Wednesday, April 30, 2014

Federal Reserve Continues to Taper Purchases

The Federal Reserve will maintain its current pace of tapering, reducing asset purchases by $10 billion per month at each meeting.

Beginning in May, the Committee will slow purchases to $20 billion per month in mortgage-backed securities and $25 billion per month in longer-term Treasury securities. The FOMC statement notes that, “Asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.”

The FOMC plans to keep interest rates at near-zero levels for some time, holding the target rate at 0.25%. The release stated that, "The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run." Even though purchases are slowing, the balance of securities means that policy remains accommodative.

The FOMC noted that growth has recovered from the headwinds presented by winter weather. Despite the overall growth of the economy, the Committee said that, "the recovery in the housing sector remained slow."

Read the full FOMC statement below.    

ADP: Private Sector Added 220,000 Jobs in April

Employment in the nonfarm private sector increased by 220,000 jobs in April, according to the National Employment Report published by ADP. April’s report included positive revisions to February and March, increasing private sector job gains by a combined 33,000. April’s growth is the fastest since November 2013 and above the first and fourth quarter averages. Employment gains continue to be driven by the services sector.

The services sector added 197,000 jobs in April, the largest gain in 5 months. Financial activities saw its strongest pace of growth since June 2013, with 8,000 new jobs added in April. The goods producing sector added 24,000 jobs, down from 28,000 jobs added the month prior.

Manufacturing added 1,000 new jobs, slowing the pace of new jobs added and one of the weaker gains in the last two years.

Read the ADP release.

U.S. Economy Grew a Tepid 0.1% in 1st Quarter

Real GDP growth slowed in the first quarter to 0.1% from 2.6% the quarter prior. It’s the slowest quarterly growth since the end of 2012. Consumption was the only category that grew in the 1st quarter. The harsh winter weather likely contributed to the sharp decline, particularly investment and net exports. GDP should rebound in the 2nd quarter.

Consumption contributed 2.0% to GDP growth in the first quarter and grew by 3.0%. Fixed investment declined, with losses in contribution to GDP in both residential and nonresidential by 0.2% and 0.3%. Inventories, which fluctuate quarter to quarter, reduced GDP by 0.6%. However inventories jumped in the third quarter of 2013 and will likely rebound in the 2nd quarter of 2014. Net exports dragged 0.8% on GDP growth.

The government dragged on the economy by 0.1% in the first quarter. State and local finances are improving and the federal budget is set for the next two years, which is why the drag was less than the 4th quarter.

Read the BEA report.

Tuesday, April 29, 2014

Home Price Appreciation Continues to Slow

The pace at which home prices are rising continued to slow in February, according to the Case-Shiller index. The 20-city composite index indicated that prices in February are 12.9% above year-ago levels, slower than the 13.1% seen in January. Overall price levels were little changed over the month of February, with the 20-city composite unchanged from the month prior. Cold weather in the first two months of the year likely held demand low, depressing home price appreciation.

6 of the 10 metropolitan areas saw home prices decline from the previous month. Despite the declines, every metropolitan area continues to see prices above year-ago levels. Chicago saw the steepest declines in January and February, with prices falling 0.9% in February. Los Angeles saw the largest increase at 0.5% in February, coming off of a decline the month prior. Las Vegas continues to see the largest year-over-year growth, at 23.1%.

Read the S&P Release.

Friday, April 25, 2014

Consumer Confidence Rebounded in April

Consumer sentiment rebounded in April, rising 4.1 points to 84.1, according to the University of Michigan Consumer Sentiment index. The index is at the highest level since July.

Both current and future expectations improved in April. Current conditions grew 3.0 points to 98.7, a post-recession high. Future expectations also improved 4.7 points to 74.7. However, the gap between current and future expectations remain. Consumers are less optimistic about the future in comparison to the present.

The report indicated that inflationary expectations unchanged from March, calling for 3.2% inflation over the next year and 2.9% over the next 5 years.

If conditions continue without any major shocks, sentiment should continue to improve as consumers feel more financially secure.

Wednesday, April 23, 2014

New Home Sales Fall To Slowest Pace in 8 Months

New home sales sharply declined to an annual pace of 384,000 units in March. It’s the slowest pace in 8 months and 22.5% below February’s revised rate. March’s pace is 13.3% below year ago levels. Despite March’s headline index positively revising February’s rate, new home sales fell by 9.8% in the first quarter.

Sales fell in three of the four regions surveyed. The Northeast was the exception, rising 12.5%. The Midwest, South and West declined respectively by 21.5%, 14.4% and 16.7%. Sales declined in all four regions from year-ago levels.

The supply of new homes on the market has grown, hitting 6.0 months of supply. It’s the greatest supply level in over two years, signaling a return to normalcy.

Read the Census release.

Tuesday, April 22, 2014

Existing Home Sales at Lowest Level Since 2012

Existing home sales declined by 0.2% to their lowest level since June 1012 and 7.5% below year ago levels. Sales fell to an annual pace of 4.59 million units in March, which was the third month sales declined.

Declines were uneven, with only two of the four regions losing ground. However, the two regions that improved, the Northwest and Midwest, declined the last 6 months. The South and West decreased 3.0% and 3.7% respectively.

The market supply has increased modestly, with the supply of homes rising to 5.2 months in March from a revised 5.0 months in February.

The median housing price grew to $198,500. Existing prices are 7.9% above year ago levels, the smallest year over year growth since September 2013.

Read the NAR release.

Wednesday, April 16, 2014

Beige Book: U.S. Economy Grew at “Modest to Moderate Pace”

The Federal Reserve’s Beige Book, released today indicated that economic expansion is continuing at a “modest to moderate pace.” The report noted that most regions have improved since the last report. Reports from Boston, Philadelphia, Richmond, Atlanta, Minneapolis, Kansas City, Dallas and San Francisco all indicated modest to moderate growth. Chicago saw an increase in activity, while the Cleveland and St. Louis districts saw a decline.

The cold weather impacted the last report, and this report saw a general increase in consumer spending. Moreover, manufacturing improved, with several districts noting, “that the impact of winter weather was less severe than earlier this year.”

The report noted that hiring was “mixed by general positive.” This stands in contrast to March’s jobs report, which indicated a “softening” in hiring activity. Many districts are reporting difficulty filling qualified workers for high-skilled positions.

Loan demand “strengthened” since the last report. New York and Dallas reported the strongest gains. The weather improvement allowed home sales to pick up, along with mortgage borrowing. Only Kansas City saw a decline in the number of loans.

Read the Federal Reserve release.

Industrial Production Improved 0.7% in March

Industrial production rose 0.7% in March, following a strong surge in February. February’s revision from 0.7% to 1.2% is the largest monthly increase in over a year. All three major components – manufacturing, mining and utilities – contributed to March’s growth.

Manufacturing growth improved 0.5% in March. However, motor vehicles and parts declined 0.8% after sharply rising 6.9% the month prior. The remaining categories improved.

Mining production grew 1.5% in March, the strongest growth since last summer. Utilities production increased 1.0%, after declining the month prior. The capacity utilization ratio gained ground in March as it rose to 79.2 from a revised 78.8.

Read the Federal Reserve release.

Housing Starts Rose in March

New residential construction rose in March to an annualized pace of 946,000 units. March’s rate improved 2.8% from the month prior, but was still below the pace at the end of last year. March’s gains were softer than anticipated. After a cold and harsh winter, there was an expected catch-up effect.

Single-family starts drove March’s improvement from the month prior growing to an annualized pace of 635,000 units, up 6.0% increase from the month prior and the highest level all year. However, single-family starts are still below end of 2013 levels. Multi-family starts dipped 3.1% to a pace of 311,000.

Permit issuance was mixed as well. Single family grew 0.5%, ending a 3 month decline. Multi-family dropped 6.4%, but the month prior saw double digit gains.

Despite the improvement, housing starts remain well below the long run average of 1.5 million units.

Read the Census report.

Tuesday, April 15, 2014

Consumer Prices Rose 0.2% in March

The consumer price index growth accelerated in March, growing 2%, which is up from the 1% growth the month prior. Price gain was driven by food and services price increases. Consumer prices have increased for the past 5 consecutive months. Prices are now 1.5% above year ago levels. March's year-over-year growth is higher than February's growth, but below January's

Energy services prices jumped 2.6% in March. However, the overall energy index declined 0.1%, the second consecutive month to do so. The decline was led by a 2.9% drop in fuel prices and a 1.7% drop in gasoline.

Food improved 0.4% for the second consecutive month. The rising cost of food suggests that declining gasoline and fuel costs have yet to impact food prices.

Read the BLS report.

Monday, April 14, 2014

Retail Sales Jumped 1.1% in March

Retail sales jumped 1.1% in March, and the report included a strong upward revision to the month prior. March gains were the strongest in over a year. Auto dealers led the increase. Year-over-year growth also saw strong growth, improving 3.8%.

The unusually cold weather in January and February created pent-up demand that boosted sales in March. Auto sales surged 3.1% from the previous month. General merchandisers also showed strong improvement with growth at 1.9%. Sales excluding auto and gas improved 1.0%.

Not all components grew. Electronics and appliances declined 1.6% and gasoline stations saw sales decline 1.6%.

The strong growth in March correlates with strong employment gains, and those gains should continue into the second quarter as retail sales further grow.

Read the Census report.

Friday, April 11, 2014

Producer Prices Rose 0.5% in March

Produce prices appreciated 0.5% in March, reversing a decline from the month prior. March’s gain was driven heavily by wholesale and retail growth. Producer price appreciation from one year ago rose slightly to 1.4%, higher than February’s 0.9%, but below the 2.0% target of the Federal Reserve.

Prices for finished energy goods declined 1.2% in March, their first decline in 4 months. The finished consumer foods index appreciated by a strong 1.1%.

Prices at earlier stages of production were mixed as well. Processed intermediate food grew 1.6% while unprocessed intermediate food jumped by 7.6%. Total intermediate goods declined by 0.2%, the first decline since November. However, the index is still up 0.7% from year ago levels.

Read the BLS report.

Thursday, April 10, 2014

Initial Claims at Lowest Level Since 2007

Initial claims for unemployment have fallen to their lowest level since 2007, with just 300,000 claims last week. Typically initial claims are measured on a 4 week moving average due to their volatility, but the 300,000 mark is significant.

The downward trend implies steady job growth and improved hiring rates. Additionally, lower firings mean better job security which is a positive for consumer sentiment and spending.

Read the Department of Labor report.

Wednesday, April 9, 2014

FOMC Minutes Highlight Discussions Around Forward Guidance, Inflation

The FOMC minutes from the March 18-19 meeting highlight the FOMC’s discussions around changing the unemployment rate threshold. It was previously at 6.5%, but as that is rapidly approaching and the economy is not as strong as originally predicted, the FOMC moved to change its forward guidance.

Inflation has been consistently below the committee’s long run objective. The FOMC seems to be taking note. “A couple of members preferred to include language in the statement indicating that the Committee would keep rates low if projected inflation remained persistently below the Committee’s 2 percent longer-run objective. One of these members argued that the Committee should continue to provide quantitative thresholds for both the unemployment rate and Inflation.”

Several FOMC members commented that their median projection for the main interest rate likely overstated the speed of tightening. The minutes state that, “Several participants noted that the increase in the median projection overstated the shift in the projections.” There was concern that forecasts, “could be misconstrued as indicating a move by the committee to a less accommodative reaction function.”

It appears as though the committee will continue tapering by $10 billion a month. For the first time, the committee commented on maintaining the current pace of the economy stays on path. It noted that, "if the economy continued to develop as anticipated, the committee would likely reduce the pace of asset purchases in further measured steps at future meetings.”

Read the FOMC minutes.

Consumer Delinquencies Fall Across Most Categories in Fourth Quarter

Delinquencies for installment and home-related loans fell in last year’s fourth quarter as the economy improved and consumers conscientiously managed their finances, according to results from the American Bankers Association’s Consumer Credit Delinquency Bulletin.

The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, fell 4 basis points to 1.59 percent of all accounts in the fourth quarter, a record low that’s well under the 15-year average of 2.34 percent. The ABA report defines a delinquency as a late payment that is 30 days or more overdue.

“As jobs, income and household wealth improve, people have a greater capacity to meet their financial obligations,” said James Chessen, ABA’s chief economist. “Improving consumer finances and closer attention to managing debt are the key factors behind these better numbers.”

Chessen noted that delinquencies in all three home-related loan categories – property improvement loans, home equity loans and home equity lines of credit – fell in the fourth quarter. This is the first time since the fourth quarter of 2012 that all three home-related loan delinquency rates dropped.

“This across-the–board decline in home-related delinquencies reflects a steadily improving housing market,” Chessen said. “Rising home values are turning the economics back in favor of homeowners. This trend should continue through 2014 and help push delinquencies even lower.”

Read the full press release.

Tuesday, April 8, 2014

Small Business Optimism Grew in March

The NFIB’s Small Business Optimism index improved to 93.4 from 91.4 the month prior. It does not fully offset February’s loss. The gains were mixed, as six of the index components improved, two remained unchanged, and two were lower.

Financing continues to be the least cited concern holding back small business conditions, with 2% of respondents citing it as the single more important problem. Government requirement and red tape remained in the top spot at 21%. However, taxes joined in a tie for the top spot, increasing 2%. Poor sales dropped 2%, remaining in third.

The details of the report improved from the past month. Six of the ten index components grew, improving a combined 22%. The expectation for real sales to grow increased the most by 9% from the month prior. Plans to increase inventories and current inventories grew a combined 10%. Plan to increase employment dropped the most, losing 2%.

Current job openings remained the same as the previous month, showing no improvement. Job creation plans drooped 2 points, after dropping 5 points the month prior. On a positive note, employment gains were stronger. Firms hired an average 0.18 workers in March.

Read the NFIB release.

Monday, April 7, 2014

Consumer Credit Grew $16.5 Billion in February

Consumer credit exceeded expectations and grew $16.5 billion in February, solely driven by the student loan portion of non-revolving credit. Revolving balances shrank in February, continuing their trend of uneven performance. Similar to the previous months, households remain hesitant to take on credit card debt. Consumer credit in February grew at an annualized pace of 6.4%.

Revolving credit shrank by $2.4 billion in February, the second consecutive month of decline. Revolving credit has now fallen in three of the past four months. Revolving balances have been slow to recover, and remain well below their 2008 peak.

Non-revolving balances continued to drive growth in February, surging $18.9 billion. Non-revolving balances consist mostly of student and auto loans. Non-revolving balances have now increased consecutively since 2011 and are well above their pre-recession peak.

All of the growth in non-revolving balances is due increases in student loans.

Read the Federal Reserve release.

Friday, April 4, 2014

Economy Added 192,000 Jobs, With Unemployment Rate Unchanged in March

Total nonfarm payroll employment rose by 192,000 jobs in March and the unemployment rate was unchanged at 6.7%, according to the U.S. Bureau of Labor Statistics. March’s pace is slightly slower than the previous month’s upwardly revised growth. The report included positive upward revisions to January and February, adding a combined 37,000 jobs.

The rebound from the winter weather was slower than expected. The private services industry continued to drive growth increasing job growth by 167,000. The goods producing sector added 25,000 jobs in March, down from the 40,000 jobs added the month prior. Construction gains edged up slightly, adding 19,000 jobs in March, up from 18,000 jobs in February. Government employment was unchanged in March, as the decline of 9,000 jobs in the federal government was offset by an increase of 8,000 jobs in local government.

Unemployment rate was unchanged at 6.7% as employment gains were offset by new entrants to the labor force. The labor force participation rate rose slightly to at 63.2%. The number of long-term unemployed (those jobless for 27 weeks or more) decreased slightly to 3.7 million, down from 3.8 million the prior month.

Prior to Federal Reserve Chairman Janet Yellen’s appointment, the Fed had specific unemployment rate goals to which they attached their plan for tapering the purchase of securities. In the last meeting of the Federal Open Market Committee, the board announced that they will form their policy decisions based on a wide range of indicators of the employment situation, dropping their specific unemployment rate target.

Read the BLS report.

Thursday, April 3, 2014

ISM Nonmanufacturing Index Accelerated in March

Activity in the service sector grew in March, according to the ISM non-manufacturing index. The index grew 1.5 index points to 53.1 in March, reversing some of the losses from the month prior. The services sector underperformed the manufacturing sector, which grew to 53.7.

After a weak February, March’s recovery was mixed. Employment saw a large 6.1 point gain, climbing back into expansionary territory. The reading reflects the largest month-over-month increase since the inception of the indicator in January 1998. However, it is still has not fully recovered from last month’s decline and is below January’s level of 56.4. New orders also improved, growing 2.1 points to 53.4. While exports improved, they remained below the expansionary threshold for the third consecutive month, at 49.5 in March.

Business output and backlogged orders declined, however both still remain in expansion, with March readings of 53.4 and 51.5 respectively.

Read the ISM release.

Trade Deficit Grew in February

The U.S trade deficit widened by $3.0 billion in February, reaching $42.3 billion, as exports fell and imports grew. This is the third consecutive month the deficit has grown.

The report was lackluster and shows an economy slowly improving. Exports dropped 1.1% in February, to $190.4 billion. Imports rose 0.5% to $232.7 billion. Notably, the goods deficit grew to $61.7 billion, the highest deficit in 5 months.

The real goods deficit, which is important for the calculation of GDP, grew to $50.1 billion, which included gains in petroleum.

Read the Census report.

Wednesday, April 2, 2014

ABA Report: Despite Increased Credit Card Spending, Consumers More Likely to Pay Off Monthly Balance

Consumers are using credit cards more as a transactional tool to pay for goods and services than as a form of debt, according to the latest edition of the American Bankers Association’s Credit Card Market Monitor.

The report, reflecting data from last year’s third quarter, found that monthly credit card purchase volumes generally increased while average ending balances fell nearly 5 percent.

“This suggests that consumers aren’t just using their credit cards more - - they are also more likely to pay off or pay down their monthly balance,” said Kenneth J. Clayton, executive director of ABA’s Card Policy Council. “As a result, the amount consumers are paying in interest as a share of their outstanding credit card balance declined for the 13th consecutive quarter.”

Read the full report. Read the full press release.

ADP: Private Sector Added 191,000 Jobs in March

ADP’s National Employment Report indicated that the private sector increased employment by 191,000 jobs in March. The private sector job gains were stronger than the revised 178,000 in February. Despite the strong growth in March when compared to the previous month, it was still slightly below expectations of 203,000 jobs. Employment gains continue to be largely driven by the services sector.

The services sector added 164,000 jobs in March, the largest gain since last November and up from a revised 153,000 in February. The goods producing sector improved slightly, adding 28,000 jobs, an additional 3,000 jobs per month over February’s gains.

Manufacturing added another 5,000 jobs in March, the same as the month prior. The sluggish gains in manufacturing have yet to offset the job loss that occurred in January.

Read the ADP release.

Tuesday, April 1, 2014

Construction Spending Rose in February

Construction spending increased 0.1% in February, beating expectations due to a cold and snowy month and is currently 8.7% above the February 2013 estimate. Private non-residential construction led the growth. The report also revised down January’s headline number to a 0.2% decline.

Construction spending growth was driven by strong growth in private non-residential construction, reversing last month’s decline. Private non-residential construction increased 1.2% from the month prior. Private residential construction shrank 0.8% in February, but is still up 13.5% from a year ago. Adverse weather impacted private residential, much more so than private non-residential (power and utility structures). Multifamily construction, particularly in the warmer Sun-Belt metro regions, was strong and signals conditions could improve once temperatures rise.

One of the largest components of non-residential construction, spending on power and utilities structures, increased 4.4%, and is still up 7.9% from year ago levels.

Government spending rose 0.1%, but is down 1% from year ago levels.

Read the Census report.

ISM Manufacturing Index Rose in March

The ISM manufacturing index made small gains in March, but was slightly below expectations. Due to the harsh weather negatively impacting the ISM reading in January, and somewhat in February, March was expected to experience a greater rebound. Nevertheless, the index rose 0.5 points to 53.7, well above the threshold of 50 that signifies expansionary territory. February’s reading is the 10th consecutive month the index has been in expansionary territory.

The details of the report were mainly positive. Production jumped a substantial 7.7 points to 55.9, and back into expansionary territory in March. This represents the largest month-over-month increase in production since June 2009.

New orders grew by 0.6 points to 55.1. Specifically backlogged orders jumped by 5.5 points to 57.5.

The employment index dropped to 51.1 in March, from 52.3 the month prior. Despite the lower rate, this is the ninth consecutive month of growth in employment.

Inventory growth remained the same in March, while new orders grew. The gap between inventories and new orders – a proxy for future production – rose to 2.6 points.

Read the ISM release.