Housing Starts Disappoint Again in September, Partly on Hurricane Impacts

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The Census Bureau and the U.S. Department of Housing and Urban Development said that new housing starts fell for the sixth time in the past seven months, down 4.7 percent in September and continuing a disappointing trend in the overall data. New residential construction declined from 1,183,000 units at the annual rate in August to 1,127,000 in September. A fair share of the decline stemmed from the impacts of recent hurricanes, but there was decreases in activity in the Midwest and the Northeast, suggesting some broader softness in the market, especially for multifamily construction. Indeed, housing starts have been weaker than desired year-to-date, drifting lower since peaking at 1,288,000 units in February. With that said, starts have risen 6.1 percent over the past 12 months, up from 1,062,000 units in September 2016.   Read More

NAHB: Builders Remain Optimistic about Growth in October

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The National Association of Home Builders (NAHB) and Wells Fargo reported that the Housing Market Index (HMI) increased from 64 in September to 68 in October, its highest level since May. Sentiment declined in the prior survey largely on hurricane effects. Even with some improvement in this release, NAHB Chairman Granger MacDonald warned that “… builders need to be mindful of long-term repercussions from the storms, such as intensified material price increases and labor shortages.” Overall, homebuilders remain very upbeat about the housing market, with index readings greater than 50 indicating favorable conditions in the overall outlook for the sector. The headline index has now exceeded 60 for 14 straight months, averaging 66.4 over that time frame.

In October, homebuilders were slightly more upbeat in their perceptions about activity in the Midwest and South, but confidence edged down in the West, albeit at highly-elevated levels. The index for future single-family sales jumped from 73 to 78, a five-month high, suggesting that builders are still optimistic about sales over the next six months.

Manufacturing Production Edged Higher in September but Still Exhibits Hurricane-Related Softness

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The Federal Reserve said that manufacturing production edged up 0.1 percent in September, bouncing back ever-so-slightly from declines in each of the past two months. With that said, the data continue to reflect softness due to the hurricane-related reductions in activity from Hurricanes Harvey and Irma, and the Federal Reserve estimates that this subtracted 0.25 percentage points from growth in the month.

Beyond weather, we have seen a lot of volatility in the output data for the manufacturing sector since the spring—essentially seesawing from month to month since March. This has meant that production has grown been less than we would have desired or expected, especially given the more-robust outlook seen in other data sources. As a result, manufacturing production has risen by 1.0 percent over the past 12 months. While this is better than last year—when the year-over-year rate was -0.1 percent—we would prefer a faster pace of growth. Indeed, the year-over-year pace has drifted lower since April’s 1.8 percent pace.

Manufacturing capacity utilized was unchanged at 75.1 percent in September. Utilization rates have trended down since peaking at 76.0 percent in April, but capacity continues is slightly higher than the 74.9 percent rate seen at this time last year. Read More

New York Fed: Manufacturing Activity Expanded in October at a 3-Year High

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The Empire State Manufacturing Survey expanded strongly in October, growing at a three-year high. The composite index of general business conditions jumped from 24.4 in September to 30.2 in October, a pace not seen since September 2014. Activity in the New York Federal Reserve Bank’s district was buoyed by healthy monthly improvements in shipments (up from 16.2 to 27.5) and employment (up from 10.6 to 15.6), with hiring expanding at its fastest rate in eight years. At the same time, both new orders (down from 24.9 to 18.0) and the average workweek (down from 5.7 to zero) eased. Demand remained relatively robust, however, with 32.2 percent of respondents saying that orders had increased in this report.

Meanwhile, manufacturers in the New York region remained very upbeat about the next six months. The expectations composite index rose from 39.3 to 44.8, and it has averaged 41.2 over the past 12 months. In the 12 months prior to that, the average was 27.2, illustrating the acceleration in optimism seen for much of this year. Along those lines, growth in new orders (up from 43.7 to 44.8), shipments (up from 37.0 to 43.4) and employment (up from 13.8 to 17.2) strengthened in October to decent levels, with 55.4 percent of those completing the survey anticipating more sales in the months ahead. Pricing pressures (down from 42.3 to 41.4), capital expenditures (down from 24.4 to 21.9) and technology spending (down from 17.1 to 16.4) were also expected to grow strongly over the next six months, even with each decelerating slightly in this release.

Consumer Prices Accelerated for the Second Straight Month, Led by Energy Costs

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The Bureau of Labor Statistics said that consumer prices rose by 0.5 percent in September, extending the 0.4 percent gain seen in August and rising at the fastest monthly rate since January. The uptick over the past two months has come primarily from higher energy costs, up 2.8 percent and 6.1 percent in August and September, respectively. Gasoline prices led the increases, increasing 6.3 percent and 13.1 percent in those months, with recent hurricanes helping to accelerate those costs. At the same time, food prices edged up 0.1 percent, primarily from food purchased away from home. Since September 2016, food and energy costs have increased 1.2 percent and 10.1 percent, respectively.

Overall, the consumer price index (CPI) increased 2.2 percent year-over-year in September, up from 1.9 percent in August and a five-month high. Pricing pressures had picked up earlier in the year but had waned over the summer months. As noted above, the pickup in inflation has mostly come from the uptick in energy costs. Core consumer prices, which exclude food and energy costs, inched up 0.1 percent in September, or 1.7 percent year-over-year. As such, overall pricing pressures remain modest—even with the recent pickup—and mostly under control for now. Nonetheless, the Federal Open Market Committee is still likely to raise short-term interest rates at its December 12–13 meeting, mostly on improvements in the macroeconomy and from general tightening in labor markets.

Retail Spending up Strongly in September Buoyed by Robust Auto and Building Supply Sales

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Retail spending rebounded strongly, up 1.6 percent in September after edging down by 0.1 percent in August. The decline in August and the corresponding uptick in September were both influenced by recent hurricanes, and in the latest figures, this can be seen in robust spending growth at motor vehicle and parts dealers (up 3.6 percent) and building material and garden supply (up 2.1 percent) stores as Americans in the affected areas replaced and repaired their damaged homes and automobiles in mass. In addition, gasoline prices have moved higher, pushing retail sales at gasoline stations up 5.8 percent in September. Illustrating this point, the Energy Information Administration reports that the average price of regular gasoline rose from $2.399 per gallon on the week of August 28 to $2.583 on September 25.

In general, consumer spending remains a bright spot in the economy, with Americans more willing to open their pocketbooks this year than last, especially than in the beginning months of 2016. Over the past 12 months, spending has risen by 4.4 percent, up from 3.5 percent in the prior release. This has drifted higher over the past three months, up from 3.0 percent in June. Excluding motor vehicles, retail sales increased 4.6 percent year-over-year in September, up from 2.4 percent in June and 4.1 percent in August. Read More

New Study: HVACR Industry Has Seen Strong Growth in Recent Years

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According to a new study, the heating, ventilation, air-conditioning and refrigeration (HVACR) industry has seen strong growth in recent years, with output bouncing back to pre-recession levels in 2015. The report was prepared for the Air-Conditioning, Heating, & Refrigeration Institute (AHRI) by the Manufacturing Institute’s Center for Manufacturing Research (in partnership with Inforum at the University of Maryland).

Among the key findings, the HVACR industry shipped $42.0 billion worth of products and equipment to consumers in the United States in 2015, the most recent year with data. Although manufacturers alone account for about 125,000 U.S. jobs, together with upstream suppliers, and downstream distributors, that number increases 883,100 U.S. jobs. In addition to these jobs, there are approximately 408,000 jobs associated with installation, construction, and maintenance related to HVACR which combine to bring the total number of jobs, including contractors, to nearly 1.3 million. The manufacturer jobs alone generated $15.5 billion of value added to the U.S. economy on $10.1 billion of labor compensation.

A state-by-state analysis found that the top three states in upstream (supplier) employment were Texas, California, and Tennessee.  The top three states in downstream (distributor/contractor) economic impact were California, Texas, and Florida.

As with other U.S. manufacturing segments, direct HVACR and water heating manufacturing employment fell from 191,000 jobs in 2000 to 125,000 in 2009, where it has remained, essentially steady, since.  The vast majority of the decline is due to productivity gains, which have increased at an average rate of 2.2 percent per year, rather than to a decline in output.

 

Producer Prices Rose by 0.4% in September on Higher Energy Costs

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The Bureau of Labor Statistics said that producer prices for final demand goods and services rose by 0.4 percent in September, its fastest pace since April. For manufacturers, producer prices for final demand goods were up by 0.2 percent for the second straight release. The gain in September stemmed largely from an acceleration in energy prices, up 3.4 percent, extending the 3.3 percent gain seen in August. Indeed, the cost of West Texas intermediate crude rose from $47.26 per barrel on August 31 to $51.67 a barrel on September 29, helping to illustrate the recent increases in energy costs for producers. A fair share of the pickup in energy prices stem from recent hurricanes, perhaps making them transitory in nature. Read More

JOLTS: Manufacturing Hiring Remained Robust in August

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The Bureau of Labor Statistics said manufacturing hiring remained robust in August, according to the latest Job Openings and Labor Turnover Survey (JOLTS) figures. The sector hired 352,000 workers in August, edging down from 353,000 in July. The pace of hiring in both months was the best since November 2007. In August, increased hiring at durable goods firms (up from 205,000 to 212,000, its highest level since November 2007) was essentially offset by reduced hiring for nondurable goods businesses (down from 148,000 to 140,000). At the same time, total separations—including layoffs, quits and retirements—fell from 320,000 to 304,000, a six-month low. As a result, net hiring (or hires minus separations) jumped from 33,000 in July to 48,000 in August. Read More