Friday, November 30, 2012

Personal Income Unchanged in October

Personal income was ultimately unchanged in October after strong growth of 0.4% in September. The slow movement in October makes for the slowest growth since April. Interest, rental, and dividend income led growth, while wage income fell for the first decline since May, by 0.2%.

Real spending fell, posting its largest decline in just over three years in October, with Superstorm Sandy playing a role in the decline. The BEA estimates Superstorm Sandy caused a downward adjustment to wage income due to work interruption of $18 billion, accounting for the entire reduction in wage income.

Nominal consumer spending fell 0.2% led by a decline in durable goods spending. Nondurable goods spending also fell but at a more moderate pace.

The savings rate climbed slightly to 3.4% but remains well below previous months after hitting its lowest level in ten months in September.

Read the BEA release.

Thursday, November 29, 2012

U.S. Economy Grew at 2.7% in Third Quarter

Real GDP growth in the US improved in the third quarter to an annual rate of 2.7%, up from 1.3% in the second quarter, according to the BEA’s second estimate. This report revised growth up from 2.0% reported in the first estimate. The improvement from the second quarter was driven primarily by increased inventories as well as the largest positive contribution to growth from government spending in three years.

Inventory accumulation strongly helped third quarter growth, adding 0.8%, much better than the 0.5% drag in the second quarter. Government spending boosted growth as well, contributing 0.7%, the strongest level in three years. Fixed investment dropped off in the third quarter, contributing only 0.1% to GDP growth, down from the 0.6% contribution seen in the second quarter.

The BEA’s second estimate of third quarter GDP growth is notably higher than its initial estimate of 2.0%. The improvement is due primarily to revisions to inventory accumulation and exports that outweighed negative revisions to consumer spending and fixed investment. Inventories, initially reported as a 0.5% drag for the third quarter, improved to providing a 0.8% boost. Net exports also received a strong revision, recording a contribution to GDP growth rather than a drag.

Although the BEA’s revision presents much stronger growth than its initial estimate, the details of the report are not positive for growth moving forward. The strength of third quarter growth rests heavily on inventory and government spending. Inventory accumulation is a negative sign for future growth as less will need to be produced to meet future demand. In addition, the strong government spending is unlikely to be sustainable as the government cuts spending and begins addressing the deficit.

Read the BEA release.

Wednesday, November 28, 2012

New Home Sales Slowed in October

New home sales slowed notably in October, due partially to large downward revisions. New home sales fell to a pace of 368,000 units per year in October from 369,000 in September. Although the month-to-month drop is small, downward revisions obscure the true size of the decline. October’s pace is 5.4% lower than the 389,000 unit pace initially reported in September. Despite the disappointing revisions, the pace of new home sales remains 17% above year-ago levels.

It is likely that October’s weak pace of new home sales is due, in part, to effects seen from Hurricane Sandy. Sales in the Northeast declined by 31% in October. Excluding the Northeast, the pace of sales rose 2.7%.

Inventories increased slightly but remain at extremely tight levels, with only 4.8 months of supply on the market. The median price of a new home fell slightly to $240,000 in September, but remains 5.7% above year-ago levels.

Read the Census report.

Tuesday, November 27, 2012

Consumer Deleveraging Continues

The Federal Reserve Bank of New York released a report today that shows total "consumer debt fell again in the third quarter, by $74 billion, continuing the nearly four-year downward trend in household debt."

Total household debt has fallen by $1.37 trillion from its peak at the end of the third quarter of 2008 to $11.31 trillion at the end of the third quarter of 2012.

Both mortgage and home equity loans fell during the third quarter, while student loans and auto loans rose during the quarter. Credit card balances were largely unchanged -- increasing by $2 billion during the quarter.

Read the report.

Looking Beyond the Fiscal Cliff - Fundamental Strength of the U.S. Economy

We have released an analysis piece that looks beyond the pending fiscal cliff and focuses on the fundamental strength of the U.S. economy. If we are able to avoid the ill effects of the fiscal cliff, there are a number of factors that will contribute to strong economic growth in the U.S.

See the full analysis.

Home Prices Continued Improvements in September

Existing home prices appreciated 0.3% in September according to the Case-Shiller’s 10- and 20-city indices. Gains from one year ago accelerated as well, with the 20-city index rising 3.0% above its September 2011 pace, better than the 2.0% year-ago gain reported in August. September’s year-ago gain is the strongest since July 2010.

September’s improvement was widespread geographically with 15 out of the 20 metropolitan areas surveyed reporting month over month price declines. Year-over-year gains improved in most areas surveyed as well, with only 2 reporting declines in prices from a year ago. Phoenix has seen the strongest gains in the past year, with prices 20% above September 2011 levels. Chicago and New York are the only areas that are still reporting year over year declines, however both saw improvement from August.

Despite the recent improvements, home prices remain well below their pre-crisis peak. The 20-city index is still 29.2% below its July 2006 peak.

Read the S&P release.

Wednesday, November 21, 2012

Consumer Sentiment Nearly Unchanged in November

Consumer Sentiment was nearly unchanged in November according to the University of Michigan’s Consumer Sentiment Survey. The index inched up from October’s level gaining just 0.1 points and settling at 82.7. Although the index is at its highest levels since mid-2007, November’s reading is notably lower than its preliminary reading, signaling a drop in sentiment later in the month. The index has now gained for four consecutive months, but November’s gain is easily the smallest of these gains.

Consumer’s evaluations of current conditions improved in November, adding 2.6 points to reach 90.7. This portion of the index has now gained for two consecutive months and is at the highest level since early 2008.

Consumer’s view of the future is much less bright, with the expectations portion of the index looking much less optimistic. This index dropped 1.4 points over the month, settling at 77.6. The decline is particularly notable, as the preliminary reading had this measure improving by 1.8 point gain. The sharp drop in future expectations is likely due to the looming fiscal cliff and the associated concerns.

Inflationary expectations were little changed in November, with one-year inflation expectations holding steady at 3.1%. Expectations for five-year inflation ticked up 0.1 points to 2.8%.

Tuesday, November 20, 2012

Housing Starts Continued Strong Gains in October

New residential construction continued to improve significantly in October, reaching an annual pace of 894,000 the fastest pace since mid-2008. October’s 3.6% gain follows an even stronger 15.1% gain in September. The pace of home sales has accelerated in the past three months, and is now 23% above July’s level.

Multi-family starts were entirely responsible for October’s gain, rising 11.9% from the previous month. Single-family starts fell 0.2% in October to a pace of 594,000.

Permit issuance fell slightly in October, falling 2.7%. This decline was seen only in multi-family permit issuance, which fell 10.6% over the month. Single-family permit issuance rose 2.2% over the month. Completions rose sharply as well this month, rising 14.5% to a pace of 772,000 units per year.

Despite the strong improvement seen in recent months housing starts remain well below the long-run average of 1.5 million units, however,if these strong improvements continue we could see normal levels within a year.

Read the Census report.

Monday, November 19, 2012

Existing Home Sales Improved in October

Existing home sales rose in October to an annual pace of 4.79 million units, the second fastest pace in two years. Sales rebounded in October after falling in September, and are now just below August’s strong pace of 4.83 million units. Sales were 2.1% higher than in September and are 11% above year-ago levels. Hurricane Sandy had a minor impact on sales in the Northeast, which was the only region to see sales fall.

Home prices continue to appreciate, with the median price of existing homes sold rising to $178,600. October’s median price is 11.1% higher than October 2011, an improvement from the 7.9% reported in September.

The supply of homes on the market continues to tighten, with the months supply of homes on the market falling to 5.4. This is the tightest supply has been since mid-2006.

Read the NAR release.

Friday, November 16, 2012

Industrial Production Weak in October

Industrial production weakened in October, falling 0.4%. Industrial production has now failed to grow in four of the past six months. Much of October’s weakness is directly related to Hurricane Sandy, which the Federal Reserve estimates undercut output by a full percentage point.

October’s report was weak across the board, with a decline in manufacturing offset slightly by a strong increase in mining production. Both durable and non-durable goods production fell, 0.6% and 1.0% respectively. Mining production saw strong gains, rising 1.5% in October. Utilities production was little changed, falling 0.1% over the month.

The capacity utilization rate fell in October reaching 77.8, down from 78.2 the previous month.

Read the Fed report.

Thursday, November 15, 2012

Consumer Prices Rose Modestly in October

Consumer prices rose 0.1% in October, a sharp slowdown from the 0.6% gain seen in each of the two previous months. October’s slowdown was due entirely to falling energy prices, as core inflation strengthened to its highest level since June. Core prices rose 0.2% in October, following three consecutive months of 0.1% gains. Consumer prices now remain 2.2% above year ago levels, stronger than the 2.0% reported last month.

Falling energy prices offset a rise in food costs, bringing headline inflation down from the high levels seen in the previous two months. Energy prices fell 0.2%, after rising 5.6% and 4.5% in August and September respectively. Food prices gained slightly more in October than September, rising 0.2%.

The gains in core prices were due entirely to an increase in the cost of services, which rose 0.3% in October, matching September’s pace. The price of goods fell 0.1%, better than the 0.2% decline seen in the previous month.

Read the BLS report.

Wednesday, November 14, 2012

Retail Sales Fell 0.3% in October

Retail Sales fell 0.3% in October following two strong months of growth. September’s growth was revised up to 1.3% from an initially reported 1.1%. Retail sales are now 3.8% above year-ago levels, a strong decline from the 5.4% reported in in September. Year-over-year growth is now at its slowest rate since June, and the second slowest since February 2010. Notably, year-ago growth in core sales fell under 3% for the first time since July 2010.

The declines seen in October were broad based and may, in part, reflect the impact of Hurricane Sandy. The Census Bureau reported that it could not estimate the impacts of the hurricane, although there were reports of lost sales due to store closings and fewer customers. The areas of strength, grocery stores and gasoline stations, likely benefitted from the storm as demand increased as people prepared for the storm.

Another area of interest is nonstore retailers, which saw sales jump 2.4% in September, but fall off 1.8% in October. This is likely a result of a surge in September sales due to the release of the iPhone 5, and the subsequent fall in October.

Read the Census report.

Producer Prices Fell in October

Producer prices fell 0.2% in October, following sharp increases in the previous two months. Both energy and core goods prices fell in October, offsetting a substantial increase in food prices. Producer prices are now 2.3% above year-ago levels, higher than the 2.2% reported in September.

Prices of core goods fell in October as well. Finished core goods fell 0.2% in October, and now are 2.1% above year-ago levels. Prices were mixed at earlier stages of production, with intermediate good prices unchanged from the previous month. Prices for crude goods fell 1.4%, nearly offsetting their 1.6% rise in September.

Read the BLS report.

Tuesday, November 13, 2012

Small Business Optimism Improved In October

Small business optimism improved slightly in October, rising 0.3 points to 93.1, its highest level since May. The index moved within a narrow range in the past year, oscillating between 90 and 95. The index has yet to recover to more normal levels (around 100) following the recession. “The Index remains in solidly pessimistic – and recessionary territory,” according to NFIB chief economist William Dunkelberg.

The percent of small business owners uncertain about whether business conditions will be better or worse in six months reached a record high of 23%. Some of this may be because the survey was completed prior to the election, but likely also reflects the uncertainty associated with the looming fiscal cliff.

Financing remains the least cited problem for small businesses, with only 3% of businesses citing it as the single most important problem. Poor sales, taxes and government requirements remain the most often cited problems for small businesses at 22%, 20% and 19% respectively.

Read the NFIB report.

Friday, November 9, 2012

CBO Details Economic Impact of Fiscal Cliff

The Congressional Budget Office has released a report detailing the economic effects of various components of the fiscal cliff. The CBO report details two scenarios, the first assumes that all of the components of the fiscal cliff go into effect. Under this scenario GDP would shrink by 0.5% in 2013, reflecting a decline early in the year, with a recovery following in the second half.

In the second scenario, the CBO assumes that the fiscal cliff is avoided entirely. This includes eliminating the automatic sequestration, maintain medicare payment rates and extending all expiring tax provisions. Under this scenario, GDP receives a 2.25% boost.

The CBO noted that "of the total difference in the projected growth of GDP next year under current law and under the alternative fiscal scenario, about two=thirds owes to changes in tax policies and about one-third owes to changes in spending policies." Changes in spending account for about half the estimated effect of the expiring tax provisions even though the budgetary impact of changes in spending are less. As such the CBO recommends that the spending cuts may carry the most "bang for the buck."

For a more detailed break-down of the impacts of the fiscal cliff, see the CBO report.

Thursday, November 8, 2012

Trade Deficit Narrowed in September

The U.S. trade deficit narrowed by $2.3 billion in September reaching its lowest level in almost two years. The deficit in September was $41.5 billion, and has fallen off significantly from its march highs of $51.6 billion. A surge in exports was enough to offset a rise in imports, breaking a two month trend of widening the deficit.

Exports rose 3.1% in September, reaching $187 billion, its highest level ever recorded. Both the exports of goods ($134 billion) and the export of services ($53 billion) were the highest on record. Imports rose 1.5% over September, primarily a result of higher fuel prices.

The real goods deficit, which is important for the calculation of GDP, shrunk in September to $46.9 billion. Despite the improvement, this measure remains near its level from last September.

Read the Census report.

Wednesday, November 7, 2012

Consumer Credit Continued to Expand in September

Consumer credit increased by $11.4 billion in September, slightly slower than August’s pace, but nowhere near the contraction seen in July. Growth in consumer credit continues to be driven by non-revolving balances. Revolving balances shrunk in September, continuing their trend of uneven performance. Consumer credit has rebounded well from its July contraction, gaining $29.5 billion in the past two months. July was the first month consumer credit had contracted since August 2011.

Revolving consumer credit shrank by $2.9 billion in September, offsetting much of August’s gain. Revolving credit has now shrunk in three of the past four months. Revolving balances have been slow to recover, and remain 17% below their 2008 peak.

Non-revolving balances continued to drive growth in September, rising 14.3 billion. Non-revolving balances consist mostly of student and auto loans. Non-revolving balances have now increased for 13 consecutive months and are well above their pre-recession peak.

Much of the growth in non-revolving balances is due to strong increases in student loans, which accounted for 69% of the increase in non-revolving balances in September on a non-seasonally adjusted basis.

Read the Fed release.

Monday, November 5, 2012

ISM Non-Manufacturing Fell in October

The service sector growth slowed slightly in October, but remains strong according to the ISM’s non-manufacturing index. The non-manufacturing index fell to 54.2 in October from 55.1 the previous month. Despite the decline, services continue to outperform the manufacturing sector, which improved to 51.7 in October. Any reading above 50 indicates industry expansion.

The details of October’s report were not encouraging. New orders fell to 54.8 from 57.7 the previous month. Business activity also slowed notably, falling from 59.9 to 55.4. Exports weakened as global demand continues to drop, entering negative territory for the first time since June.

Despite the weakness there were positive trends in October. Employment improved, rising from 51.1 to 54.9 in October. Inventories also continued to drop, falling to a low 46.5.

Read the ISM release.

Friday, November 2, 2012

Job Creation Surged in October as Unemployment Ticks Up

The U.S. economy created 171,000 jobs in October, well above the 6-month average job creation of 137,000 jobs. In addition, September and August job creation was revised up, adding 84,000 jobs more than had initially been reported. Despite the strong job growth the unemployment rate ticked up to 7.9% due primarily to increasing labor force participation. Job growth has picked up in the past three months, averaging 170,000, much better than the 67,000 averaged in the second quarter.

Job creation continues to be driven by the service sector, although by a lesser degree. The public sector added 150,000 jobs in October, its weakest growth since June when the overall economy added just 45,000 jobs. October’s job growth was boosted by the goods producing sector resuming hiring, adding 21,000 jobs. Government returned to dragging on growth in October, shedding 13,000 jobs.

Despite the strong job creation, the unemployment rate ticked up to 7.9%. This was primarily due to a large increase in the labor force, which outpaced employment growth, rising 578,000. This increase led the labor force participation rate to rise to 63.8%.

It is important to note that the job creation figures used to calculate the unemployment rate come from a different survey than the headline job growth numbers. The household survey, used to calculate unemployment, tends to be more volatile than the establishment survey that reports job creation.

The BLS noted that Hurricane Sandy had no discernible effect on employment and unemployment data for October. The household survey was collected before the storm, and the establishment survey data collection rates were within normal ranges both nationally and in affected areas.

Read the BLS report.

Thursday, November 1, 2012

Manufacturing Improved in October

Manufacturing made strong progress in October, with the ISM’s manufacturing index rising from 51.5 to 51.7. Although the improvement in the overall index was modest, the details of the report were strong, indicating further improvement in coming months. Currently, the index is at its highest levels since May.

Despite only rising 0.2 points in October, movement within the survey’s components suggest a strong trend. Specifically, new orders picked up 1.9 points, rising to 54.2. In addition a 0.5 point decline in inventories put inventory accumulation at its neutral threshold of 50. The gap between new orders and inventories, a proxy for future production, more than doubled to 4.2 points.

Production returned to positive territory in October, reaching 52.4. The employment portion of the index gave up some of the outsized gain it experienced in September but remained strong at 52.1. The weak global economy continues to drag on growth, with new export orders falling farther into negative territory in October, reaching 48.0.

Read the ISM release.

Construction Spending Increased Moderately in September

Construction spending increased 0.6% in September, recovering from a 0.1% decline in August. Construction spending is now 7.8% above its level from one year ago. Constructions spending has been slowly but steadily recovering, led primarily by private residential construction over the past year.

Private residential construction was entirely responsible for September’s gain, rising 2.8% over the month. Non-residential construction fell 0.1% in September. Government spending on construction remained the largest drag, falling 0.8% in September.

Read the Fed release.

ADP Employment Grew by 158,000 in October

ADP reported today that private sector employment increased by 158,000 in October, up from the 88,000 added the previous month. Employment gains continue to be driven by service sector growth, but were aided by the goods producing sector for the first time in three months.

October’s report is the first to utilize ADP’s new methodology, which is designed to ensure that employment numbers line up more closely with the BLS’s employment situation. Transitioning to this methodology has resulted in strong downward revisions to job growth in recent months. September’s growth was revised down from 162,000 to 88,000. The revisions cut 206,000 jobs out of reported job creation in the previous three months combined.

The service sector continues to drive job growth in October, creating 144,000 private sector jobs in September, up from the 97,000 created in September. The goods producing sector improved in October as well, contributing 14,000 jobs as opposed to dragging 9,000 jobs as it did the previous month. Manufacturing continues to shed jobs, falling 8,000 over the month.

Read ADP's release.