International Trade in Goods
Third quarter GDP is off to a slow start, at least for international trade in goods where the July trade gap widened by more than $1 billion to $65.1 billion. Exports fell 1.3 percent and were pulled down by the sharp fall in vehicles and also consumer goods, both of which were weak categories for the US. Helping to ease the effect of exports was a 0.3 percent decline in imports. In imports foreign vehicles, which are usually in strong demand, fell 2.8 percent while industrial supplies were down 1.7 percent.
S & P Case-Shiller HPI
Home Price Appreciation was flat in the month of June based on last week’s FHFA house price index and now the Case-Shiller 20-city index which only increased by 0.1 percent. The unadjusted index, reflected increased housing activity during the summer when it rose 0.7 percent with a year on year rate of 5.7 percent which remains unchanged from May but is down 2 tenths from earlier in the year. Despite softening, home prices remain as the center of strength in a low interest rate and low inflation. Lower prices won’t be adding to household wealth but they will give a boost to home sales and will offer first timers a greater chance at buying a home.
August was a solid month for the Conference Board’s consumer confidence sample as the index is moved higher once again, to 122.9 from a revised 120.0 in July. August’s result is the best since March’s 124.9 and is the second highest since December 2000. The assessment of the present situation improved noticeably in the month to 151.2 from 145.4 and expectations pressed further ahead, up 1.0 point to a level of 104.0. The current employment assessment is also positive; jobs hard to get fell a sizable 1.4 percentage points to 17.3 percent saying jobs are plentiful up an equally impressive 2.2 points to a very strong 35.4 percent. On the expectations side, the most positive news comes from income expectations with optimists rising 9 tenths to 20.9 percent, which is very strong, while pessimists fell 1.7 percentage points to t 7.8 percent. The spread in this reading is at 13.1 points, which is unusually wide and points to confidence in job prospects and also investment returns.
Low mortgage rates are failing to entice home buyers, whose activity declined for the third straight week. Purchase applications for home mortgage fell a seasonally adjusted 3.0 percent in the week of August 25th following 2 percent declines in the prior two weeks. Unadjusted, the purchase index decreased 5 percent from the week prior, taking it to a level only 4 percent higher than in the same week last year; this is well off the 8 plus percent gains seen in previous weeks this year. Applications for refinancing fell 2 percent from the prior week, the refinance share of mortgage activity rose by 1.2 percentage points to 46.4 percent. These three weeks of falling purchase applications is worrisome development for the housing market, which may be accelerating its retreat from expansion highs, especially following the evidence of July weakness submitted in the housing data report published last week, showing declines in sales for both new and existing homes.
The second quarter proved to be very solid, revised 4 tenths higher in the second estimate to a 3.0 percent annualized rate. And strength is centered where is must be as consumer spending is now at a 3.3 percent rate for a 5 tenths upward revision. Non-residential investment was also a positive at a 6.9 percent rate following the prior quarter’s 7.2 percent showing. Residential investment, however, was a drag on the second quarter, at a negative 6.5 percent rate that followed a positive 11.1 percent rate in the first quarter. Government purchase were negative for a second straight quarter, at minus 0.3 percent following a minus 0.6 percent in the first quarter showing. Both second quarter exports and inventories were slightly positive. Prices were very weak in the quarter at a 1.0 percent rate overall and 1.1 percent for the core. Inflation aside, the second quarter marked a solid though not exceptional reversal of the first quarter’s 1.2 percent pace and points to constructive momentum going into the third quarter.
Layoff announcements remained subdued, but did increase in August to 33,825 from 28,307 in July; this is the highest total since April. Construction, where demand for labor is strong, actually had the highest layoff total in August followed by retail where layoffs have been heavy this year. These results unlike indications in other reports are not pointing to increasing strength for the August employment report.
Jobless claims remain at historic lows with initial claims at 236,000 in the week of August 26th. The four week average was at 236,750, this is the fifth consecutive week of declines. Continuing claims are posting similar results, down 12,000 to 1.942 million in the lagging data for the week of August 19th, the four week average for this factor is down slightly to 1.952 million. The unemployment rate for insured workers remains unchanged at the very low percentage of 1.4 percent.
Personal Income and Outlays
Personal income and outlays were mixed in the report for July. Income is the highlight, up 0.4 percent in the month including a second straight 0.5 percent gain for wages and salaries in an important emerging sign of wage traction. Consumer spending rose 0.3 percent in the month, 1 tenth below economists’ predictions. Spending on services gained only 0.2 percent to offset the strength in durable goods was up 0.6 percent and non-durables, up 0.5 percent. The spending gain represents a moderate start for the major component of third quarter GDP. Inflation readings remain a major trouble spot, as they were up only 0.1 percent both overall and for the core reading. Year on year rates are up 1.4 percent for again the overall and core. Employment is very strong and may finally be reflected in strength in wages, but these gains have yet5 to boost inflation readings.
Pending Home Sales
For the fourth time in five months the pending home sales index fell, down 0.8 percent in July, signaling weakness for existing home sales which has also fallen in three of the last four reports. Housing began the year with strength before declining in strength during the spring selling season and summer months.
August payroll, growth was solid but missed expectations while wage data was disappointing. Nonfarm payrolls rose 156,000 in the month vs. economists’ predictions of 180,000. Revisions are negative with July revised 20,000 lower to a level of 189,000 and June was down 21,000 to 210,000. The unemployment rate reflects the so0ftness rising 1 tenth to 4.4 percent. Average hourly earnings barely rose at all up only 0.1 percent on a monthly basis and 2.5 percent on a yearly basis. These percentages are both one tenth below expectations. A major positive in the report is ja 36,000 surge in manufacturing payrolls including a 10,000 upward revision to July to a 26,000 increase and a 9,000 upgrade to June to a gain of 21,000. Construction payroll, also showing solid gains, was up 28,000 following a 3,000 decline in July. An offset to manufacturing and construction gains is the weakness in retail which, after 6 straight months of declining added only 1,000 jobs. Government payroll growth is below expectations falling 9,000 for the third decline in four months. Excluding government payrolls In August, private payrolls in August came in at 165,000, 9,000 above the headline total but still short of expectations by 15,000. Weekly hours are also soft, down 1 tenth to 34.4 with manufacturing, in contrast to the hiring, is down 2 tenths to 40.7 hours which points to a second straight monthly disappointment for the manufacturing sector of the industrial production report.
Construction spending declined 0.6 percent in July. Driven by single family homes, residential construction rose a solid 0.8 percent in the month for a yearly gain of 11.6 percent, a drastic contrast from the 1.8 percent overall rate. Home improvements were also very strong up 1.4 percent in the month. Spending on multifamily construction continues to moderate gains as it was down 0.8 percent in the month and only a 2.6 percent yearly gain. The weakness in the report comes from the nonresidential side, especially commercial buildings, where private spending fell 1.9 percent for a yearly decline of 3.6 percent. Public building is soft with the educational category down 4.4 percent in July.
At a final 96.8 for August, consumer sentiment fell back sharply vs. the month’s preliminary reading of 97.6. The final result implies around a level of 96 in the last two weeks of the month, which however, still exceeds the readings of July ad June at 93 and 95 respectively. The report attributes the strength to optimism over income prospe4cts. Details in the report include special strength for expectations at 87.7 vs. July’s 80.5, which offset a step back in current conditions at 110.9 vs 113.4 in July. Inflation expectations remain soft and unchanged at 2.6 percent for the 1 year outlook and down 1 tenth to 2.5 percent for the five year outlook.