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Archive for August, 2016
 
Economic Advisor: August 22, 2016
August 24, 2016


 

Housing starts showed encouraging performance, while consumer prices were flat, and lay-offs remained low.

Housing Starts

New housing construction had a solid story to tell last week, with starts on housing construction in July rising to more than any point since the beginning of 2008.

Starts on housing construction in July hit an annual rate of 1.21 million, which was 2.1 percent over June’s revised rate of 1.18, and was 5.6 percent higher than July 2015’s pace of 1.14 million, the Census Bureau reported last week. While starts on single-family homes rose 0.5 percent to a rate of 770,000 in July, starts on units in buildings with five units or more rebounded a whopping 8.3 percent to an annual rate of 433,000.

While construction starts were up, permits were down. Permits issued in July for the construction of private housing dipped slightly to an annual rate of 1.152 million, which was 0.1 percent below June’s revised June rate of 1.153 million. Permits issued of single-family homes dropped 3.7 percent to an annual rate of 711,000.

Regardless of permit activity, the sizable leap for housing starts gave many housing market watchers some optimism.

“What we’re seeing is quite encouraging,” Millan Mulraine, deputy head of U.S. research and strategy for TD Securities, told Bloomberg. “It suggests that the housing sector recovery is building on the strong momentum we’ve had in the past few months.”

Consumer Prices

Consumer prices for last month were flat, with the Consumer Price Index for All Urban Consumers unchanged in July, the Bureau of Labor Statistics reported last week.

The energy index declined 1.6 percent in July and the food index was unchanged for the month, while the index for all items less food and energy rose, but only barely, posting its smallest increase since March. As a result, the all items index was unchanged after four straight months of gains. The index for all items less food and energy — typically considered core inflation — grew just 0.1 percent in July.

The lack of movement in consumer prices made many economists conclude that the Fed will be taking a pass on increasing interest rates for the near future.

“Inflation is very likely to remain tame at best,” Ameriprise Financial Inc. Senior Economist Russell Price told Bloomberg. “Other than housing and medical care, vast sectors of the economy are still seeing negative price pressures. It softens the outlook for a Fed hike.”

Initial Jobless Claims

First-time claims for unemployment benefits filed by the recently unemployed during the week ending August 13, dropped to 262,000, a decline of 4,000 from the preceding week’s total of 266,000, according to last week’s report from the Employment and Training Administration.

The four-week moving average — considered a more stable measure of lay-offs — notched up to 265,250, a gain of 2,500 claims from the prior week’s average of 262,750. Once again, the total was in historically low territory not seen since the 1970s, marking the 76th straight week of initial claims coming in below 300,000.

This week, we can expect:

  • Tuesday — New home sales for July from the Census Bureau.
  • Wednesday — Existing home sales for July from the National Association of Realtors.
  • Thursday — Initial jobless claims for last week from the Employment and Training Administration; durable goods orders for July from the Census Bureau.
  • Friday — Gross domestic product for the second quarter, second estimate, from the Bureau of Economic Analysis; and August consumer sentiment from the University of Michigan Survey of Consumers.

Posted in Economic Advisor



Economic Advisor: August 17, 2016
August 18, 2016


 

Retail sales were flat and producer prices tumbled, which indicated the odds were against interest rates rising anytime soon. Meanwhile, layoffs saw little change.

Retail Sales

Retail sales for July were virtually unchanged from June, totaling $457.7 billion, according to last week’s report from the Census Bureau. While this was 2.3 percent higher than July 2015’s performance when compared annually, the market had expected at least 0.4 percent growth over June.

“The July retail sales report was a disappointment,” JPMorgan Economist Michael Feroli told Business Insider. “These disappointing July figures came after a strong run for the data over the prior three months.”

The only bright spots in the Bureau’s July data were sales at vehicle and parts dealers, which increased 1.1 percent, and non-store retailers (such as market stands, online stores, and any locations outside traditional brick-and-mortar stores), which grew 1.3 percent. Meanwhile nearly every other retail segment was down, with sizable losses seen by gas stations, which fell 2.7 percent; sporting goods, hobby, book, and music stores, which dropped 2.2 percent; and grocery stores, which were down 0.9 percent.

Retail sales are a closely watched indicator, because consumer spending drives roughly 70 percent of the U.S. economy.

Producer Prices

Producer prices recorded their biggest drop in nearly a year, with the Producer Price Index for final demand (items destined for consumers) falling 0.4 percent in July, the Bureau of Labor Statistics reported last week. The drop was a surprising turn given that final demand prices grew 0.4 percent in May and 0.5 percent in June.

July’s decline in the final demand index was led by prices for final demand services, which shrank 0.3 percent. Also, final demand goods dropped 0.4 percent.

Shrinking producer prices point to little change in consumer prices. Paired with July’s flat retail receipts, it’s a good chance that the Federal Reserve will hold off on raising for the near term.

Initial Jobless Claims

Finally, lay-offs essentially held steady, with new claims for unemployment benefits filed by the recently unemployed during the week ending August 6 notching down to 266,000, a decline of 1,000 claims from the prior week’s total of 267,000, the Employment and Training Administration reported last week.

This marked the 75th straight week of initial claims sitting below the 300,000-claim mark — a level that economists consider indicative of a growing job market.

The four-week moving average, which is considered a more reliable measure of initial jobless claims, ticked up to 262,750, a gain of 3,000 claims from the preceding week’s average of 259,750.

This week, we can expect:

  • Tuesday — July building permits and housing starts from the Census Bureau; July consumer price index from the Bureau of Labor Statistics; capacity utilization and industrial production for July from the Federal Reserve.
  • Thursday — Initial jobless claims for last week from the Employment and Training Administration; leading economic indicators for July from The Conference Board.

Posted in Economic Advisor



Economic Advisor: August 10, 2016
August 10, 2016


 

Construction spending fell, but residential construction was unaffected. Meanwhile, the U.S. economy added solid job numbers, but consumer credit saw weak growth.

Construction Spending

Construction spending for June fell 0.6 percent to an annual rate of $1.133 trillion, marking the third straight month of declines, according to data released last week by the Census Bureau. While down for the month, when compared annually, June’s rate was 0.3 percent higher than June 2015’s pace of $1.130 trillion.

Spending on private construction reflected the monthly trend, falling 0.6 percent in June to an annual rate of $851 billion, but residential construction for the month held its own, coming in at an annual rate of $445.8 billion, which was nearly unchanged from May’s rate of $445.9 billion. Meanwhile, nonresidential construction dropped a significant 1.3 percent to an annual rate of $405.2 billion for the month.

“The drop in construction spending over the past three months is probably more a reflection of the very strong gains posted early in the year than of cooling demand for construction,” Ken Simonson, chief economist for the Associated General Contractors of America, noted in a public statement. “Nearly every major segment had first-half gains of more than 5 percent compared with a year ago. Contractors, surveys and the media all continue to report plenty of projects are starting or will soon.”

Unemployment

The U.S. economy enjoyed strong job numbers for the second month in a row, with the workforce adding 255,000 jobs in July, the Bureau of Labor Statistics reported last week. This was well ahead of market expectations for only 185,000 new jobs. Key sectors for job growth included professional and business services, healthcare and financial services.

The unemployment rate held steady at 4.9 percent with the total number of unemployed Americans also hovering at 7.8 million. The number of people unemployed for 27 weeks or longer (referred to as the long-term unemployed) was also unchanged in July, accounting for 26.6 percent of the total unemployed population. Also, the number of Americans involuntarily employed part-time for economic reasons, such as their hours being cut or that being the only work they could find, had little change at 5.9 million in July.

But, turning to wages, average hourly earnings for all employees grew by 8 cents in July to $25.69, and over the year, average hourly earnings rose by 2.6 percent. So, while many metrics saw no movement, the wage increases along with the job growth were reason enough for many economists to see the numbers as encouraging.

“This is a validator,” Barclays’ Chief U.S. Economist Michael Gapen told the New York Times. “This is a report that indicates that the slowdown in hiring earlier in the year has been reversed.”

Consumer Credit

Total consumer credit for June increased 4.1 percent to hit $3.633 trillion for the month, according to the Federal Reserve’s report from last week. The $12.3 billion gain for the month was the slowest pace of increase in four years and well below the $16.2 billion increase that the market had expected.

Revolving debt, such as credit card purchases, saw the biggest gains for the month, growing 9.7 percent to hit $960.8 billion. Meanwhile, non-revolving debt, such as car and student loans, notched up by 2.1 percent to hit $2.673 trillion.

Many economists chalked up the decline in revolving debt — which drove the overall debt slowdown for June — to lagging auto sales, which of course translated to fewer car loans. To put things in perspective, car sales in the first half of 2015 grew by 4 percent, and 2015 saw a record 17.5 million new vehicles sold. Meanwhile, car sales in the first half of this year have only grown 1.5 percent.

This week, we can expect:

  • Tuesday — Preliminary second quarter productivity from the Bureau of Labor Statistics; June wholesale inventories from the Census Bureau.
  • Wednesday — July budget from the Treasury Department.
  • Thursday — Initial jobless claims for last week from the Employment and Training Administration; July import and export prices from the Census Bureau.
  • Friday — Producer price index for July from the Bureau of Labor Statistics; July retail sales and June business inventories from the Census Bureau.

Posted in Economic Advisor



Economic Advisor: August 3, 2016
August 3, 2016


 

New home sales once again turned in a solid monthly performance, while initial jobless claims were on the rise, and durable goods orders fell.

New Home Sales

Sales of new, single-family homes in June grew to an annual rate of 592,000, according to last week’s report from the Census Bureau and the Department of Housing and Urban Development. This marked a 3.5 percent increase over May’s revised rate of 572,000, and when compared annually was 25.4 percent higher than June 2015’s pace of 472,000.

In terms of prices, the median sales price for a new home in June was $306,700, and the average sales price was $358,200. In terms of inventory, the number of new homes for sale at the end of June totaled 244,000, which constituted a 4.9-month supply at June’s sales pace.

All told, new home sales have enjoyed solid performance for the first half of this year and the trend looks like it will continue.

“We expect housing to continue to firm, on average, over the medium term, with a buoyant household sector supporting both prices and volumes,” Barclays Economist Rob Martin told the Wall Street Journal.

Initial Jobless Claims

While first-time claims for unemployment benefits filed by the newly unemployed were at a three-month low, the week before last saw them on an upswing, according to last week’s report from the Employment and Training Administration. Initial jobless claims placed during the week ending July 23 hit 266,000, an increase of 14,000 from the preceding week’s total of 252,000.

The four-week moving average — considered a more reliable gauge of lay-offs — actually fell to 256,500, a decline of 1,000 claims from the previous week’s total of 257,500.

While the gain was sizable, economists generally did not raise an alarm given how low claims are when compared to the 300,000-claim mark that generally indicates a growing job market.

“Claims at this point are telling you that you’re really near full employment,” Deutsche Bank Securities Inc. Economist Brett Ryan told Bloomberg. “… The labor market’s chugging along.”

Durable Goods Orders

Orders for manufactured durable goods placed in June dropped by 4 percent ($9.3 billion) to $219.8 billion, the Census Bureau reported last week. This marked the second straight monthly decline, after May’s 2.8 percent decline, and marked the largest monthly decrease for durable goods orders in the past two years.

Transportation equipment — also down two months in a row — was the main driver for June’s woes, falling 10.5 percent ($8.5 billion) to $72.2 billion. Excluding transportation, durable goods orders only fell 0.5 percent.

Durable goods orders are considered a good indicator of business investment, and given the lackluster report, companies will mostly likely avoid new equipment purchases until the end of the year, according to Michael Montgomery, U.S. economist at IHS Global Insight.

“Everything conspiring against the durables sector in 2015 will remain working against it for at least the balance of 2016,” Montgomery wrote in a note to clients.
“The hope for 2017 is that the adjustment processes start to wind down and produce less drag and token recovery.”

This week, we can expect:

  • Monday — Construction spending for June from the Census Bureau.
  • Tuesday — Personal incomes and spending for June from the Bureau of Economic Analysis; car and truck sales for July from the auto manufacturers.
  • Thursday — Initial jobless claims for last week from the Employment and Training Administration; June factory orders from the Census Bureau.
  • Friday — July payrolls, unemployment rate, hourly earnings and average workweek from the Bureau of Labor Statistics; June balance of trade from the Census Bureau; and consumer credit for June from the Federal Reserve.

Posted in Economic Advisor



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