Friday, September 27, 2013

Consumer Confidence Sharply Declined in September

Consumer confidence dropped to the lowest level since April according to the University of Michigan’s Consumer Sentiment. The drop in consumer sentiment was driven by the uncertainty surrounding the federal budget and debt ceiling. There was a similar drop in January due to the “fiscal cliff” debates. September’s index was 77.5, a decrease of 4.6 index points.

The present conditions portion of the index declined 2.6 index points to 92.6. Future expectations really took a hit from the uncertainty from Capitol Hill, dropping 5.9 points to 67.8.

Inflationary expectations improved slightly, with the 1-year expectation increasing 0.3% to 3.3% and the 5-year expectation improving 0.1% to 3.0%.

Personal Income Grew Faster Than Consumption in August

Personal Income continues its growth trend, picking up steam in August after a weaker reading in July. It grew 0.3% over the month of August. Consumption also improved slightly, growing 0.3%. Since income rose faster than consumption, the savings rate accelerated slightly to 4.6% from 4.5% in July.

Personal income growth was driven primarily by improvements in income growth, which at 4.0% is the fastest pace since February. Growth improvements were led by a surge in rental income growth as well as proprietors’ income. Disposable income grew 0.5%, the highest level in 6 months.

Consumption improved slightly, led by a 0.5% increase in durable goods. Consumer spending continues to outpace income growth, created by rising home prices and a strong stock market. Consumption of services grew 0.4%, while nondurable goods were unchanged.

Overall prices rose 0.1%. Excluding food and energy, prices were also up 0.2%. Currently, prices are 1.2% above year-ago levels, indicating low inflation.

Read the BEA release.

Thursday, September 26, 2013

Second Quarter Growth Remained at 2.5% in Final Estimate

Real GDP growth for the second quarter remained at 2.5% in the BEA’s final estimate. Growth was previously revised up in the second estimate to 2.5% from 1.7% in the first estimate. GDP growth is faster than growth during the second quarter last year, which was 1.2%

Consumption, fix investment and government expenditures increased slightly while inventories and net exports declined from the second estimate.

Consumption continues to be the GDP driver of the recovery, settling at a 1.24% increase. However, fixed investment also showed large gains in the second quarter, growing 0.96%. It means fixed investment will likely have smaller gains in the following quarter.

Inventories finished the quarter at a 0.41% increase, which has yet to offset the loss in fourth quarter of 2012, even with large gains in the first quarter. Net exports declined slightly, but will likely pick up next quarter as Europe starts to see positive GDP growth for its first quarter. The government drag was 0.07% and is expected to increase as sequester stays for the FY 2014.

Read the BEA release.

Household Net Worth Rose by $1.3 trillion in Second Quarter

Household net worth grew by $1.3 trillion in the second quarter of 2013 to a record $74.8 trillion, according to the Federal Reserve’s Flow of Funds report. The gain continues an upward trend since the beginning of 2009 and is $5.8 trillion above the pre-recession peak.

The gains in household net worth were let by rising home prices and the stock market recovery. Residential real estate increased household wealth by $525 billion. The S&P/Case-Shiller index of home values in 20 cities rose 12.4% in July from the same month in 2012, the most in more than seven years. Americans hold more of their wealth in their homes, as the household real estate as a percentage of household real estate holdings hit 49.8% from 48.1% a quarter earlier.

The stock market added almost $300 billion. The Standard & Poor’s 500 Index climbed 2.4% from March 29 through June 28, following a 10 percent increase in the first quarter. The trend is expected to continue through the third quarter, especially with large stock market gains once the Fed announced it was postponing the anticipated taper date.

Liabilities also rose for the household sector as families become willing to take on more debt. Household borrowing grew at an annualized rate of 0.2% in the second quarter, after declining in the first. The increased borrowing was driven by the 5.6% increase in student and auto debt.

Read the Federal Reserve’s release.

Wednesday, September 25, 2013

New Home Sales Increased 7.9% in August

New home sales increased to an annual pace of 421,000 units in August. The pace is 7.9% above the previous month’s pace, which was revised down. However, July’s pace was the worst all year, and the increase comes from depressed levels and does not offset July’s losses. August’s pace is still the second slowest all year and indicative of a summer slowdown. August’s pace is 1.9% above year ago levels. By comparison, June’s report was 38% higher than the year-ago pace.

The modest gains in August were fairly broad, with only one of the four regions reporting slower new home sales. However, all four regions saw declines the previous month, with three of the four posting double digit declines. The Midwest and South posted the strongest gains at 19.6% and 15.3% respectively. The Northeast grew 8.8%. The West declined by 14.6%, which also saw the steepest decline the previous month.

As home sales picked up over the month of August, the supply of homes shrank to 5.0 months, from 5.2 months in July.

The median price of a new home rose 1.9% to $258,000, up from downward revision to July. Although the median price is slowly improving, it’s below the peak of $275,100 in April.

Read the Census report.

Tuesday, September 24, 2013

Home Prices Rose 1.8% in July

Existing home prices continued to rise in July according to the Case-Shiller index. The 10- and 20-city indices increased 1.9% and 1.8% respectively. The 20-city index is 12.4% above year ago levels, its fastest pace since early 2006. 18 of the 20 metro regions posted gains or remained neutral. All of the 20 metro areas continue to report gains from year-ago levels as well.

The details of July’s report were mainly positive. Price gains were the highest in Las Vegas at 2.5% to stagnant in Boston. Only Minneapolis and Cleveland saw a decline in prices over the month, dropping 0.7% and 0.2% respectively.

Home prices still remain well below the levels seen at the peak before the recession. The 20-city index is 21.3% below its July 2006 peak.

Read the Standard and Poor release.

Thursday, September 19, 2013

Existing Home Sales Rose 1.7% in August

According to the National Association of Realtors, existing home sales improved 1.7% in August to an annual pace of 5.48 million units. Sales are 13.2% above year ago levels, and at their highest pace since February 2007. Sales have remained above year-ago levels for the past 26 months.

The details of the report across regions were mixed. The South and Midwest saw modest gains, rising 3.8% and 3.1% respectively. However, the Northeast remained stagnant and the West had a slight decline of 2.3%. All regions posted gains from year ago levels, signaling that rising interest rates impacted August’s growth, but the housing market is still improving from the recession.

Housing inventory declined slightly to 4.9 months in August, from 5.1 months in July. Housing supply is still at depressed levels.

Notably, NAR’s survey found that the share of distress sales is at its lowest level since the survey began in October 2008, dropping from 23% in August 2012 to 12% this August.

The national median existing –home price was $212,100, below the average vales the previous two months, but still 14.6% above year ago levels.

Read the NAR release.

Wednesday, September 18, 2013

Federal Reserve Maintains QE3 Purchase Pace

The Federal Reserve will not scale back its bond buying program following the Federal Open Market Committee’s (FOMC) September meeting, however Chairman Bernanke left the door open for beginning to taper purchases prior to the next meeting. The Federal Reserve will continue purchasing $85 billion per month in bond purchases.

Markets had largely expected the Federal Reserve to begin tapering its bond purchases following comments from Chairman Bernanke at the previous meeting. Bernanke had previously noted that “we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around midyear,” when unemployment is forecast to be near 7%.

The Federal Open Market Committee will not hold another meeting with a press conference until mid-December, which led forecasters to believe they could not taper purchases until then. In his press conference, Chairman Bernanke noted that the Federal Reserve could begin tapering purchases between these meetings, but was likely to hold a press conference at such a time.

In addition to postponing taper purchases, the FOMC pushed out its forecast for the likely timing of raising the Federal Funds rate. The most recent forecast is more dovish than July's, with no members forecasting a federal funds rate above 0.25% in 2013.

FOMC Fed Funds Rate Projections September 2013

FOMC Fed Funds Rate Projections July 2013

The Fed’s statement suggested that the economy expands at a “moderate pace,” a change from previous releases that labeled expansion as "modest." They did note while the labor market has further improved in recent months, the unemployment rate remains elevated, along with rising mortgage rates and fiscal policy constraining growth.

The FOMC stated in its release that, “Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.”

The Fed also held interest rates at their current near-zero levels as expected.

While inflation is persistently low, the Fed is more optimistic about inflation in the medium term. In his press conference, Chairman Bernanke anticipates the fed funds rate to hit 2% in 2016, but admits it is still below the long term goal of roughly 4%.

Read the full FOMC statement below. Read the Federal Reserve's updated projections.    

Housing Starts Improved Modestly in August

New residential construction improved slightly in August, reaching an annual rate of 891,000 units, up from July’s revised down value of 883,000. Housing starts are 19% above year ago levels, but still below the one-million yearly unit pace seen in March.

Unlike in previous months, August’s increase was driven by growth in single-family construction. Single family construction grew 7.0%, coming off a previous month of decline and settling at an annual pace of 628,000 units. It is still below the post-recession peak of 650,000 in February. Multifamily construction decreased in August to an annual pace of 263,000, following a 22.3% surge the previous month.

The details of the report were mixed. Housing permits declined 3%, driven down solely by the multifamily permit issuance. Single-family permits rose by 3%. The prediction last month that the single-family sector is poised for strong gains seems to be panning out. Completions barely rose in August, increasing a mere 0.3%.

Read the Census report.

Tuesday, September 17, 2013

Consumer Prices Rose 0.1% in August

Consumer prices rose 0.1% in August, slower than expectations and below the previous two months gain. August’s weak report was due to the drop in energy prices. Prices are now 1.5% above year ago levels. Core CPI also increased 0.1%, below the previous three months, which each posted 0.2% gains. Despite data suggesting a steady economic recovery, consumer prices are still weak.

The energy index shrank in August, dipping 0.3%, due in part to a 0.1% drop in gasoline prices. Electricity and natural gas prices also declined.

Food prices rose 0.1%, the same as the previous month. As with the previous month, the gains in food prices were due to higher fruit and vegetable prices.

Read the BLS report.

Monday, September 16, 2013

Industrial Production Increased in August

Industrial production increased 0.4% in August, after remaining stagnant in July. The gains were weaker than anticipated, but the strongest since February. August’s report included minor revisions to the previous 5 month’s gains.

Manufacturing output rose 0.7% in August, the largest growth in 6 months. It reverses the 0.4% decline in July. The auto sector contributed heavily to manufacturing gains, surging 5.2%. Durable and nondurable goods output increased 1.2% and 0.1% respectively. Excluding motor vehicles, total manufacturing output rose 0.4%.

Mining also saw growth in August, albeit more modest at 0.3%. Utilities continued a declining trend, decreasing 1.5%.

Read the Fed release.

ABA’s Chessen Meets With Treasury Secretary on Debt Ceiling

ABA Chief Economist Jim Chessen attended a meeting Friday with Treasury Secretary Jack Lew and a dozen financial and business trade group leaders about the debt ceiling. The meeting was part of a dialogue Lew has initiated on the seriousness of the country’s fiscal situation and the implications of a breach of the debt ceiling.

Chessen provided examples of how a default would impact banks and the economy at large. He noted, for instance, that because banks hold nearly $2 trillion in Treasury securities and over $1.5 trillion in agency securities, any interest rate increase that would result from a delay in payment or default would create large unrealized losses in bank portfolios. That, in turn, would restrict the industry’s ability to lend and grow the economy.

View graphs about the debt ceiling.

Friday, September 13, 2013

Retail Sales Increased 0.2% in August

Retail sales grew 0.2% in August. August’s report included upward revisions to June and July’s numbers as well, rising to 0.7% and 0.4% respectively. Retail sales are now 4.7% above year ago levels. The strongest growth over year ago levels has been in the last 3 months.

Core sales only grew 0.1% in August, after a much stronger growth in July. The strength in August’s disappointing report came from auto sales and furniture.

Building materials, after surging in July, dropped 0.9% in August. Clothing and accessories also had large declines, dropping 0.8%.

Read the Census report.

Producer Prices Rose 0.3% in August

Producer prices rose 0.3% in August, following no change from the previous month. Energy and food prices rose while core goods sharply declined. Producer prices are now 1.4% above year ago levels, the slowest growth seen in 4 months.

The price for core goods was unchanged in August from July’s reading. Lower prices for vehicles offset gains in other categories. Intermediate goods grew a modest 0.2%, not fully offsetting the 0.3% loss from the previous month. Prices were mixed for intermediate goods, with the energy index rising 0.6% and the intermediate food index sharply declining 2.3%.

Crude prices dropped 0.4% and 4.6% from year ago levels.

Read the BLS report.

Tuesday, September 10, 2013

Small Business Optimism Dropped Slightly in August

The NFIB’s Small Business Optimism Index shrank slightly by 0.1 points in August, settling at 94.0.

Financing continues to be the least cited factors holding back small business conditions, with only 3% of respondents citing it as the single most important problem. Taxes and government requirements were the most commonly cited problems, with 44% of respondents citing one as the largest problem facing small businesses.

The details of the report were mixed. Job creation plans were at the highest level since 2007, jumping 7 points to a net increase of 16% in August. However, firms also shed the largest number of employees in months.

Expectations for business conditions in six months also became more negative. Consumer spending was sluggish for small businesses, up 0.5% year over year. Weaker sales impacted wages, which fell 35%, a 13 point decline in August.

Read the NFIB report.

Monday, September 9, 2013

Consumer Credit Grew by $10.4 billion in July

Consumer credit grew by $10.4 billion in July, a slower pace from June’s $11.9 billion. July’s growth is slightly below the 6-month average of $11.9 billion. The slower pace of growth in consumer credit was caused by slowing revolving credit growth.

Revolving credit shrank by $1.8 billion in July. It’s the second consecutive month of declines. Credit card usage is on the decline as customers shy away from higher interest revolving credit debt. Moreover, consumers are still cautious, signs the economy is still recovering.

Non-revolving balances continued to drive growth in July, rising 12.3 billion. Increased auto demand and education spending contributed to the bulk of non-revolving credit growth. Non-revolving balances are well above their pre-recession peak. Non-revolving credit growth from year ago levels continues to outpace the total balance growth, rising 7.7% in July.

Read the Federal Reserve release.

Friday, September 6, 2013

Economy Added 169,000 Jobs as Unemployment Rate Dropped to 7.3%

The economy added just 169,000 jobs in August, below expectations. The unemployment rate dropped to 7.3% due to lower labor force participation. August’s report also included substantial downward revisions to previous months. July was revised from 162,000 to 104,000 and June declined from 188,000 to 172,000.

The majority of the slowing seen in August was due to weaker growth in the services industries, specifically the information and financial services sectors.

Job creation in the goods producing sector increased 18,000, following a 17,000 decline the previous month.

Although the unemployment rate dropped from 7.4% to 7.3% over the month, there was little true improvement in the labor market. Much of the improvement in the unemployment rate was a result of a rapidly deteriorating labor force participation rate which fell from 63.4% to 63.2% over the month, a post-recession low. August saw 312,000 workers leave the labor force.

The FOMC meets next week and many expect the Federal Reserve to begin tapering, but a weak jobs report like the one released today could push back the start date of the Fed’s tapering.

Read the BLS report.

Thursday, September 5, 2013

Service Sector Surged in August

The service sector continued to improve in August, with the ISM’s non-manufacturing index surging to its highest level since 2005. The non-manufacturing index rose 2.6 points to a reading of 58.6, well above the 52.2 low seen just two months prior. The solid improvement in the index gives more evidence that the economy strengthened in the third quarter.

The non-manufacturing index has now been above 50 for 44 months. Any reading above 50 indicates industry expansion.

The details of August’s report were strong as well, with nearly all components improving. New orders broke above 60, reaching their highest level since February 2011. In addition the employment index more than recovered from its slight drop the previous month, reaching 57.0, the best seen since the beginning of the year. The improvement in the employment portion of the index is a positive for tomorrow’s jobs report.

The only negative detail in August’s report were the trade details, which saw imports increase more than exports, suggesting the nominal trade deficit widened in August, which would drag on GDP.

Read the ISM release.

ADP: Private Sector Employment Rose by 176,000 in August

The private sector added 176,000 jobs in August according to ADP’s National Employment Report. August’s report shows a slightly slower pace than July’s 198,000 jobs. This ADP data comes one day before the BLS’ employment situation report. In July the 198k ADP reported gain translated to a BLS reported nonfarm payroll gain of 162k jobs. The report, which is typically released on the Wednesday prior to the BLS release, was delayed one day this month due to the holiday weekend.

Job creation continues to be driven by the service sector, which added 165k jobs in August, down slightly from the 176 jobs created in July. Goods sector job creation fell from 22k jobs the previous month to just 11k jobs in August.

Read the ADP release.

Wednesday, September 4, 2013

U.S. Trade Gap Widened in July

The U.S. foreign trade deficit grew by 13% in July to $39.1 billion. The increase in the deficit is due to a combination of decreased exports and increased imports.

Exports shrank by 0.6% to $189.4 billion and imports grew by 1.6% to $228.6 billion. The goods and petroleum deficits contributed to July’s trade gap increase. The goods deficit grew from $54.1 billion to $58.6 billion and the petroleum deficit increased from $17.5 billion to $18.7 billion.

The data suggests a sluggish recovering global economy from lower demand abroad and a more robust recovery at home due to increased imports.

The real goods deficit, which is important to calculate GDP, grew from $43.8 billion to $47.7 billion.

Read the Census report.

Tuesday, September 3, 2013

Construction Spending Increased 0.6% in July

Construction spending increased 0.6% in July, due largely to continued strength in residential construction. Construction spending grew 5.3% above year ago levels. The report has positive revisions to the previous two months, with an upward revision of 0.7% to May and 0.6% to June, bringing June out of contracting territory.

Residential construction improved 0.6% in July, up from a revised 0.4% in June. Of the three components of residential construction, spending on residential improvements increased the most, rising 0.8% in July. However, spending on new multifamily homes saw the largest increase from July 2012, growing 39.3%. Non-residential construction also increased in July, rising 1.3% and reversing a negative reading from the previous month. The uncertainty of the Federal Reserve’s gradual removal of its quantitative easing purchases will hamper private nonresidential construction’s full recovery.

Public construction spending declined 0.3% in July, reversing the 0.3% positive growth in June.

Read the Census report.

ISM Manufacturing Continued Upward Trend in August

The ISM manufacturing index rose 0.3 points in August to 55.7, exceeding expectations of a decline and well above the second quarter average of 50.2. The index is at its highest level since early 2011 and has now seen improvements for three straight months.

It’s important to note that August’s strong reading may be an outlier because the regional Federal Reserve readings for August were not as strong. The August reading may overstate the strength of the manufacturing sector.

The details of the report were mixed. New orders rose above 60 for the first time since early 2011, settling at 63.2, a 4.9 point increase from July. However production and employment declined from the previous month. Production dropped 2.6 points to 62.4 and employment declined 1.1 points to 53.3. Both indexes still remain in expansionary territory.

Backlogged orders and inventories remained below the expansionary threshold of 50, with a recording of 46.5 and 47.5 respectively. The gap between new orders and inventories – a proxy for future production – increased to 15.7 points, from 4.4 the previous month.

Read the ISM release.