The Richmond Federal Reserve Bank said that manufacturing activity in its district expanded more strongly in July, with activity accelerating to a 3-month high. The composite index of general business activity rose from 11 in June to 14 in July. (Note that these data have been revised from the prior release to reflect a new seasonal adjustment.) The sector has now expanded for 10 straight months – a sign that conditions have improved from more lackluster activity prior to that. Year-to-date, the headline index has averaged 13.3 so far in 2017, up from 2.1 in the same time period in 2016. In July, manufacturers in the mid-Atlantic region noted monthly pickups in new orders (up from 14 to 18), employment (up from 5 to 10), the average workweek (up from 1 to 9) and wages (up from 10 to 17), with shipments growth unchanged (13). The backlog of orders (up from -4 to 11) increased for the first time since April. Read More
The Conference Board said that consumer sentiment rebounded in July after a springtime lull. The Consumer Confidence Index increased from 117.3 in June to 121.1 in July, which was not far from March’s 16-year high (124.9). To illustrate the jump in sentiment, the headline index has averaged 118.3 year-to-date in 2017, up from an average of 95.6 in the same seven-month time period in 2016. In this report, the improvement in perceptions stemmed from a better assessments of both current (up from 143.9 to 147.8) and future (up from 99.6 to 103.3) conditions. The measure for the current economic environment rose to a level not seen since July 2001. Overall, more consumers said business conditions were “good,” up from 30.6 percent to 33.3 percent, with 13.5 percent citing “bad” conditions, which was unchanged. Read More
After soaring to new multiyear highs in each of the last few reports, the IHS Markit Flash Eurozone Manufacturing PMI declined from 57.4 in June, a level not seen since April 2011, to 56.8 in July, a three-month low. Despite the somewhat slower growth in this latest survey, the underlying trend remains positive, with European manufacturers continuing to expand at decent rates. New orders (down from 58.7 to 57.1) and output (down from 58.7 to 56.9) decelerated in July but mostly reflected strong growth, with exports (unchanged at 57.4) and employment (up from 55.9 to 56.0) remaining promising. In a similar way, the future output index (down from 67.4 to 66.5) indicated healthy expectations for the next six months, albeit with some easing. The forward-looking index had been at its highest point since it was introduced in mid-2012 in June, and the current data is not far from that level. Read More
Real GDP grew 1.4 percent in the first quarter, pulled lower by weak inventory spending and softer-than-desired consumer spending. At the same time, business investment was a bright spot in the report, and, according to new data from the Bureau of Economic Analysis, so was manufacturing. Real value added output rebounded in the first quarter, up 4.7 percent after falling by 2.9 percent in the fourth quarter. As a result, manufacturers contributed 0.54 percentage points to headline growth in the first quarter, a notable improvement from the 0.39 percentage point drag seen in the fourth quarter. Indeed, it was the largest industrial contributor to real GDP growth in the release. Read More
The Federal Reserve Bank of Philadelphia said that manufacturing activity continued to expand strongly in July. With that said, the composite index of general business activity decreased from 27.6 in June to 19.5 in July. Even with some easing for the second straight month, the headline index has averaged 29.7 year-to-date, illustrating the much-improved performance so far in 2017. The composite measure peaked at 43.3 in February, its best reading since November 1983. In July, manufacturers reported positive growth across-the-board, but many of the underlying data points decelerated. This included new orders (down from 25.9 to 2.1), shipments (down from 28.5 to 12.2), employment (down from 16.1 to 10.9) and the average workweek (down from 20.5 to 3.8). To illustrate the slower growth in this survey, the percentage of respondents saying that orders had increased in the month dropped from 44.8 percent in June to 30.5 percent in July, with those suggesting a decrease rising from 18.9 percent to 28.4 percent. Read More
The Census Bureau and the Department of Housing and Urban Development reported that new housing starts rebounded in June after a soft spring. New residential construction rose from an annualized 1,122,000 units in May, an eight-month low, to 1,215,000 in June. Since reaching 1,288,000 units in February, housing starts have pulled back; however, on the positive side, this is the first time activity has exceeded 1.2 million since then, which is encouraging. Homebuilder optimism remains strong despite slipping once again, with respondents to that survey predicting healthy gains in activity over the next six months (see below). I am forecasting growth of 1.28 million starts by year’s end.
Looking at the June data, single-family (up from 799,000 to 849,000) and multifamily (up from 323,000 to 366,000) starts increased in the month, with both at their fastest rate since February, mirroring the headline number. The Midwest and Northeast saw the strongest growth, with only marginal gains in the West, whereas activity slipped in the South. On a year-over-year basis, housing starts rose 2.1 percent from June 2016’s pace of 1,190,000. Single-family starts have jumped 10.3 percent over the past 12 months, up from 770,000 one year ago. In contrast, multifamily starts, which can be highly volatile from month to month, have fallen 12.9 percent over that time frame.
The National Association of Home Builders (NAHB) and Wells Fargo reported that the Housing Market Index continued to reflect strength despite slipping once again in July to its lowest level since the election. The index decreased from 66 in June to 64 in July, its weakest pace since October (63). NAHB Chief Economist Robert Dietz attributed much of the decline to “increasing supply-side costs,” which are dampening sentiment among builders and pushing up prices.
To be fair, index values greater than 50 indicate strong builder confidence, with readings of 60 or more indicating very strong expectations for activity, and as such, the data continue to indicate healthy growth and improvements over the longer term. Indeed, the survey results remained quite elevated even after easing from March’s reading of 71, which was the highest level since June 2005.
Along those lines, home builders have healthy assessments about single-family home sales over the next six months. The index for expected sales dropped from 75 to 73—still a very healthy figure. In the July data, sentiment ticked higher in the Northeast and the West but dropped a little in the Midwest and South.
The Empire State Manufacturing Survey reported that growth in manufacturing activity softened in July after rebounding in June. The composite index of general business conditions declined from 19.8 in June—its fastest pace since September 2014—to 9.8 in July. It was the second straight monthly expansion, but the underlying data indicated slower growth in July across the board than in the prior survey. This included new orders (down from 18.1 to 13.3), shipments (down from 22.3 to 10.5), employment (down from 7.7 to 3.9) and the average employee workweek (down from 8.5 to 0.0). More than 35 percent of respondents said that orders were higher in both June and July, but the difference maker in this month’s data was the jump in those saying sales were lower, up from 17.0 percent to 22.3 percent. Yet, even with some easing, the manufacturing sector in the New York Federal Reserve Bank’s district is stronger today than at this point last year, with modest expansions in most measures. Read More
The Federal Reserve reported that manufacturing production rebounded in June, up 0.2 percent, after falling in two of the three prior months. Overall, springtime production in the sector was choppier than we would have desired or expected, especially given the more robust outlook in other data sources. Yet, even with some disappointment in recent months, the longer-term trend for output among manufacturers has been quite positive. Across the past 12 months, manufacturing production has risen 1.2 percent. It was the eighth consecutive positive year-over-year reading for manufacturing output and progress from the 0.2 percent year-over-year gain in June 2016. Similarly, manufacturing capacity utilization inched up from 75.3 percent in May to 75.4 percent in June. For comparison purposes, utilization in the sector was 75.1 percent one year ago. Read More
The Bureau of Labor Statistics reported that consumer prices were flat in June. Energy prices decreased 1.6 percent, falling for the fourth time in the past five months, with gasoline prices off 2.8 percent in June. This was largely consistent with data from the Energy Information Administration, which noted that the weekly average price for regular conventional gasoline was $2.308 on May 29 but fell to $2.201 on June 26. In contrast, food prices were flat for the month, with higher costs for meats, poultry, fish and eggs offset by lower prices in other categories. Over the past 12 months, food and energy costs have increased 0.9 percent and 2.3 percent, respectively.
Overall, the consumer price index increased 1.6 percent year-over-year in June, its lowest rate since October. This suggests that the acceleration in pricing pressures that peaked at a 2.8 percent year-over-year rate in February has slowed since then. With that said, year-over-year consumer inflation was 1.0 percent in June 2016, suggesting that overall prices have still trended slightly higher over the past year despite some deceleration in that pace over the past few months.