Tuesday, September 2, 2014

Construction Spending Rebounded in July

Construction spending’s rebound in July more than offset the losses from June. According to the Census Bureau, construction spending jumped 1.8% in July, the largest monthly gain since May 2013. The level was 8.2% above year ago levels.

All three components on construction spending – private residential, private non-residential and public construction – improved.

Public construction led the growth, increasing 3.0% in July and 2.1% from a year ago. Improved spending on highway and street construction led the growth.

Private residential spending improved due a combination of spending on new single-family homes, multifamily homes and residential improvements, which grew 0.5%, 0.2% and 0.7% respectively. Moreover, all components improved on an annual basis.

Spending on power and utility structures leg the gains for spending on private non-residential construction. Year-over-year growth for private non-residential construction was 14.1% in July.

Read the Census release.

ISM Manufacturing Index Reached Highest Level Since 2011

The ISM manufacturing index was 59.0 in August, the highest level since early 2011. The index has been above its expansionary threshold of 50 for 15 months. The ISM report points to future growth.

The details of the report were strong. The New Orders Index surged to 66.7, a post-recession high. The inventory index rose 3.5 points and into expansionary territory. As a result of new orders and inventories improving, the gap between new orders and inventories - a proxy for future production – remained at elevated levels, recording 14.7 in August.

The Employment Index was the one spot of weakness. The index declined 0.1 points to 58.1. However, the index level is well above the expansionary threshold and the second highest reading this year.

The Export Orders Index grew 2.0 points to 55.0, however the Import Index grew more, increasing 4.0 points. The increased trade gap will likely negatively impact GDP growth.

Read the ISM release.

Friday, August 29, 2014

Consumer Sentiment Improved in August

According to the University of Michigan Consumer Sentiment index, consumer sentiment rose in August to 82.5, fully erasing the decline from the previous month.

Current expectations jumped to 99.8, a seven year high. Future expectations declined slightly to 71.3, the lowest reading since March. 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 slightly changed from the month prior, calling for 3.2% inflation over the next year and 2.9% over the next 5 years.

Personal Consumption Dropped in July

Personal consumption declined 0.1% in July, the first monthly decline since January, which was due to the cold weather. Personal income grew a modest 0.2%, the slowest increase this year.

Wage growth grew 0.2% and disposable income improved a slight 0.1%. Real personal income dropped 0.2% in July, the only decline all year. Dividend income, usually the driver of income growth, slowed considerably. Real personal income grew a modest 0.1%.

The savings rate increased to 5.7 months, as both consumption declined and income increased.

Inflation remained tame; the PCE deflator rose 0.1% in July and was 1.6% above year-ago levels. This was below the 2.0% target of the Federal Reserve.

The Federal Reserve noted this past week that, “the likelihood of inflation running persistently below two percent has diminished somewhat.” However, Janet Yellen said last week that, “If progress in the labor market continues to be more rapid than anticipated by the Committee or if inflation moves up more rapidly than anticipated . . . then than the Committee currently expects and could be more rapid thereafter.” However, she also noted that rates could raise later than anticipated if the data disappoints.

Read the BEA release.

Thursday, August 28, 2014

ABA Statement on FDIC’s Second Quarter Bank Earnings Report

ABA's Chief Economist James Chessen said, “We continue to see a strong, steady improvement for America’s banking industry, headlined by a sharp increase in business loans and a dramatic improvement in the quality of bank portfolios. Banks are well positioned to continue their role as critical economic drivers, supporting job growth and business expansion. Banks have ample capacity and are ready and willing to meet increased loan demand as business and consumer confidence improves.”

Read the full release.

Second Quarter GPD Revised Up to 4.2%

Real GDP growth for the second quarter was revised up to 4.2% in the BEA’s second estimate. The upward revision was driven primarily by higher fixed investment growth than initially forecast, and secondarily by a lower drag from net exports. Growth in the second quarter jumped following the decline in the first quarter. Despite the growth, second quarter GDP was held back by slower contributions from inventory accumulation and lower government spending.

Consumption remained the strongest component of growth, contributing 1.7% to second quarter growth, the same in the previous estimate. Fixed investment jumped from its previous reading of 0.9% to 1.3%. Inventories contributed 1.4% in the second quarter, following a 1.2% decline in the first quarter. Inventories tend to be highly volatile. The government went from dragging growth by 0.2% in the first quarter to contributing 0.3% growth in the second.

The healthy growth of the economy in the second quarter is due to several factors. Firstly, the harsh winter is over and the second quarter rebounded as a result. Moreover, the government’s austerity measures are no longer negatively weighing on GDP growth.

Read the BEA release.

Tuesday, August 26, 2014

Annual Home Price Appreciation Slows in June

According to the Case-Shiller 20-city index, home price appreciation slowed to 1.0% in June. Notably, year-over-year growth has steadily declined from 13.1% in January to 8.1% in June, a trend that will likely continue. The 10-city index followed a similar pattern, as year-over-year growth slowed from 13.4% in January to 8.1% in June.

All 10 metropolitan areas saw home prices improve from the previous month. Moreover, every metropolitan area continues to see prices above year-ago levels. San Francisco had the slowest growth at 0.3%, but it came off the strongest growth the previous month. New York accelerated the fastest in June, improving 1.6%. Notably, the range of growth has narrowed, indicative of a normalizing market. Las Vegas continues to see the largest year-over-year growth, at 15.2%.

Read the S&P report.