168,000 in April, though there was a +30,000 revision to a March print that still looks on the soft side. For our preferred jobs measure, private-sector employment less construction and retailing, April job gains were 150,000, with a +17,000 revision to March.
GDP growth for 1Q18 came in this morning at 2.3%, a bit above consensus guesstimates of around 2.0% and well above our own guesstimate of 0.9% growth. Consumer spending growth was as soft as expected, growing at a 1.1% rate, compared to 4.0% in 4Q17. Business equipment investment was softer than expected rising at "only" a 4.7% rate, versus growth over the previous year of 8.9%.
Retail sales rose by 0.6% in March, with a slight downward revision to February's data. A good bit of that apparently strong headline gain came from motor vehicles, which have been especially choppy lately. The 2% March gain in vehicle sales came off of four straight months of declines and leaves vehicle sales levels little changed from the flat trend of the past 16 months.
While headline Consumer Price Index (CPI) inflation in March was negative at -0.1%, core CPI inflation rose just under 0.2% on the month and 2.1% over a year ago. As seen in the first accompanying chart, the 12-month core inflation rate has increased over the last few months.
We've seen increased volatility in financial markets lately, and now we're seeing increased volatility in the economic data. After a very strong February payroll jobs report a month ago, we got a very weak reading for March this morning.
In my assessments of the economy, I completely ignore sentiment indices, especially the data on consumer confidence. I’ve never had reason to regret this “ignoring,” and the recent experience on consumer spending only strengthens my convictions.
February durable goods orders and shipments data showed resumed growth in durable goods manufacturing. Headline durable goods orders were up 3.1%, with a small 0.1% upward revision to January. Excluding the volatile transportation goods component, durable goods orders rose 1.2%, also with a 0.1% upward revision. Within this release, data on orders for capital goods (excluding aircraft) give a good indication of capital spending developments. These showed a 1.8% increase in February, with a 0.1% downward revision.
Retail sales were soft again in February, basically echoing what we saw in January. Headline retail sales were down 0.1% in February, offsetting a 0.1% upward revision to January, leaving the February sales level unchanged from what was announced a month ago. For our "control" sales measure, excluding cars, gasoline, and building materials (but including restaurants), sales were up 0.1%, but that offset a downward revision to January, so this measure too was unchanged from the level announced a month ago.
Payroll jobs showed some big headline gains in February, but beneath the surface there was less cause for excitement. Private-sector jobs were reported as rising by 287,000 in February, with a whopping 50,000 upward revision to the January number.
New-home sales declined by 7.8% in January, although there was a 2.9% upward revision to the December estimate, with October and November sales totals revised upward by smaller amounts. The sales declines were concentrated in the South (-14.2%), with smaller sales declines in the Northeast (-33.3%, but off a much smaller base level). Sales increased slightly in the West and Midwest.
After the fun of the party comes the hangover/cleanup. So it was with retail sales data this morning. After we saw sharp retail sales gains in November, which levels appeared to be sustained through December, the question became: were consumers off to the races for real or were the November/ December gains just a Christmas binge that consumers would have to pay for in January, when the credit card bills came in? The answers provided by today's January retail sales release point to the binge/hangover story.
It is a slow week in terms of economic data (though the financial markets are more than making up for that). So, we thought we would cover a relatively new area for these commentaries: US foreign trade.
Private-sector payrolls job rose by 196,000 in January, with November and December cumulative job gains revised down by a slight 2,000. For the “core” job measure we focus on, private-sector jobs excluding construction and retailing, gains in January were 145,000, with -16,000 of revisions to November-December cumulative growth (now estimated at 148,000 in November and 159,000 in December). These gains are about average for this control series—170,000 per month over recent years.
This morning provided not one but two important pieces of economic information: December new orders for durable goods and the first estimate of 4Q17 GDP. “Core” durable goods orders rose 0.6% in December, with a 0.4% upward revision to November’s level. A key measure within that release, orders for new capital equipment (excluding transportation equipment), basically held steady, with a -0.3% decline in December offset by a 0.3% upward revision to November’s level.
The adage "What goes up must come down" does not always hold for economic data. The economy is, after all, growing, so most indicators therein will tend to increase over time. However, occasionally the data show one-month gains—or declines—that look to be a break from preceding trends. Those will either be reversed—going up then down—or else sustained, signaling a break in trend.
After last week’s soggy payroll jobs report, there was a distinctly better tone to retail sales news this morning. True, December headline sales rose only 0.4%, with our control measure (excluding cars, building materials and gasoline) up an equal amount. However, that was on top of a 0.6% upward revision to November sales gains that were already strong even prior to the revisions.
Actually, today’s news covered December 2017, but since it is the first major data release of 2018, we’ll stick with the stance taken in the headline. As for the “soggy” part, private-sector jobs rose only 146,000 in December, while our “core” measure, private-sector excluding construction and retailing, rose by 136,000.
Housing starts rose 3.3% in November according to data released this morning, offsetting a -2.6% revision to the previously announced October level. Within total housing starts, single-family starts are more closely followed, and here the news was uniformly positive, with a 5.3% increase announced for November on top of a +0.7% revision to October.
November retail sales registered strong gains in data released this morning, with headline retail sales rising by 0.8% above an October level that was revised upward by 0.2%. Our “control” sales measure, tallying sales excluding vehicles, gasoline, and building materials, was also up by 0.8% with 0.2% upward revisions to October.
Payroll jobs registered nice November gains in data released this morning. Total payroll jobs rose by 228,000 in November, with a slight 3,000 upward revision to October’s level. Private-sector payroll jobs rose 221,000, with a more substantial 30,000 upward revision to October. The “core” jobs measure we track closely, private payrolls excluding construction and retail, rose by 178,000 jobs, with 18,000 of upward revisions to October.
New-home sales rose 6.2% in October off a nice increase in September, although the latter was revised downward by 3.3%. The September and October gains in new-home sales are mostly a reversal of depressed home sales levels seen in July and August, when a series of hurricanes pummeled the Southeast and kept potential homebuyers out of the market. Thus, even with the (revised) 14.2% increase in September and the October gains, average new-home sales for the last four months are still only on par with the prevailing sales levels of the first six months of 2017.
New orders for manufactured durable goods declined 1.2% in October, with September orders unrevised. This decline was due to a pullback in bloated orders for aircraft, as can be seen from the fact that orders for durables excluding transportation equipment rose 0.4% in October, with a +0.4% revision to September.
Retail sales rose just less than 0.2% in October, and September sales were revised upward by 0.3% to a 1.9% revised gain. For the less volatile “control” sales measure we track, excluding vehicles, gasoline, and building materials, sales rose just less than 0.4%, with September revised up by just less than 0.1%, to a 0.4% gain.
Private-sector payrolls rose a nice 252,000 in October, on top of 90,000 of upward revisions to the September level. For the payroll measure we focus on, private-sector jobs excluding construction and retailing, jobs rose by 249,000 in October, with 53,000 of upward revisions to September’s level.
Personal income rose 0.4%, with a negligible downward revision to August. Disposable income and private-sector wage income rose comparably, up 0.4% and 0.5%, respectively, also with negligible revisions to prior data. These decent gains followed—and thus offset—softer increases in August, barely above zero for total income and wage income, and 0.1% for disposable income.
The last few economic releases have been distorted by the effects of Hurricanes Harvey, Irma and Maria. Going into this morning’s release of September durable goods orders data, I was wondering what hurricane effects might work their way into this release. I didn’t see how the incidence of a hurricane could keep a company from phoning (emailing?) in orders for goods, but who knew for sure?
September industrial production data released today show a 0.3% increase in overall industrial output, which offset most of a 0.4% downward revision to August data. We pay special attention to the manufacturing component of industrial production (74% of the total index). Manufacturing showed a 0.1% increase in September, which was more than offset by a 0.4% downward revision to August.
Today’s retail sales report for September showed total sales up 1.6%, on top of a 0.4% upward revision to the August level. The “control” measure we track, sales excluding car dealers, building material stores, and gas stations, was up a nice 0.5%, on top of a 0.2% upward revision. This news is the mirror image of what we saw a month ago, when August sales were announced as declining, and July sales levels were revised sharply downward.
Just as Gulf Coast states were bracing for the onset of hurricanes Harvey, Rita and Irma in August and September, so the markets have been bracing for the effects of those storms on the economic data. Today’s payroll data did indeed show large impacts of the hurricanes. Market response so far has rightly ignored the impact of the hurricanes on job growth, but mistakenly ignored the equally sharp effects of the hurricanes on average hourly wages.
New orders for durable manufactured goods rose 1.7% in August, with no revisions to the July level. Excluding the very volatile transportation equipment sector, durables orders were up 0.2%, on top of a +0.2% revision to July. Within durable goods orders, business capital spending is measured via orders for nondefense capital goods (excluding aircraft and parts), and this measure rose 0.9%, with a +0.1% revision to July.
August total housing starts showed a decline of 0.8%, but there was a 3.0% upward revision to July, so the August print was actually 2.6% above what was reported for July a month ago. The more important single-family starts component went in the reverse direction. It showed a 1.6% August gain but a 2.1% downward revision to July, so its August print was 0.6% below the month-ago announcement for July.
August total housing starts showed a decline of 0.8%, but there was a 3.0% upward revision to July, so the August print was actually 2.6% above what was reported for July a month ago. The more important single-family starts component went in the reverse direction. It showed a 1.6% August gain but a 2.1% downward revision to July, so its August print was 0.6% below the month-ago announcement for July.
August total housing starts showed a decline of 0.8%, but there was a 3.0% upward revision to July, so the August print was actually 2.6% above what was reported for July a month ago. The more important single-family starts component went in the reverse direction. It showed a 1.6% August gain but a 2.1% downward revision to July, so its August print was 0.6% below the month-ago announcement for July.
July data on US foreign trade in merchandise saw exports declining a scant 0.27%, while imports declined by 0.22%. As with other economic indicators, we look at “core” measures of foreign trade that exclude particularly volatile elements, in this case, petroleum, vehicles, and capital goods. On this basis, real merchandise exports dropped by 0.67% in July, while imports climbed by 1.02%.
Today’s payroll jobs report featured misleading headline data. Total nonfarm payroll jobs saw growth of only 156,000 jobs in August, with downward revisions of 41,000 to July. However, private-sector nonfarm payrolls saw 165,000 of gains in August and upward revisions of 10,000 to July. In other words, government jobs saw a decline of 9,000 in August and 51,000 of downward revisions to July.
Sales of new-homes dropped 9.4% in July, or by 59,000 units per year. At the same time, April–June data were revised up by a sum total of 43,000. As dramatic as a 9.4% monthly decline might sound, the Census Bureau’s margin for error is +/–12.9%, so the reported July decline is not significantly different from a zero change. In other words, monthly data for home sales—and housing starts—are very volatile, and one needs to look at a number of months’ data to establish a trend.
After two soggy reports for May and June, July retail sales data came in much stronger, serving to dispel fears that the consumer was running out of gas. Headline retail sales rose 0.6% in July, on top of a +0.5% revision to June sales levels. The control sales measure we track, sales excluding cars, building materials, and gasoline, rose 0.5%, on top of a +0.4% revision to June.
July consumer prices reflected continued low inflation, confounding consensus and Fed expectations. Both the headline Consumer Price Index (CPI) and Core CPI (excluding food and energy) showed 0.1% increases in July and 1.7% increases over the past 12 months. The Fed’s inflation target actually concerns the core price deflator for personal consumption expenditures. Based on today’s news, that indicator is also likely to show a 0.1% gain for July, but only 1.4% for the last 12 months, well below the Fed’s (unofficial) target of 2.0%.
Payroll job growth improved in July, following up on a similarly better print for June. Private-sector jobs rose by 205,000 in July, following a gain of 194,000 in June, the latter boosted by a slight +1,000 revision. The “core” jobs measure we track, private jobs excluding construction and retailing, rose by 198,000 in July, with a +14,000 revision to June boosting that month’s gains to 177,000.
Today’s first estimate of 2Q17 GDP put real growth at 2.6%, up from a revised 1.2% rate in 1Q17. Inflation as per the GDP deflator came in at 1.0% in 2Q17, down from a revised 2.0% rate in 1Q17. Today’s release also included benchmark revisions to growth back a few years. 2015 growth was revised up a bit, 2016 growth down a bit, for a net 0.1% upward revision to both nominal and real GDP.
Total housing starts rose 8.3% in June, while the less volatile single-family starts measure rose 6.3%. The June gains followed declines in starts over the preceding three months. As you can see in the accompanying chart, even with the June gains, single-family starts levels remain below the highs achieved in October 2016 and then again in February 2017.
Headline retail sales declined 0.2% in June, though the May level was revised up by 0.1%. The "control" measure we track—retail sales excluding vehicles, gasoline, and building materials—also declined by 0.2%, with zero revision to June.
Payroll job growth picked up in June, with total nonfarm payroll jobs up 222,000, on top of a 47,000 upward revision to May. Private-sector payrolls were up 187,000 in June, with 33,000 of upward revisions to May. The “core” job growth measure we track, excluding construction and retailing, was up 163,000, also with upward revisions of 33,000 to May.
May personal income rose 0.4%, with disposable income up 0.5%, but wage income up less than 0.1%. The gap between growth in total income and wage income is enormous, and, indeed, when one looks at the income details, it becomes clear that the May strength derives from a spike in dividend income.
Retail sales turned in yet another soggy performance in May, with headline sales down 0.3% on top of an unrevised April level, while our “control” measure of sales, excluding cars, gasoline, and building materials, was essentially flat, with a 0.2% upward revision to April. For some months now, Wall Street forecasters have been calling for an acceleration in retail sales, but American consumers have stubbornly failed to comply. Sales growth has not exactly been weak, but it certainly has not registered the speed-up that the Street was looking for.
Total payroll jobs grew by 138,000 in May, with downward revisions of 66,000 to the previously reported April level, according to Bureau of Labor Statistics data announced this morning. For private-sector payrolls, May growth was 147,000, with downward revisions of 39,000. For the “core” jobs measure we focus on, private-sector jobs excluding construction and retailing, May job growth was 142,000, and downward revisions were only 8,000.
April durable goods orders showed a mild 0.7% decline, while durables orders excluding the very volatile transportation sector declined 0.4%. Focusing on capital goods, April orders declined 1.9%, though that was due to the very volatile aircraft sector, as capital goods orders excluding aircraft were flat. Just as important as the April news for these series was a set of benchmark revisions that altered the historical path going back a few years.
While headline housing starts declined 2.5% in April, this was all due to the extremely volatile multi-family sector, as single-family starts were essentially flat, on top of a 0.1% upward revision to the March tally. Homebuilding has been one of the bright spots for the US economy so far this year, as single-family starts have largely sustained the sharp increase we saw in October 2016. While starts have, again, merely sustained their elevated levels since then, that has been enough to drive a steady increase in single-family construction spending (and jobs) in the seven months since the October spike.
Retail sales registered a tepid rebound in April, following generally soft growth in the first quarter. Headline retail sales were up 0.4% in April, after swings of +0.1% and -0.2% in March and February, respectively. Our control sales measure, excluding vehicles, building materials and gasoline, was up 0.2%, following +0.6% and -0.2% swings in March and February.
After the very weak payroll jobs report for March, we got something of a bounce-back in April, with private-sector jobs rising by 183,000 and a modest, 9,000 downward revision to March. The jobs measure we track most closely, private-sector jobs less construction and retailing, rose 194,000 in April, following an 11,000 downward revision in March to a 77,000 gain.
Since at least the elections last fall, hopes and expectations for the US economy have been riding high. Not only were the new White House Administration’s policies expected to ignite faster growth, but also the claims were that growth was accelerating even prior to the enactment of anything new in/from DC. The first quarter’s data bring a cold wind of reality to that narrative.
March payroll jobs data disappointed hugely this morning, with total payroll jobs up only 98,000 and private-sector jobs up only 89,000, alongside downward revisions of 38,000 and 23,000, respectively, to February data for these aggregates. The "core" jobs measure we track—private-sector jobs excluding construction and retailing—was only a bit better, up 113,000 in March and a downward revision of 9,000 to February data. To add insult to injury, these soft gains come in contrast to an ADP report earlier this week suggesting very strong March payroll jobs growth after a strong gain in February.
Personal income showed decent growth in February, consistent with the better February job growth data released early this month. Total personal income rose 0.4% in February, while disposable income rose 0.3%, both seeing a slight upward revision to January data. Private-sector wage income accounts for about half of total personal income. It was up a nicer 0.5% in February, but this indicator saw a slight downward revision.
Orders for durable factory goods increased 1.7% in February, alongside a 0.3% upward revision to January's level. This measure includes orders for aircraft, which bounce around erratically from month to month and take years to fill anyway. Net of aircraft and other transportation equipment, other durables orders showed a more modest 0.4% February increase and a 0.1% upward revision to January.
Headline retail sales rose 0.1% in February, but the January gain was revised from 0.3% to 0.6%. For the control sales measure, February sales showed no change, while January sales gains were revised from 0.6% to 0.9%.
Payroll jobs showed decent growth in February, with private-sector jobs up by 227,000 and 31,000 of downward revisions to January data. The "underlying" job measure we track, excluding the seasonally volatile construction and retailing sectors, rose by 195,000, with 19,000 of downward revisions to January.
The US Census Bureau announced today that durable goods orders generally declined in January, but the slight declines did not put a dent in the uptrends that have been developing over the last few months. Thus, orders for durable goods excluding transportation equipment declined 0.2%, but the January level remains 4.2% above that of last June and 3.9% above year-ago levels. Similarly, orders for nondefense capital goods other than aircraft declined 0.4% in January, but remained 3.5% above June levels and 2.9% above year-ago levels.
Single-family homebuilding has held at relatively elevated levels for the last four months, but so far there has been no confirmation of this increase from new-home sales. Thus, new-home sales were reported this morning as rising "only" 3.7%, following a 7.0% decline in December and a -3.8% revision to the November sales total. Recent single-family trends are summarized in the accompanying chart.
The US foreign deficit improved in December, from -$532.9 billion per year in November to -$515.0 billion in December. The improvement was due to a nice 2.8% pickup in exports of goods and services, which outpaced the 1.6% increase in imports.
Real GDP growth for 4Q16 was announced today at 1.9%. This rate was below market consensus guesstimates ranging from 2.3% to 2.9% and above our own guess of 1.0%. As usual, growth in the major components of GDP—consumer spending and government spending—came in very close to both their and our expectations.
January 2017 payroll job gains showed headline increases that cheered the markets, with total jobs up 227,000 and private-sector jobs up by 237,000. Net of the volatile construction and retailing sectors, however, the "core" measure we track was up only 155,000, which is below the 169,000 average gain for this series over the last five years.
Jobs and retail sales data came in on the soft side earlier this month, and today’s industrial production (IP) release continued that string. Yes, the headline IP number was up a whopping 0.8%, offset only slightly by a 0.2% downward revision to November. However, all that gain was due to a 6.6% non-annualized bounce in utilities output, as winter finally came to the Northeast in December after relatively balmy weather through November.
The mantra on Wall Street is that the US economy has picked up steam in the last few months, but you wouldn’t know it from the recent marquee indicators. As reported here a week ago, December payroll jobs continued a string of softer job growth numbers and retail sales logged in similarly soft today. Yes, headline sales rose a nice 0.6% on top of 0.1% upward revision to December. However, strip away cars, gasoline, and building materials, and so-called “control” retail sales were essentially flat, with no revision to November.
Private-sector payroll jobs rose by only 144,000 in December, although there was a hefty upward revision of 42,000 to the November total. The “core” jobs measure we track, which excludes construction and retailing, rose by 140,000 in December, with 29,000 of upward revisions to November. As seen in the accompanying chart, both these monthly gains were well below the average growth rates of 2011–15, and even with the upward revisions, the October and November monthly gains also remain below pre-2016 trend rates.
New-home sales rose 5.2% in November, with the October level unrevised. Inventories of unsold new homes rose 1.6%. Last week we got a second straight very strong housing starts report. The question today was whether sales of new homes would show enough increase to keep up with the jump in starts. The answer is no.
November housing starts came in pretty strongly, despite a 19% decline in headline starts. I know we have some “splainin” to do using “strong” in the same sentence as “19% decline,” but the story is really very simple. As usual, the headline starts number was driven by wild swings in multi-family starts, which dropped a whopping 45% in November.
November retail sales data showed some slowing in growth, which was a disappointment given that better October gains had further stoked post-election animal spirits in the financial markets. Headline retail sales were up only 0.1% in November, and the October gain was revised downward by 0.2%. Our “control” sales measure, excluding cars, gasoline and building materials, was up 0.2%, with a 0.1% downward revision to October.
Private-sector payroll jobs rose 156,000 in November, along with +10,000 of revisions to October levels. For our “core” jobs measure, private-sector excluding volatile construction and retailing, November job growth was 145,000, with +12,000 of revisions to October.
Durable goods orders in October exceeded market expectations, posting a modest increase. Total orders were up a nice-sounding 4.8% in October, but as is usual when this headline measure shows such a gain (or decline), most of this came from the extremely volatile aircraft sector, where orders were up...wait for it...138% (non-annualized) over September’s level. Net of transportation equipment, durables orders were up a more modest but still respectable 1.1%. Especially important within durable goods orders are orders for nondefense (non-aircraft) capital goods, and orders there were up 0.4%.
The data we are receiving this month describe the economy as it was prior to the election. In the last few releases, however, the news has resembled the wild post-election swings in the financial markets. We saw a favorable retail sales number for October on Tuesday, and today’s October housing starts release showed colossal gains. Multi-family housing starts were up 68.8% non-annualized, and single-family starts were up an even more stunning 10.7%.
Retail sales registered nice growth in October, following soft results over the summer months. Total retail sales rose 0.8% in October, with 0.3% of upward revisions to August and September data. We focus on a control measure that excludes cars, building materials and gasoline (but includes restaurants). That measure rose by 0.6% in October, with 0.2% of upward revision. That 0.6% October gain follows changes of -0.2%, +0.2% and +0.4% in July, August and September, respectively.
Job growth continued sluggish in October. Private-sector payroll jobs grew by 142,000, buttressed slightly by 9,000 of upward revisions to September data. For 2016 to date, private-sector payroll job growth has averaged 161,000 jobs per month, compared with a 209,000 per month average over 2011–15.
Real GDP growth picked up in 3Q16 to 2.9%, up from 0.8% and 1.4% in 1Q16 and 2Q16, respectively. At least, that is what the official data say. Within the components of GDP, consumer spending growth slowed from 4.3% in 2Q16 to 2.1% in 3Q16, and consumer spending on goods slowed from 7.1% to 2.2%. Business investment in equipment and construction activity declined.
Today’s September housing construction report was one of those releases for which the headline numbers were completely misleading. Headline starts were down 9.0% and headline permits were up 6.3%, but those swings were totally due to extremely large moves in multi-family starts and permits. Single-family starts and permits data are more important and somewhat steadier than the multi-family data, and these showed 8.1% and 0.4% gains, respectively—quite a different story from what the headline data portray.
September retail sales were generally on the sluggish side, following two even more downbeat sales releases for July and August. Yes, headline sales were up a nice-sounding 0.6%, and there was a 0.1% positive revision to August sales. This was mostly due to a bounce in gasoline sales, however, after they had declined in both July and August.
September private-sector payrolls showed a gain of 167,000 jobs, with August payrolls revised up by 14,000 jobs. Excluding construction and retailing, the “core” jobs measure we track showed a gain of 122,000 in September, with zero revision to August. As seen in the accompanying chart, both the August and September gains in the core measure are below the 166,000 monthly average this series showed over 2011–15. In fact, for 2016 to date, seven of the nine months have shown growth slower than in previous years, so that the average growth rate for the year-to-date is 128,000 jobs per month.
Today’s August data on new orders for durable goods and capital goods were a mixed bag, but on balance not encouraging. Major aggregates within this release showed small gains or declines, but in all cases there were substantial downward revisions to July data that more than offset any reported August gains.
Housing starts declined in August, with the total starts number down 5.8% and the closely watched single-family number down 6.0%. Headline permits were down 0.4%, but single-family permits were up 3.7%, offsetting an equal-sized decline in July.
August retail sales news was soft, following an equally disappointing July release a month ago. Headline sales were down 0.3% in August, following an unrevised July sales level. Our “control” sales measure, excluding cars, gasoline and building materials, but including restaurants, showed zero change in August, with the July level revised down by 0.1%.
Private-sector payrolls disappointed in August, adding 126,000 alongside a downward revision of 13,000 to July data. The core jobs measure we track, excluding retailing and construction, rose by 117,000, with July’s number unrevised. The August data resumed a year-long trend of slower growth, following stronger prints in June and July.
New-home sales rose a whopping 12.4% in July. What made the July gains even more impressive is that they came on top of similarly strong increases in the spring months. In other words, the July gains were not an offset of preceding declines, but a move to new highs for this expansion.
Retail sales growth stalled in July following three months of stronger gains. Headline sales were essentially unchanged in July, with a 0.2% upward revision to June’s level. The "control" measure we track, excluding cars, gas, and building materials, but including restaurants, was down 0.1% in July, with a 0.1% upward revision to June. As you can see in the accompanying chart, the small July declines were only a slight offset of the strong gains seen in 2Q16, and the six-month growth rate in control sales still shows a nice 5.2% annualized gain through July.
Private-sector payroll jobs rose by 217,000 in July, sustaining the better growth of June, following softer data for the 5 five months of the year. The "core" measure we track, which abstracts from especially volatile construction and retailing sectors, grew by 217,000 in July, following a gain of 221,000 in June. As seen in the accompanying chart, both of the last 2-month's gains were well above the 166,000 per month average of recent years for this measure, and they were also a marked improvement from the pace of the first 5 months of 2016.
Total housing starts rose 4.8% in June, with the more important single-family starts measure up 4.4%. These sound like pretty good numbers, so why are we giving only faint praise to these data in the headline above? A look at the accompanying chart tells you why. Even with the June gains, the June level of single-family starts (blue line) is still lower than what we saw last November.
Baseline retail sales showed nice growth in June, following more robust gains in April and May. Our “control” measure of retail sales was up 0.35% in June, following gains of 0.46% in May and 0.91% in April. The headline retail measure showed a gain of 0.57% in June, but that was partially offset by -0.26% of revisions to May data. (The control sales measure for May saw essentially no revision.)
We’re told there is an old Chinese curse “May you live in interesting times.” US jobs data have certainly been interesting the last 2 months, with the May data horrible and today’s June data terrific. Average together “horrible” and “terrific,” and you still get only tepid.
In line with the soft May jobs number earlier this month, May income growth slowed, with private-sector wage and salary income up only 0.17% and total personal income up only 0.21%. Both of these followed stronger growth earlier in the year. Both measures now show 4.0% annualized growth rate over the last 6 months.
If you didn’t hear, amid all the headlines concerning the Brexit vote, May durables goods orders today were weaker than expected, with total durables orders dropping 2.2% and orders excluding (especially volatile) transportation equipment down 0.9%. Capital goods orders were down 0.8% and down 0.7% excluding aircraft.
Housing starts were little changed in May, following March–April declines off a sharp February rise. The crucial single-family starts indicator performed similarly, up 0.3% in May, following changes of +1.5%, -11.1%, and +9.0% over the previous 3 months.
Retail sales grew nicely in May, with headline sales up 0.5% and April sales revised up a bit. Our control sales measure, excluding vehicles, gasoline and building materials but including restaurants, was up 0.5%, and the April level was revised upward by 0.2%.
New-home sales rose explosively in April, up 16.6% on top of a March level that was revised upward almost 3.9%. Those two changes brought April new-home sales levels to 619,000 units per year. As seen in the accompanying chart, that level is about consistent with the April single-family starts level of 778,000 (the 159,000 unit difference between the two can be attributed mostly to owner-builds, homes that are started and built but never show up in new-home sales).
Retail sales grew nicely in April, with headline sales up 1.3%, and the "control" measure we track up 0.8%, on top of a 0.3% upward revision to March sales levels. The data are summarized in the accompanying chart.
Payroll job growth sputtered in April, with private-sector jobs up only 171,000 and with 26,000 of downward revisions to March. The "core" jobs measure we follow (excluding construction and retailing) was up 173,000 with no revisions. Market media reaction this morning is that today's news is the first soft jobs report in quite a while. We have a different take.
First quarter real GDP growth was announced today at only 0.5%, following disappointing prints of 1.4% in 4Q15 and 2.0% in 3Q15. This is the third year in a row that growth has been especially soft in the first quarter, with 1Q15 and 1Q14 coming in at 0.6% and -0.9%, respectively. What sets the 1Q16 results apart from those of the past 2 years is that there were no major winter storms disrupting economic activity this year. If anything, the weather was particularly benign this winter across the Northeast and Midwest.
Housing starts declined 8.8% in March, about offsetting a 6.9% (revised up) February gain. The more important single-family starts number declined 9.2% in March, also about offsetting a 9.1% increase in February. The comments we have seen this morning lament these declines as showing disappointingly weak activity. Our take is that the March starts declines are more likely merely random noise within an apparently continuing uptrend in homebuilding activity.
Retail sales came in below expectations yet again in March, dashing hopes—for now—of a consumer upturn that would pull the US economy back above 2% GDP growth. Headline (total) sales showed a 0.3% decline, although February sales were revised up 0.2%. Looking at "control" sales, that is excluding volatile car, gasoline and building materials stores, sales were essentially flat in March (down 0.03%), but there was a 0.4% upward revision to February.
February personal income data released today were relatively soft, with total personal income rising only 0.2% on the month and with the private-sector wage income component declining by 0.2%. The soft February data offset stronger gains in January, but leave average growth rates right around a 3% to 4% nominal trend. This represents enough income growth to keep consumers spending at the growth pace of recent months, but not enough to drive any acceleration in consumption spending.
New-home sales rose a slight 2.0% in February. How can a 2.0% gain be "slight"? When it comes on the heels of a 7.0% decline in January and when that February gain leaves sales 5.5% below February 2015 levels. The accompanying chart tells the story very well. New-home sales continued along the flat line path they have maintained since early-2015.
Retail sales underperformed relative to expectations today, with headline sales down modestly in February (-0.2%) on the heels of a sizable downward revision to January levels (-0.4%) and a modest upward revision to December (+0.2%). Excluding cars, gasoline and building materials, the "control" measure we track rose 0.1% in February, accompanied by a -0.4% revision to January and a +0.2% revision to December.
Payroll job growth rebounded in February, after the soft January report. Private-sector payroll jobs were reported as rising 230,000 in February, with the previous two months' gains revised up by 30,000. This was essentially a mirror image of last month's news, when jobs growth was soft with downward revisions... and that January report was the mirror image of the December report.
January durable goods orders beat expectations. Total durable goods orders rose 4.9% in January, about offsetting a revised -4.6% in December. Durables orders excluding the volatile transportation equipment sector rose 1.8%, netting a slight gain over -0.5% and -0.7% changes in November and December. Following suit, capital goods orders excluding aircraft rose 3.9% in January, about offsetting a -3.7% swing in December.
January home construction data released today disappointed market expectations. Housing starts declined across the board in January, and there were downward revisions to previous data. Housing permits registered smaller declines, but were still lower.
After a softer than expected jobs number last week and a few weeks of carnage in the stock and credit markets, January retail sales data today provide a whimper of protest. Whatever trauma the investment and export sectors of the US economy might be experiencing, the consumer keeps moseying along steadily.
While last month's job gains were stunning, they left average 2015 job growth just in line with previous years. In other words, the strong late-2015 job gains merely offset softer gains earlier in the year. Well, today's news returned the favor, with soft January gains serving to offset the strong late-2015 data.
4Q15 real GDP growth was announced this morning at an anemic 0.7%, pulling average growth for 2015 down to 1.8%. The news was not surprising, as various analysts had projected near-zero numbers, and our own internal model’s forecast was for -0.2%. Nevertheless, it is still a pill that both markets and the Fed will have to swallow. No one knows for sure, but it would be surprising to see the FOMC move to raise short rates again in March on the heels of this, especially given that a hopefully more reassuring print for 1Q16 won’t be forthcoming until the end of April.
Housing starts dropped 2.5% in December, with the crucial single-family starts component down 3.3%. However, both of those declines were completely offset by upward revisions to November data. Thus, the December prints for both total and single-family starts were level with what November starts levels were originally announced at a month ago.
Retail sales fell 0.1% in December after a more respectable 0.4% gain in November, with that November gain revised up today from 0.2% originally. The control measure we track—excluding cars, gasoline and building materials but including restaurants—was also down 0.1% in December, but November sales for that aggregate were revised downward by 0.1%.
Payroll jobs stunned to the upside in December, with the private sector adding 275,000 jobs on top of 312,000 and 240,000 gains in October and November, respectively. The latter two gains represent substantial upward revisions from what was reported last month.
Housing starts bounced in November, with total housing starts up 10.5% and the important single-family starts component up 7.6%. These offset the net declines of the previous 3 months, leaving single-family starts slightly above their July peak.
November durable goods orders data were soft, but not horribly so, continuing the theme we have seen this month for manufacturing sector indicators. Total durables orders were flat in November, while durables orders net of the volatile transportation equipment sector were down 0.1%, and neither of these indicators saw meaningful revisions to October data. Capital goods orders excluding (volatile) aircraft were down 0.5%, with a -0.6% revision to October levels.
Retail sales showed good growth in November, once you get past the headline number. Thus, while total sales rose only 0.2% in November, “control” sales were up a robust 0.6%. Of course, the favorable November results followed soggy tallies in September and October, when control sales rose only 0.1% and 0.2%, respectively.
Employment data showed decent growth in November, with private-sector jobs up 197,000 from October and substantial upward revisions to previous months. Household employment rose 244,000, following a 320,000 October gain, but these followed a September decline of 204,000.
On the eve of the Thanksgiving Day holiday, financial markets were greeted with some decent-to-good economic data. Durable goods orders bounced in October, along with modest upward revisions to September, including similar bounces and revisions in capital goods orders. Personal income rose nicely in October, reflecting the strong October gains in payroll jobs, and there were upward “benchmark” revisions to wage income data going back 6 months. The one downbeat nugget of news was a soft 0.1% October gain in real consumption spending alongside downward revisions to previous months.
Industrial production declined by 0.2% in October, though August growth was revised up by that much. This is actually a better net result than the outright declines we have been getting here for most of this year. Details within the report indicate that all of the October output decline came from the oil patch and utilities, as manufacturing production actually rose 0.4%.
Retail sales turned in another lackluster performance in October, with total sales up 0.1% on the heels of a -0.2% revision to September, while the control measure we track was up 0.3%, with no revisions to its previous levels. These swings weren’t horrible, but they came in the wake of a string of stronger gains over the summer and a soft September number a month ago.
October payroll jobs stunned to the upside today, with private-sector payrolls up by 268,000, and some 50,000 of upward revisions to August and September job gains. As uniformly weak as the September release was, so the October release was uniformly strong, showing good gains in hourly wages (up 0.4% after 0.0% in September), as well as a good gain in construction jobs and some gain in manufacturing, after both sectors had been soft in September.
The U.S. Bureau of Economic Analysis today put its preliminary estimate of 3Q15 real GDP growth at 1.5%. Nominal GDP grew at an annualized rate of 2.7%, so that inflation as per the GDP deflator proceeded at a rate of 1.2%. For the last 4 quarters as a whole, the growth rates are 2.0% real, 2.9% nominal and 0.9% inflation.
Total housing starts rose 6.5% in September, while total housing permits dropped 5.0%. Both of those wild swings were driven by even wilder swings within multi-family homebuilding (starts there were up 18.3%, with permits down 12.1%). In the more important and steadier single-family homebuilding sector, the September data were more tranquil and more instructive. There, starts were up a scant 0.3%, with permits down by the same amount, and with little in the way of revisions to previous data.
Retail sales growth softened in September, and there were downward revisions to previous data. Total retail sales rose 0.1%, following 0.0% in August, revised down from 0.2%, and 0.8% in July, up from 0.7%. The “control” measure of retail sales rose 0.1% in September, following a gain of 0.2% in August, revised down from 0.5%, and 0.5% in July, down from 0.6%. (Control sales focus on consumer-dominated retail sectors by abstracting from sales of cars, gasoline, and building materials, sectors where business purchases are as prominent as consumer purchases.)
The US merchandise foreign trade deficit showed a sharp deterioration in August, on falling exports and sharply rising imports. In nominal terms, the merchandise trade deficit rose from $59.3 billion per month in July to $66.6 billion per month in August. In “real” terms, upon adjustment for inflation, this deficit rose from $56.1 billion to $63.4 billion (in 2009 dollars). Based on the August decline alone, it looks like merchandise foreign trade will subtract nearly a full percentage point from 3Q15 real GDP growth.
Employment data came in well below expectations today. Private-sector payroll jobs rose only 118,000 in September, against expectations of a gain above 200,000, and August jobs data were revised downward a whopping 69,000. The “core” measure we track, excluding construction and retailing, showed gains of only 86,000 in September, after an August gain of 91,000; both tallies were well below the 166,000 per month average that has prevailed over the last five years (see chart).
Durable goods orders declined 2.0% in August, and there were modest downward revisions to July data. The headline decline was mostly due to drops in the volatile aircraft orders component. Net of these, orders for durable goods excluding transportation equipment were about unchanged, following a similarly downward revised July number. The durable goods release provides our main monthly information on capital goods activity, and there, orders for capital goods excluding transportation equipment declined 0.2%, with downward revisions to July data as well.
Housing construction looks to have declined in August, but only very slightly and only from elevated levels. We focus on single-family construction, and starts there were -3.0% in August, with a -2.6% revision to the July level. Still, as the accompanying chart shows, the trend for single-family starts still looks pretty clearly to be up since the fall of 2014. Single-family permits are a bit more stable than starts, and these too continue to trend upward, though they have not yet reached levels that would support recent starts levels.
Payroll job growth is reported to have slowed in August, with private-sector jobs rising by only 140,000 and only slight revisions—up 5,000—to the July total. The “core” measure we track rose by 126,000, with a 7,000 upward revision. As can be seen in the accompanying chart, the August gains are well below the average growth rates of the past few years.
The Bureau of Economic Analysis (BEA) today released estimates of personal income and consumer spending for July. Within that report, we pay closest attention to private-sector wage and salary income and disposable personal income. Both measures rose 0.5% in July. Both also saw modest downward revisions to June growth and slight upward revisions to growth over January-May.
Housing permits and starts were strong across the board in July, with single-family starts leading the way, up 12.8% off an already elevated June level. Housing permits declined in July, with single-family permits down 1.9% and multi-family permits down a scary-sounding 31.8%. Multi-family starts were down 17.0%.
Private-sector payrolls rose 210,000 in July, with our “core” measure (excluding construction and retailing) up 168,000. June data saw minor revisions: total private sector revised up 6,000, core payrolls revised down 1,000. The gains were in line with expectations, and as seen in the chart, they were also in line with the trend growth rates of the last 5 years.
Today's second quarter 2015 GDP release was widely anticipated, both because it featured benchmark revisions of data back to 2012 and also because analysts were eager to see how much of the first quarter weakness in growth was revised away and/or reversed by second quarter strength. The answer is: not much.
Retail sales were reported as declining in June, alongside slight downward revisions to April and May. Thus, retail data have reverted to the same old soggy trends in place for most of the last six months (and six years), with those trends interrupted only by a more upbeat release a month ago.
Foreign trade data for May were released this morning and showed deterioration in the US trade deficit, with exports dropping more than imports. Much of these declines marked a reversion to underlying trends. That is, due to a strike that hit the California ports of San Pedro and Long Beach earlier this year, both export and import volumes were overly depressed in February and March, then in April both made up for lost time, in effect, after the end of the strike. We then saw a move back toward underlying trends with the May trade data.
After a strong May report, payroll employment growth slowed a bit in June, with private-sector jobs up 223,000. April and May gains were revised down, from 206,000 and 262,000 to 189,000 and 250,000, respectively. All in all, job growth is not tanking, but also not accelerating.
We learned today that most measures of personal income showed gains of 0.5% in May, reflecting the better payroll job gains for May reported three weeks ago. What we find most interesting is that the May gains fail to make much of a dent in sluggish underlying income growth trends. As seen in the accompanying chart, nominal disposable incomes have grown at only a 3.8% rate since March 2014.1
May housing starts and permits swung wildly, driven by even wilder swings in multi-family building. Most residential construction spending occurs in the single-family space, and those numbers were more sedate. Total housing permits were up 11.8%, with starts down 11.1%, driven by a 24.9% spike up and a 20.2% spike down in multi-family permits and starts, respectively. The chart shows single-family activity, where permits were up 2.6% and starts down 5.4%. If even these swings sound large for non-annualized rates, note that they were on par with past experience.
Retail sales rose nicely in May, along with some upward revisions to previous months’ data. So, today’s news marks the first upbeat report on retail activity following five months of thud. Total sales were up 1.2% in May, while the “control” measure we track was up 0.6%, along with +0.4% of revisions to the growth rates for March and April.
May payrolls came in above expectations, following four months of generally disappointing news. Private-sector payrolls rose 262,000, along with a +16,000 revision to previous months, and our “core” jobs measure (excluding retailing and construction) rose 214,000, compared to average gains of 166,000 per month over the last four years.
Our contention has been that the swing factors for the US economy this year would be manufacturing and homebuilding. We received new data on both sectors today. The news there had been bad for almost two months until the favorable housing starts number last week. Today’s news was generally favorable for both manufacturing and homebuilding, though not spectacularly so.
April housing starts were better today, with total starts up 20.2% and single-family starts up 16.7%. While these month-over-month gains look fantastic, the fact is they occurred off comparably sharp declines in February, so the April gains leave us only slightly above December 2014 levels. Still, after a torrent of unrelentingly soft data over the last six weeks, today's news is a welcome break.
April retail sales came in weak this morning, with headline sales flat in April following a 1.1% gain in March, revised up from 0.9% in the initial report last month and following a 0.6% decline in February. The core sales measure we track (see accompanying chart) was up a scant 0.1% in April, with the March gain revised from 0.4% to 0.5%, and February revised from -0.2% to -0.3%.
Today’s payroll jobs report came “with a twist.” While April private-sector job gains were announced as up a decent 213,000, March was revised down to a gain of only 94,000. Meanwhile, the measure I track most closely, private-sector payrolls net of the very volatile construction and retailing sectors, rose 155,900, following a (revised downward) gain of 78,500 in March. These last prints compare to average gains of 166,000 per month over 2011–13.
First quarter 2015 real GDP growth was reported +0.2% this morning, below the already-depressed consensus estimates of +0.7% to +1.7% and further below the +2.4% average for 2014. 1Q15 growth was held down by weakness in consumer spending on goods, by a large decline in the trade balance, and by a huge decline in nonresidential construction. At the same time, inventory investment showed a very large increase, and consumer spending on services also rose strongly, thanks to weather-related gains in utilities spending and a surge in health care spending (that also boosted 4Q14 growth).
While headline durable goods orders were up an impressive-looking 4.0% in March, all that gain came in the volatile transportation equipment component. Net of transportation equipment, durables orders were down 0.1%. Though a -0.1% move in “underlying” durables orders doesn’t sound bad, it marks the sixth straight decline in this aggregate.
Retail sales rose in March, but just barely, following three straight declines. Headline sales were up 0.9% in March, and February sales levels were revised up by 0.1%. However, for the more closely watched control group, which excludes cars, gasoline, and building materials, sales were up only 0.4%, and February sales levels were revised downward by 0.2%. On net, underlying sales levels in March were up only 0.2% from where we thought they were in February based on initial reports.
March payroll jobs data came in especially weak last Friday, with private-sector jobs up only 129,000 from February. Also, January/February growth was revised down by 59,000, so that the March jobs level was a scant 70,000 above last month's announcement for February.
The US trade deficit declined sharply in February, a move that will provide some lift to 1Q15 GDP growth when it is released late this month. However, the details beneath the trade news were not favorable. As the U.S. Census Bureau stated, the trade deficit declined because “imports decreased more than exports.” While it is the trade deficit that shows up directly in GDP, exports are the most important component of the trade data and they declined in February for the fourth straight month.
New-home sales showed a very strong 7.9% gain in February, on top of upward revisions to January data. As seen in the accompanying chart (red line), these gains put new-home sales firmly above the prevailing levels of 2014. In fact, the recent increases bring new-home sales to levels consistent with those of late-2014 single-family housing starts (blue line).
Headline industrial production (IP) rose 0.1% in February, following declines of 0.3% in December and January. The February gain was meager, and even it was overstated by a sharp 7.3% increase in utilities output due to severely cold weather. Net of utilities, IP declined 0.5%.
Retail sales fell in February, notching their third straight decline, along with downward revisions to January’s sales. Headline sales were down 0.6% in February, following declines of 0.8% and 0.9% in January and December, respectively. Upon adjusting for volatile car, gas, and building materials sectors, “control” sales were down 0.1%, following a 0.1% decline in January and no change in December. (See chart.)
Headline payroll jobs showed a strong increase in February, with total jobs up 295,000 and private-sector jobs up 288,000. There were mild downward revisions to the January gains, but those still left a strong increase of 1,258,000 over the last four months together.
Today’s report on durable goods orders suggests near-term problems for the US manufacturing sector. True, headline durables orders were up 2.8%, which sounds substantial. However, virtually all that gain occurred in aircraft orders, and as the green line in the accompanying chart shows, even those gains failed to fully reverse previous months’ declines in aircraft orders.
The last three months of 2014 saw a mini-explosion in single-family housing starts, so the focus of interest in today’s data was whether those preceding gains would be sustained in the new year. As you can see in the accompanying chart, the answer is that they were—mostly. Yes, single-family starts dropped 6.7% in January, but this comes off a 9.7% increase over the previous three months. And as you also can see in the chart, even the lower January level of starts remains noticeably above the prevailing levels of the previous two years.
The headline retail sales data looked awful in both December and January, with total sales down -0.9% and -0.8%, respectively. However, much of that softness came from ephemeral declines in car sales and from plunging gas prices. For the control measure we track—total sales less cars, gas, and building materials—most of the previously announced December declines were revised away, and January showed a slight gain.
Today’s headlines included a gain of 267,000 private-sector payroll jobs in January, with November and December gains revised upward to 414,000 and 320,000, respectively. There is no question that job growth has improved over the past six months and that the economy as a whole has improved in line. However, there are some details of the release worth pointing out.
On balance, the economic data had come in much stronger than we expected over the past two months, especially consumer spending and homebuilding. There were some slight counterpoints recently, with December retail sales and capital goods orders soft, and now a more substantial miss with today’s preliminary release for fourth-quarter GDP.
Today’s news on US homebuilding was distinctly positive. Two months ago, housing starts showed an October spike that looked flukey, in that it was not accompanied/verified by comparable increases in building permits or home sales. A similar spike in late-2013 was reversed in subsequent months, and we thought the late-2014 spike would be similarly reversed. Indeed, housing starts data a month ago showed some partial reversal of that gain.
Retail sales had been the one demand-side indicator to show a clear acceleration in recent months. Yes, job growth (on the supply side) had been clearly better, but on the demand side, most indicators have shown at best steady growth, the exception being retail sales, which had accelerated noticeably in the last half of 2014.
Our take on the economy has been less upbeat than the consensus, and that take has been put to the test by the economic data of the last month plus. The most obvious example was the payroll employment report last month, and today’s jobs report continued the better tone.
In a pre-holiday extravaganza, four major economic reports were released today. We’ll focus here on new-home sales, but we’ll also provide some coverage of the other news: 3Q14 GDP, November personal income, and November durable goods orders.
The economic data so far this month have been uniformly strong, certainly stronger than we had expected. Today’s housing-starts release did not quite break that skein. Yes, headline starts were down 1.6%, and single-family starts were down 5.4%. However, both of those series were coming off very sharp increases announced a month ago.
Census Bureau data released today showed another good gain in retail sales in November, along with upward revisions to September and October data that had already looked good. Total sales were up by 0.7% (non-annualized) in November, and there was a 0.6% gain in so-called "control" sales, which focus on those retailers that are more dependent on consumer demand (as opposed to other store types, where many customers are businesses).
In previous recoveries, we would routinely see monthly payroll job gains of 300,000 to 400,000. The current expansion has been so tepid that bulls have had to take solace from monthly gains of around 230,000...until today. November private-sector payrolls were reported today up 314,000, with total payrolls up 321,000.
Today was a veritable Black Friday for data junkies, with the government releasing data on personal income, durable goods orders, and new-home sales, as well as a host of lesser indicators. We cover the income and durables releases here, as new-home sales won’t be released until later today.
Single-family housing starts jumped 4.2% in October, following up on a positive retail sales release last week. Single-family housing activity had been languishing for most of the last year, so the October news was indeed a break. In fact, the October gains announced today look similar to the starts spike we saw in November 2013.
Today’s payroll job news was right in line with the releases of recent months. The 214,000 gain in total jobs marked the ninth straight monthly gain of 200,000 or better. At the same time, as seen in the chart below, recent months’ gains do not represent a departure from the trends of the last four years.
Foreign trade provided a substantial boost to GDP growth in the third quarter, thanks to rising exports and falling imports. Much of that improvement seemed ephemeral, however, and, indeed, it was largely reversed within the September trade data released today. Exports fell and imports rose, erasing most of the improvement in the trade deficit seen in July and August.
Most of the data underlying the GDP estimates are available ahead of time, so only rarely does the actual release of GDP surprise us. Today’s news of 3.5% 3Q14 growth was somewhat above expectations and slightly above our own forecast of 3.2% growth. The details within the report, rather than the headline number, were the real surprise.
Today’s new-home sales news was very mediocre. The headline was a 0.2% gain in sales in September. The “sub-title,” but probably the main piece of news in the release, was a sharp downward revision to August data, indeed to the previous three months’ prints.
Last month’s retail sales gains were the first truly good ones of the year. While retail sales registered relatively strong growth in the second quarter, those gains were solely an offset of winter-related softness. Through mid-year, 2014 retail sales data continued the sluggish growth trends of 2012–13, but there had been no acceleration above those trends. Last month’s data changed that picture, as upward revisions to June/July and good gains in August pushed sales levels above previous trends.
In our business, a 250,000 monthly job gain is terrific, a 200,000 gain is so-so, and a 150,000 number is weak, so the markets are understandably upbeat about the 248,000 increase announced today. But notice that the markets wax and wane over swings in the data on the order of 50,000 per month. The level of payroll jobs is 130 million, so the market’s threshold of excitement amounts to changes on the order of 0.036% per month.
If consumer spending is going to take off, it would be helpful if personal incomes took off first, especially with many households still cautious and lacking easy access to credit. Today’s personal income release for August showed decent gains. Total personal income was up 0.3%, in line with trends of preceding months.
With housing-starts releases, it is usually best to look beyond the headline data and focus on single-family activity. Multi-family data jump wildly from month to month, distorting the headline numbers. Moreover, multi-family units take a lot longer to complete, and both builders and occupants spend a lot more per unit on single-family homes than on multi-family units.
Today's retail sales data for August showed some decent gainsnothing spectacular, but a noticeable improvement from the steady trends of recent years. As we have remarked in previous editions of this commentary, retail demand in the spring rebounded just enough to offset the weakness induced by the polar vortex, but not enough to indicate any acceleration. Well, with upward revisions to the July datafrom 0.1% to 0.4%and a 0.4% gain in August, "control" retail sales now show a noticeable acceleration from the 3.2% per year growth trend that had been in place since the beginning of 2012 to 5.8% per year growth over the last three months.
Our take has been that while payroll job growth proceeded at good rates in 2Q14, underlying job growth trends have been no different from what we have observed for the last four years. Decent trend growth is not the same thing as accelerating growth, a distinction that seems lost on many analysts.
We were on vacation a month ago when the U.S. Department of Commerce (Commerce) first released data on 2Q14 GDP and benchmark revisions to prior years' data, but we can cover that news in the context of today's monthly revisions to 2Q14 GDP. Every month, Commerce revises its current-quarter GDP estimates, as more complete survey data come in for the various components of GDP. Once a year, in July, Commerce introduces “benchmark” revisions that change GDP estimates back a number of years. These benchmark revisions incorporate information from annual tax returns and censuses of manufacturers, retailers, etc.
With last month's sharp June gains in retail sales, we concluded that there was enough spring sales improvement to almost fully offset the winter weakness, but no more. On net, on average, 2014 sales through June were right in line with the tepid growth trends of 2012 and 2013. Today's July sales news did nothing to alter that assessment.
Today's new-home sales release showed nothing going on in the new-home market, with a June sales decline erasing a modest increase in May. While this message might seem nondescript, it is actually of significant interest. Buried in the details was a huge, downward revision (-12.3%) to May data.
While this month's news was upbeat for both payrolls and retail sales, it was not so for today's housing starts/permits release. As seen in the accompanying chart, single-family housing starts dropped in June, and while permits were up, those latter gains merely brought single-family permits back to the level that has been sustained since early-2013. Meanwhile, multi-family measures were down across the board.
Today's retail sales data were very much like the jobs data 12 days ago: while the monthly gains and revisions have been favorable, this latest release was really the first bit of good news in quite a few months. With the jobs data, we needed above-trend gains over February through May just to offset the winter weakness, so the above-trend gains in June were the first net positive in a bit more than a year. With retail sales, the gains over spring were so tepid that we needed today's upward revisions and June gains merely to offset the winter weakness. So, there is now no longer any real indication of a net slowing in retail sales this year, but neither is there any net improvement.
No doubt about it, today's payroll jobs report was a strong one. Where we differ from the market consensus is that we describe it as the first net strong report in some time. The market's take is that it is the latest in a string of strong reports.
The main focus today is the durable goods orders release, but we'll cover today's "final" revision to GDP as well. Manufacturing, especially durables manufacturing, has been one of the non-dark spots for the economy so far this year. (We can't quite call it a bright spot, but it has performed better than the construction or service sectors.)
In order for homebuilding to contribute anything to GDP growth, housing-starts levels need to be rising. Such a rising level of housing starts (as well as housing permits and home completions) was in evidence in 2011 and 2012, but homebuilding levels generally have been flat since the end of 2012. This has continued to be the case recently. Yes, we had a spike in single-family starts in late-2013, but that series has since come back to ground, and single-family permits and completions have been steady at best in recent months, with neither of these latter indicators confirming the brief, late-2013 burst in starts.
In previous installments of "By the Numbers," we've pointed out that retail sales would have to grow spectacularly over March through May merely to offset the weather-induced weakness in sales seen in January and February. Shoppers who couldn't get to the stores because of the polar vortex had to deplete their cupboard stocks of food and other staples and so needed to do double-shopping after the thaw in order both to fulfill ongoing needs and replenish stocks.
Private-sector nonfarm payrolls added 216,000 jobs in May, and the core jobs measure we track (excluding volatile construction and retail sectors) added 197,000 jobs. The headline tally is down a bit from April, but above the pace of the preceding four months. The May growth in the core measure is the best we have seen in six months.
Durable goods orders data provide information on both the manufacturing sector and on capital goods spending. Both manufacturing in general and CAPEX in particular are widely expected to be important drivers of stronger US growth this year.
The decline in bond yields this year has astonished many observers. Proffered reasons for the decline range from events in Ukraine to US pension derisking, but a dominant undercurrent driving yields lower clearly is the US economy's failure to launch. And a prominent aspect of that failure is the ongoing stall in homebuilding.
As with other economic releases, foreign trade data deteriorated during the winter months and have begun to resuscitate with the onset of spring. Trade data are released with an extra month’s lag compared with other indicators, so we only received March data today, just the stirrings of spring, in other words, and not including the yet “warmer” April data for last Friday’s jobs and for other indicators coming in the next few weeks.
After a soggy GDP report, the data gods gave us a better payrolls report today, with total nonfarm payroll jobs up 288,000, private-sector payrolls up 273,000, and the core job measure we track (i.e., net of construction and retailing) up 207,000. That latter gain is relative to an average monthly gain of 165,000 over the previous four years. In addition, private-sector payrolls for March were revised upward by 27,000.
Quarterly GDP data are especially littered with various fluke factors distorting growth either up or down. For the 1Q14 data released today, it is well known that the winter blizzards significantly restrained consumer spending, exports, and other GDP components. What garnered less publicity is that there were also a number of "one-time" factors pushing 1Q14 growth higher than it otherwise would have been.
Is there no balm in Gilead? None was forthcoming in today's new-home sales data for March. This was one indicator that had not shown much ill effect from the cold winter, so no one was looking for a sharp March bounce-back. Still, consensus expectations were for a steady sales number that would keep hope alive for accelerated housing activity and soothe worries about growth. Nevermore.
When February retail sales data were released, we pointed out in “By the Numbers” that because January/February data were pulled below-trend by severe winter weather, sales in March and after would have to rise above-trend merely to sustain the soft sales trends of 2013. Because shoppers could not get to stores during the polar vortex, home inventories were depleted, and those inventories would have to be rebuilt by higher-than-normal purchasing once the blizzards subsided.
While financial markets were hoping for clarity from today's payroll jobs report, there was little chance they were going to get it. After the wild, apparently weather-induced swings of recent months, job growth was due for a "catch-up," an offset of those weak prints. So, it would have taken an extremely strong gain, something near 300,000 jobs, both to offset previous softness and also to point to the stronger growth trend that the markets and the Federal Reserve are betting heavily upon.
Contrary to our forecast of continued languid growth in 2014, the Federal Reserve and most of Wall Street think US growth will accelerate to 3% or better in 2014. Much of this cohort thinks this acceleration already began to occur in late-2013. The better growth is supposed to be driven by faster spending growth on consumer goods, capital goods, and housing.
What goes down must go up? Gravity doesn't work both ways, but the economic data sometimes do. When weather restrains retail sales for a few months, consumers deplete their stocks of household goods, and so they then must over-shop, for a while, in order to replenish those stocks.
After two horrid prints, payroll job growth in February climbed back only to the lackluster pace of the last four years. The media and the markets have so far reacted positively to this lack of more bad news, but there really is not much to fuss about.
Ultimately, builders won't build homes they can't sell. Last week's piece looked at housing starts, the first step in building a house. Today, we look at the demand side: sales of new homes. The underlying issue is whether US homebuilding will accelerate this year and thus support faster US economic growth. Data on building permits etc. have not been encouraging in this respect, but somehow housing starts surged in late-2013, before the weather-constrained January data discussed last week. So, today, we look at new-home sales to see if the apparent upturn in construction has flowed through to housing demand.
Today's housing starts release was not as decisive as the retail sales release of last week. While starts declined sharply in January, there were no downward revisions of previous data. So, those still inclined to think the economy is gaining momentum will be able to blame this one on the weather.
As we see it, the best chance for faster US growth (and higher bond yields) in 2014 resides in a continuation of the strong growth in retail sales and housing starts seen at the end of 2013. If retail sales continue to grow at their 4Q13 pace and if homebuilding accelerates to levels consistent with the November and December housing start prints, then 3% or better real GDP growth would indeed be very likely. The problem is that there were suspicious elements to both of these upturns; 4Q13 retail sales growth was much faster than is consistent with accompanying growth rates in personal income and services consumption, and housing starts were dramatically higher than what was indicated by recent building permit and new-home sales levels.
Expectations for stronger US growth in 2014 have been prevalent across the financial markets lately. We have been skeptical of this latest bout of optimism, and the last two payroll job reports have bolstered our view. Job growth was especially weak a month ago, and this morning's announcement was not much better: total nonfarm payroll jobs up only 113,000 and private-sector jobs up 142,000.