Friday, June 27, 2014

Consumer Confidence Rose in June

According to the University of Michigan Consumer Sentiment index, consumer sentiment rose in June to 82.5, the second highest reading all year.

Current expectations improved in June. Current conditions grew 2.1 points to 96.6. Future expectations declined 0.2 points to 73.5. The gap between current and future expectations remained. Consumers are less optimistic about the future in comparison to the present.

The report indicated that inflationary expectations were little changed from the month prior, calling for 3.1% inflation over the next year and 2.9% over the next 5 years.

If conditions continue without any major shocks, sentiment should continue to improve as the year progresses.

Thursday, June 26, 2014

Personal Income Growth Outpaced Consumption in May

Personal income grew 0.4% in May, an increase of the pace from the month prior. Personal consumption improved 0.2%, which caused the savings rate to increase to 4.8%. Personal income increased 3.5% from year ago levels and consumption increased 3.7%.

Wage growth was stronger in May than the previous month, at 0.4%. Disposable income, which improved 0.4% in May, was also slightly stronger than the previous month. Similar to the month prior, dividend growth was the driver behind income growth in May. Real personal consumption growth remained stagnant and real personal income grew 0.2%.

The improved wage growth, combined with stronger job growth, will result in people feeling more financially confident, causing an increase in consumer spending.

Inflation remained at low levels as the PCE deflator rose 0.2% in May, 1.8% above year-ago levels. While the annual rate is an improvement from last month, inflation remained below the 2.0% target of the Federal Reserve.

Read the BEA release.

Wednesday, June 25, 2014

First Quarter Growth Plunged, Declined 2.9% in Final Estimate

GDP fell sharply in the first quarter, according to the BEA’s final estimate. GDP declined by 2.9%, the largest quarterly decline since 2009, the peak of the recession. The downward revision was driven primarily by a larger inventory correction, an increased trade deficit and sluggish consumer spending. While the downward revision was anticipated, the decline wasn’t expected to be so drastic.

The harsh winter impacted first quarter GDP growth by keeping consumers home. Moreover, an inventory correction that was expected to take a few quarters took place entirely in the first quarter. These two factors contributed to negative GDP growth. Data already released from the second quarter show a positive picture with stronger growth, as a result GDP should rebound in the second quarter.

Consumption, a key driver of GDP growth, was weak in the first quarter, contributing 0.7% to GDP, a revision from the 2.1% seen in the second estimate. Inventories also corrected more than originally estimated, weighing 1.7% on GDP. Inventories tend to be highly volatile. Net exports caused a 1.5% drag on the economy in the first quarter. The government drag remained similar from the second estimate.

Read the BEA release.

Tuesday, June 24, 2014

New Home Sales Jump 18.6% in May

New home sales increased to an annual pace of 504,000 units in May. The pace, 18.6% above the previous month’s pace, is the strongest pace since mid-2008 and the strongest month-over-month gain since the early 1990s. May’s pace is 16.9% above year ago levels. By comparison, April’s report was 3.7% higher than the year-ago pace. April’s pace was revised down by 1.9%.

The gains in May were broad-based, with each of the four regions posting gains. Three of the four regions saw double-digit increases, although two of the three had declines the previous month. The Northeast posted the sharpest gains at 54.5%. The South and West grew 14.2% and 34.0%, respectively, while the Midwest showed modest growth of 1.4%. The number of new home sales increased the most in the South and the West, growing by 33 homes each.

As home sales picked up over the month of May, the supply of homes declined to 4.5 months, from 5.3 months supply in April.

The median price of a new home rose 5.4% to $279,200, which is 5.9% higher than year-ago levels.

Read the Census report.

Home Price Appreciation Continues Upward Trend

Home prices rose at their fastest pace all year in April, growing 1.1%, according to the Case-Shiller index. However, the year-over-year growth continues to slow. The 20-city composite index indicated that prices in April are 10.8% above year-ago levels, slower than the 12.6% seen in March. Cold weather in the first two months of the year likely held demand low, causing a rebound in March and April. Next month’s report should normalize, and therefore might reveal a slightly lower pace of growth.

All 10 metropolitan areas saw home prices improve from the previous month. Moreover, every metropolitan area continues to see prices above year-ago levels. New York saw the slowest gain, growing 0.1%. Boston had the strongest growth at 2.9%. Las Vegas continues to see the largest year-over-year growth, at 18.8%.

Read the S&P release.

Monday, June 23, 2014

Existing Home Sales Rose in May

Existing homes sales rose by 4.9% in May to an annual pace of 4.89 million units, according to the National Association of Realtors. The rise in existing home sales is the largest monthly gain since August 2011. May’s report included a slight revision of April’s headline number to an annualized pace of 4.66 million units. Sales in May are 5.0% below year ago levels.

All four regions saw gains in May. The Midwest and South grew the most, increasing 8.7% and 5.7% respectively.

The market supply declined slightly in May to 5.6 months, from 5.7 months in April, the largest supply in a year and a half.

The median house price increased to $213,400, a 5.1% increase over year ago prices. The rise in the median home price along with a slowly improving market supply points to a housing market that will continue to improve over the summer.

Read the NAR release.

Wednesday, June 18, 2014

FOMC Continues Tapering Pace, Monetary Policy Highly Accommodative

The Federal Reserve will continue its current pace of tapering, reducing purchases by $10 billion per month. The Fed will now purchase mortgage-backed securities at a pace of $15 billion per month rather than $20 billion per month, and purchase longer-term Treasury securities at a pace of $20 billion per month rather than $25 billion per month.

The continued purchases will maintain downward pressure on longer-term interest rates, support mortgage markets and help make financial conditions more accommodative. If the labor market indicators and inflation rate continue to move in the direction consistent with the Fed’s dual mandate, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, as Federal Reserve Chairman Janet Yellen reiterated in her speech, the asset purchases are not on a preset course, and the committee’s decision will remain contingent on economic outlook. For this reason, Yellen warned, investors should avoid risky behavior, in spite of the current low volatility in financial market activity.

The Committee reaffirmed that a highly accommodative stance of monetary policy remains appropriate. It likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after asset purchases end. When asked to be more specific on the time schedule, Yellen responded that there is no mechanical formula and that it will depend on how the economy progresses.

Regarding economic progress, the Fed believes the economy is rebounding in the second quarter, which the Committee expects will continue. The unemployment rate is expected to decline to between 6.0% - 6.1% in 2014, although the rate of reduction may slow as discouraged workers reenter the labor market. PCE Inflation is expected to continue to move towards the Fed’s 2% target in the long run, but is projected to remain between 1.5% and 1.7% during 2014. The federal funds rate projections for 2015 and 2016 have increased since the March meeting, but Yellen posited that the increase may be attributed to the fact that there are new committee members. The fed will continue to consider a broad range of economic indicators in its monetary policy and is not limited to inflation and the unemployment rate.

The Committee believes that the drop in GDP during the first quarter was for transitory reasons. In the second quarter spending and production, among other indicators, have picked up. The current GDP projection is between 2.1% and 2.3%, however the central tendency range is notably lower than the March projection of 2.8%-3.0% because of the reduction in GDP in the first quarter.

Read the Federal Reserve FOMC statement.

Tuesday, June 17, 2014

Consumer Prices Rose 0.4% in May

Inflation continued to rise in May with the consumer price index growing 0.4%. The gain is the strongest since last June. The increase was broad-based, with shelter, electricity, food, airline fares and gasoline among those that contributed. The increase from year-ago levels grew to 2.1%, the largest 12-month increase since October 2012.

Core prices grew 0.3%, the highest growth rate since January 2013. Goods prices grew 0.1%, consistent with the previous month. Services continued to grow at 0.3%. Food prices grew 0.5%, the fourth consecutive month of strong gains. Energy prices posted the highest gains, growing 0.9% month-over-month and 3.4% year-over-year.

The future outlook remains positive, as inflation nears the Federal Reserve’s target of of 2.0%.

Read the BLS report.

Housing Starts Cling to its 1 Million Unit Pace in May

Housing starts decreased to an annualized pace of 1.001 million units in May. The decline was led by multi-family construction, but single-family starts also posted a decline. May’s rate dropped 6.5% from the month prior, which was expected following April’s large increase. The pace of new construction is now 8.92% higher than a year ago.

Both multi- and single-family starts dropped, falling by 7.6% and 5.9%, respectively. Multi-family starts grew at an annual pace of 376,000 units, while single-family starts grew at an annual pace of 625,000 units.

Single-family housing permits improved 3.7%, show some revival in that market, although Multi-family housing permits dropped 19.5%.

Read the Census report.

Monday, June 16, 2014

Homebuilder Confidence Improved in June

Homebuilder confidence improved in June as the index rose four points to 49, according to the National Association of Home Builders (NAHB). The index remains one point below what the NAHB considers good building conditions. The four-point improvement comes after several months of invariability and shows renewed confidence in the industry, however, builders are still facing headwinds such as limited availability of labor and hesitant consumers awaiting indications of a more robust economic recovery.

Gains were seen in all three indexed components, showing a six-point improvement in current sales conditions, followed closely by three-point improvements in sales expectations in the next six months as well as buyer traffic.

Of the four housing regions in the U.S., the South and Northeast edged up one point to 49 and 34 respectively, while the West was unchanged at 47 and the Midwest fell one point to 46.

Read the NAHB release.

Industrial Production Improved 0.6% in May

Industrial production rose 0.6% in May, following a 0.3% decline in April. April was revised upward from a previously reported 0.6% decline. Manufacturing and mining contributed to May’s growth, moderately offset by a decline in utilities.

Manufacturing growth improved 0.6% in May, showing across-the-board growth, led by motor vehicle parts and high-tech manufacturing.

Mining production grew 1.3% in March. Utilities production decreased 0.8%, declining for the fourth month in a row. The capacity utilization ratio improved in May, rising 2 basis points to 79.1%.

Read the Federal Reserve release.

Friday, June 13, 2014

Small Business Survey Reviews Friendliness By State

Utah, Idaho, Texas, Virginia and Louisiana are the most supportive of small businesses, according to a third annual Small Business Friendliness Survey. Conversely, the study, which surveyed over 12,000 small business owners, found that owners rated California and Rhode Island in the bottom five for friendliness to small business during each of the three years of the survey. Thumbtack Chief Economist Jon Lieber says:

Creating a business climate that is welcoming to small, dynamic businesses is more important than ever, but rarely does anyone ask small business owners themselves about what makes for a pro-entrepreneur environment. Thousands of small business owners across the country told us that the keys to a pro-growth environment are ease of compliance with tax and regulatory systems and helpful training programs.

The survey assigns letter grades to states and certain cities based on their small business friendliness with regards to categories such as ease of starting a business, ease of hiring, regulations and more.

Read more.

Producer Prices Declined 0.2% in May

Producer prices fell in May, dropping 0.2% from the month prior. The goods category contributed to May’s decline. The year-over-year change was 2.0%, slightly behind the 2.1% annual growth seen last month but on par with the Federal Reserve’s target inflation.

Prices for finished food and energy goods both declined 0.2% in May. It was the first decline for finished food goods this year.

Prices at earlier stages of production were mixed. Processed intermediate food declined 0.2% while processed energy improved 0.3%. Total intermediate goods declined by 0.1%, a category that hasn’t grown since February.

Read the BLS report.

Thursday, June 12, 2014

Retail Sales Rose A Modest 0.3% in May

Retail sales improved modestly in May, growing 0.3% from the month prior. However, May’s report included an upward revision to April’s headline number. Excluding automobile and gasoline sales, retails sales remained flat in May. Year-over-year growth was 4.3%, down 0.3% from the previous month.

Retail gains in May were led by auto dealers, which saw sales increase by 1.4%. The decline in sales was broad based across other key retail segments. The largest monthly decline in sales occurred at retail stores, which dropped 1.4% in May. However, the drop did not fully offset the large 1.9% gain in April.

The outlook for future growth is positive. Year-over-year growth has remained above 4% for three consecutive months, the first time since last summer.

Read the Census report.

Tuesday, June 10, 2014

Small Business Optimism Grew in May

The NFIB’s Small Business Optimism index rose to 96.6, a 1.4 point gain and the second consecutive month the index is above pre-recession levels. However the index is still below historical averages. Expectations about sales and business conditions contributed to the gain.

NFIB chief economist Bill Dunkelberg pointed out that, “The four components most closely related to GDP and employment growth (job openings, job creation plans, inventory and capital spending plans) collectively fell 1 point in May. So the entire gain in optimism was driven by soft components such as expectations about sales and business conditions.”

Financing continues to remain the least cited problem for small businesses in April, although it rose to 3% of respondents reporting it as their single most important problem. Loan availability is often seen as a leading indicator of business investment, hiring and economic growth. Taxes along with government requirements and red tape continue to be the most cited problems for small businesses, with 25% and 20% of respondents reporting it as their top problems respectively.

The report was positive given the optimistic future outlook of small businesses. Small businesses on net saw a 9% increase in their expectations of the economy to improve.

Finding qualified applicants is a persistent problem for small businesses. A net 24% have positions they are not able to fill, unchanged from the previous month and a high since at least the recession. Due to the quality of labor shortage coupled with plans to increase compensation, upward pressure is placed on wage inflation, which is poised to rise.

Read the NFIB report.

Friday, June 6, 2014

Consumer Credit Jumped in April

Consumer credit jumped by $26.8 billion in April, the largest monthly gain since 2001. For the first time since the recovery, gains were driven by both revolving and non-revolving credit. The annualized credit growth improved to 10.2%, from 7.5% in March.

Revolving credit grew $8.8 billion, the largest monthly gain since November 2007. The warm weather rebound and growing economy mean that consumers are more willing and able to talk on larger debt levels. It is a positive sign for future economic growth.

Non-revolving balances grew to a faster pace too, reaching $18.0 billion in April. Non-revolving balances consist mostly of student and auto loans. Non-revolving balances have now increased consecutively since 2011 and are well above their pre-recession peak.

Read the Federal Reserve release.

Bank Economists See Solid Economic Growth Ahead

Growth resumed in the second quarter of 2014 after a surprisingly weak start to the year, but investment in businesses and homes – along with reduced fiscal drag – will spur the U.S. economy over the next two years, according to the Economic Advisory Committee of the American Bankers Association.

The committee, which includes 14 chief economists from among the largest banks in North America, predicts that inflation-adjusted GDP will achieve roughly 3 percent growth for the remainder of 2014 and into next year.

“The unusually cold winter, along with temporary drags from an inventory correction and weaker trade, slowed economic activity in the first quarter,” said Christopher Low, chairman of the group and chief economist of First Horizon National Corp's FTN Financial. “As these temporary factors fade, the underlying health of the economy will show through, with business spending and hiring leading the charge.”

The committee expects moderate consumer spending growth until wage growth accelerates.

"Households are benefiting from a material rise in home and equity prices, but remain constrained by weak wage growth,” said Low. “A more meaningful pickup in consumption will be elusive without stronger wage growth.”

The bank economists believe home prices nationwide will rise solidly and residential investment will increase 10 percent for the remainder of the year. Improving labor market activity will foster stronger household formation, supporting the housing recovery. “We foresee enough growth in jobs and income to keep housing strong even as mortgage rates rise,” Low said. “As home prices rise, we may begin to see an increasing wealth effect contribution to consumer spending.”

Read the full press release. Read the detailed EAC forecast numbers.

Payrolls Rose by 217,000 in May, Unemployment Rate Unchanged at 6.3%

The economy added 217,000 jobs in May and the unemployment rate was unchanged at 6.3%, according to the U.S. Bureau of Labor Statistics. May’s payroll increase more than recovered all of the jobs that were lost during the recession. May’s report also included a slight downward revision to April’s figure by 6,000 jobs.

The private sector, particularly the services industry, continues to drive job growth. The services sector alone added 198,000 jobs, although slightly lower than the revised 224,000 the month prior. The goods producing sector added an additional 18,000 jobs. Durable goods saw sizable gains , adding 17,000 jobs. Government employment increased at a slower pace, adding 1,000 jobs, driven by local governments. The federal government contracted by 5,000 jobs, a trend that is likely to continue as the federal government cuts its budget and shrinks in size.

The unemployment rate and the labor force participation rate remained unchanged from a month ago at 6.3% and 62.8%, respectively. In addition, the employment-to-population ratio was also unchanged at 58.9%. Notably, the number of job losers and people who completed temporary jobs declined by 218,000 in May. Furthermore, the number of unemployed reentrants increased by 237,000, partially offsetting a large decrease in April.

However, the number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 3.4 million in May. These individuals accounted for 34.6% of the unemployed. In addition, the number of individuals marginally attached to the labor market in May was little different from a year earlier, at 2.1 million persons.

During the recession the economy lost 8.7 million jobs. In May, payroll employment surpassed its prerecession peak by 98,000 jobs. Although the U.S. may have regained the jobs lost during the recession, the numbers are not comparable because the job gains do not include the growth of the working-age population.

Furthermore, according to a recent study by the Federal Reserve Board of New York based on the tri-state area and Puerto Rico, “the types of jobs created during the recovery are not the same as those that were lost during the recession.” While the type of jobs lost in the nation and across the region were middle-skill jobs, the types of jobs that were recovered were higher-skilled jobs and lower-skilled jobs, illustrating the decades-long trend of job polarization.

Read the BLS report.

Thursday, June 5, 2014

Household Net Worth Grew by $1.5 Trillion in the First Quarter

According to the Federal Reserve’s Flow of Funds report, household net worth increased by $1.5 trillion in the first quarter of 2014 to a new record of $81.8 trillion. The gain continues an upward trend that began in 2009 and is now $13 trillion above its pre-recession peak.

The gains in household net worth were led by financial assets and real estate. Overall household net worth improved 11% from a year ago, driven by a $2.4 trillion increase in real estate values. Household debt increased by 2.0% in the fourth quarter. Moreover, the S&P 500 grew 19% from the previous year, helping to increase household wealth. Home mortgage debt, however, decreased by 2.5%, signaling that homebuyers remain cautious. Household checkable deposits and currency grew 9% from the fourth quarter, continuing the trend of growing deposits.

In the first quarter, businesses held $1.85 trillion in liquid assets on hand, a decrease from $1.94 trillion in the fourth quarter. Despite the slight decrease, business continue to hold a large amount of cash. Federal government debt increased at an annual rate of 7.1%, a slower pace than the 11.6% in the fourth quarter.

The household savings rate dropped to 3.6% in the first quarter.

Read the Federal Reserve release.

Wednesday, June 4, 2014

Beige Book: U.S. Economy Grew at “Moderate Pace”

The Federal Reserve’s Beige Book, released today indicated that economic expansion is continuing at a “moderate pace,” an improvement from the previous report. Most regions have improved since the last report. Reports from Boston, New York, Richmond, Chicago, Minneapolis, Dallas and San Francisco all indicated moderate growth. Cleveland and St. Louis districts saw the pace of growth improve, while the pace slowed slightly in the Kansas City district.

Consumer spending generally expanded, partly due to the improved weather that boosted sales. New vehicle sales were a large driver of consumer spending in over half the districts. Moreover, the warm weather benefited tourism. “Tourism was steady to stronger across most of the country--particularly in most of the eastern seaboard Districts.”

Activity in the service sector is improving, driven by technology firms from the Boston, Kansas City, and San Francisco districts.

The report noted that hiring was “steady to stronger across most of the country.” This stands in contrast to April’s jobs report, which indicated a “mixed by generally positive” in hiring activity. Many districts report difficulty filling qualified workers for high-skilled positions.

Loan demand increased since the last report. New York and San Francisco reported the strongest gains. “Credit quality and delinquency rates generally improved, while credit standards were mostly unchanged.”

Read the Federal Reserve release.

ISM Nonmanufacturing Index Rose in May

The ISM nonmanufacturing index improved for the third consecutive month, growing 1.1 points to 56.3. The index finally recovered from the winter and is at its highest level since August 2013. The index has been above its expansionary threshold of 50 for over year now. The details of the report were very strong, aside from one weak spot - exports.

Business output grew to 62.1 in May. New orders gained 2.3 points, settling at 60.5. The employment index improved to 52.4, but it remains below March’s value, along with levels reached last year.

There were still a few weak spots in the report. Exports decline 4.0 points to 53.0. This hurts the nominal trade deficit and GDP.

Read the ISM release.

Trade Deficit Rose to $47.2 Billion in April

The U.S. trade deficit grew by 7% in April to $47.2 billion, due to both decreased exports and increased imports. April’s report revised up February and March’s headline numbers. This is the fourth consecutive month the deficit has grown.

The report was mixed. Exports dropped 0.2% in April, to $193.3 billion. Imports rose 1.2% to $240.6 billion. Imports are at new high, driven by the new high of goods imports. U.S. consumers are increasing their consumption, a strong signal for an improving economy.

The real goods deficit, which is important for the calculation of GDP, grew to $53.8 billion. This negatively impacts GDP. The petroleum deficit shrank.

Read the Census report.

ADP Employment Adds 179,000 Jobs in May

According to the ADP’s National Employment Report, the private sector added 179,000 jobs in May, below expectations. Moreover, May’s report included downward revisions to the previous two months, decreasing the headline number by a combined 16,000 jobs. The lower ADP headline number may have downward impacts the job growth data released by the U.S. government on Friday.

Job gains continue to be centered in the service sector, which added 160,000 jobs in May, down from 194,000 in April. Professional and business services added far fewer jobs in May than the previous 3 months. The sector improved by 46,000 jobs in May, compared to an average of 57,000 jobs added each of the prior three months.

Goods producing employment rose from April, with 29,000 new goods producing jobs in May. Manufacturing added 10,000 jobs, the strongest growth all year.

Read the ADP release.

Monday, June 2, 2014

Updated: ISM Manufacturing Index Improved in May

The ISM manufacturing index imprvoed in May to 55.4 after the ISM twice revised incorrect numbers. The original report for May had the manufacturing index declining.

The improvement in May was not broad based. New orders declined slightly to 56.9 from 57.0. Inventories remained the same at 53.0. The gap between new orders and inventories – a proxy for future growth – grew to 3.9, from 2.1 the previous month. Production increased to 61.0.

The employment index declined 1.9 points to 52.8. The weaker report in May in comparison to April reveals that job growth in May won’t be quite as strong as the 288,000 jobs added in April. However the employment index was revised up after the initial report released this morning, and the impact will not be as significant as originally thought.

Read the ISM release.

Construction Spending Increased 0.2% in April

Construction spending grew modestly in April, increasing 0.2%. April’s level is 8.6% above its level one year ago. The report included positive revisions to the previous two months. Private residential construction and government construction both contributed to the gains.

Private construction spending growth was driven by private residential construction, which increased 0.1% and 16% from year ago levels. Private non-residential construction declined 0.1% from the month prior, but is still 5.6% above year ago levels. Transportation construction saw the largest decline, dropping 11.7% over the month of April.

Government spending improved 0.8%, and is up 1.2% from April 2013. April’s public sector recovery indicates that as the economy improves, local government spending does as well.

Read the Census report.