Friday, February 26, 2016

Consumer Sentiment Dipped in February

Consumer sentiment fell to 91.7 in February, down 0.3 points from the previous month, according to the University of Michigan Consumer Sentiment Index.

“Although consumers are not as optimistic as at the start of last year, the Sentiment Index is just 6.5% below the cyclical peak of 98.1 set in January 2015,” said Richard Curtin, Chief Economist of UM Surveys of Consumers. “Such a small decline is hardly consistent with the onset of a downturn in consumer spending. By way of contrast, in January 2007, the Sentiment Index reached a cyclical peak of 96.9 and then declined by 27% to 70.8 in the February 2008 survey.”

The Current Economic Conditions Index rose 0.4 points to 106.8 in February, but was 0.1 points lower than it was a year ago. The Index of Consumer Expectations fell 0.8 points to 81.9.

“Rather modest wage gains as well as very low inflation have meant that consumers expect increases in their real incomes during the year ahead. Consumers’ most important concern involves how much the slowdown in GDP growth will affect employment growth. At present, consumers anticipate only a slight negative impact on jobs.”

Personal Income and Consumption Rose in January

Personal income increased $79.6 billion, or 0.5 percent in January, according to the Bureau of Economic Analysis, up from a 0.3 percent gain in December. Personal consumption expenditures also increased by 0.5 percent, or $63.5 billion.

Real disposable income – personal income less personal taxes – increased 0.4 percent in January, the same as the December rate.

The personal savings rate – personal savings as a percentage of personal income – was 5.2 percent, also the same as the December rate.

Wages and salaries grew $48.1 billion, compared to an $18.3 billion increase in December. The majority of the month’s gain was due to increase in private sector wages.

The price index for PCE increased 0.1 percent in January, compared to a 0.1 percent decrease in December. Excluding food and energy, the index increased 0.3 percent.

Read the BEA release.

GDP Growth Revised to 1.0 Percent in Fourth Quarter

Real GDP for the fourth quarter grew at an annual rate of 1.0 percent, according to the Bureau of Economic Analysis’s second estimate. GDP was revised up from the advance estimate of 0.7 percent growth. During the third quarter, GDP grew at a rate of 2.0 percent. The fourth quarter’s deceleration in growth reflected slowdowns in personal consumption expenditures and nonresidential fixed investment, as well as lower contributions from exports and government spending.

Consumption was the largest contributor to GDP, accounting for 1.38 percent of growth, down from 2.04 percent during the third quarter. Consumption spending increased by $56.9 billion in the fourth, compared with an $83.5 billion increase in the third quarter.

Net exports were the largest drag on GDP growth, subtracting 0.25 percent from growth. A $3.7 billion decline in imports of goods was not enough to offset the $14.4 billion decline in exports of goods. Private inventories and private domestic investment also dragged on GDP, subtracting 0.14 percent and 0.12 percent from growth.

Federal government spending increased during the quarter, contributing 0.15 percent to GDP. This was offset by a decline in state and local government spending however, which contracted during the quarter.

Read the Census release.
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Thursday, February 25, 2016

Durable Goods Orders Increased 4.9 Percent in January

New orders for manufactured durable goods increased 4.9 percent to $237.5 billion in January, according to the U.S. Census Bureau. The January increase followed a 4.6 percent decrease in December. The majority of the month’s gain was due to an increase in new orders for transportation equipment, which increased by 11.5 percent. Excluding transportation, new orders increased 1.8 percent.

New orders excluding defense increased by 4.5 percent on the month, as orders of nondefense capital goods increased by 21.6 percent to $79.2 billion. In contrast, defense new orders for capital goods increased by 11.9 percent to $10.2 billion.

Shipments of manufactured durable goods, up two of the last three months, increased 1.9 percent to $241.9 billion, following a 1.6 percent decrease in December.

Inventories of manufactured durable goods fell 0.1 percent to $396.3 billion, marking the sixth decline in the last seven months. Inventories increased by 0.2 percent in the previous month.

Read the Census release.
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Wednesday, February 24, 2016

New Home Sales Dropped in January

New single family home sales fell to a seasonally adjusted annual rate of 494,000 in January, according to the U.S. Census Bureau and Department of Housing and Urban Development. The January rate is 9.2 percent below the revised December rate of 544,000 and 5.2 percent below the year ago rate of 521,000. In contrast, sales of existing homes rose 8.2 percent year-over-year.

Sales were mixed across regions, falling in the West and Midwest by 32.1 and 5.9 percent, respectively, but increased 3.4 percent in the Northeast and 1.8 percent in the South.

The median sales price of new homes was $278,800, down from $295,800 in December. The average price was $365,700, up from $347,700 in the previous month.

At the end of January, there was an estimated supply of 5.8 months at the current sales rate, up from a 5.1 month supply in December.

Read the Census/HUD release.
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ABA Updated Banking Information Page for Fourth Quarter 2015

ABA’s Banking Information page has been updated with fourth quarter data. The page serves as a quick one-stop reference for banking industry statistics from the FDIC’s Quarterly Banking Profile as well as other FDIC data releases not featured in the QBP. The Banking Information page provides quick and easy access to current and historical information like the number of institutions, mergers and charters, total assets by asset size and the top 100 agricultural banks by dollar volume and concentration, among many others.

The Conditions of the Industry, a one-page reference outlining headline data for the quarter, has also been updated and can be found on the Banking Information page.

Visit the Banking Information page.
Read the Conditions of the Industry.

Banks End 2015 on Profitable Note with $40.4B in Q4

FDIC-insured banks and savings institutions earned $40.4 billion in the fourth quarter, up 11.9 percent from the industry’s earnings a year before, the FDIC said today. The rise in earnings was largely driven by a $6.8 billion jump in net operating revenue and a $2.7 billion decline in noninterest expenses, the agency said. For 2015, the industry’s net income rose 7.5 percent to $163.7 billion, and two-thirds of banks reported higher year-over-year net income.

Loan growth helped power the increase in operating revenue, with net interest income growing 3.6 percent compared to the fourth quarter of 2014. Servicing income and asset sales also fueled revenue growth, with noninterest income up 5 percent year-on-year. For the full year, net operating revenue rose 2.2 percent and noninterest expenses fell by 1.3 percent.

“Strong, broad-based loan growth was the driving factor behind another solid year for America’s banking industry,” said ABA Chief Economist James Chessen. “Lending is the big story as banks of all sizes steadily increase their loans to small, medium and large businesses.”

Community banks earned $5.1 billion during the fourth quarter, up 4 percent from the same period in 2014. “Total loans are up more than 6 percent with community banks leading the charge,” Chessen commented. The average industry-wide return on assets rose to 1.03 percent from 0.95 percent a year earlier, and ROA for the full year was at 1.04 percent.

Overall asset quality dipped slightly in the final quarter of 2015, with net charge-offs rising 7 percent to $10.6 billion — the first year-on-year increase since 2010. However, charge-off growth was concentrated in commercial and industrial loans, especially to borrowers in the energy business, and in auto loans; other credit categories saw lower charge-offs.

Meanwhile, provisions set aside in the fourth quarter for loan and lease losses rose by 45.5 percent to $12 billion. “As assets grow, the industry is setting aside additional provisions for loan losses that may occur down the road,” Chessen said. “This is prudent management to assure resources are available in a downturn.” The number of institutions on the problem bank list dropped from 203 to 183, and the Deposit Insurance Fund balance rose to $72.6 billion during the quarter.

Read the Quarterly Banking Profile.
Read Chessen's full statement.

Tuesday, February 23, 2016

Existing Home Sales Reach Highest Rate in Six Months

Existing home sales increased 0.4 percent in January to a seasonally adjusted annual rate of 5.47 million, according to the National Association of Realtors (NAR). January’s reading was the highest in the last six months.

“The spring buying season is right around the corner and current supply levels aren’t even close to what’s needed to accommodate the subsequent growth in housing demand,” said NAR Chief Economist Lawrence Yun. “Home prices ascending near or above double digit appreciation aren’t healthy – especially considering the fact that household income and wages are barely rising.”

Annual sales of existing homes increased in the Midwest and Northeast, rising 4.0 and 2.7 percent respectively. Sales in the West decreased 4.1 percent while sales in the South were unchanged.

The median existing home price increased to $213,800, an 8.2 percent rise from January 2015.

Distressed sales rose 1 point to 9 percent of sales in January. Seven percent of the month’s sales were foreclosures while 2 percent were short sales. On average, foreclosures and short sales sold for a discount of 13 percent and 12 percent, respectively.

Read the NAR release.
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Consumer Confidence Fell in February

The Conference Board’s Consumer Confidence Index declined in February, falling 5.6 points to 92.2, after increasing in the previous two months.

The Present Situation Index fell 4.5 points to 112.1, while the Expectations Index fell 6.4 points to 78.9 in February.

“Consumers’ short-term outlook grew more pessimistic, with consumers expressing greater apprehension about business conditions, their personal financial situation, and to a lesser degree labor market prospects,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Continued turmoil in the financial markets may be rattling consumers, but their assessment of the current conditions suggests the economy will continue to expand at a moderate pace in the near-term.”

Read The Conference Board release.
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Home Prices Continue Growth in December

The 20-City Case-Shiller Composite Index increased 5.7 percent year-over-year in December, the same as November’s gain. The 10-City Composite index increased 5.1 percent from the previous year, down from a 5.2 percent gain in the previous month. The National Index, which covers all nine census divisions increased by 5.4 percent annually, compared to a 5.2 percent November gain.

On a seasonally adjusted monthly basis, the National Index and 20-City Composites posted gains of 0.8 percent, while the 10-City Composite increased 0.7 percent.

“While home prices continue to rise, the pace is slowing a bit,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Seasonally adjusted, Miami had lower price [gains] this month than last and 10 other cities saw smaller increases than last month. Even with some moderation, home prices in all but one city are rising faster than the 2.2 percent year-over-year increase in the CPI core rate of inflation.”

Home prices fell in eight of the twenty cities covered by the index, but increased in 12 others. Chicago and Minneapolis saw home prices fall 0.4 percent on the month, while cities including Tampa and San Diego saw strong growth (0.9 percent and 0.7 percent respectively).

Read the S&P release.
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Friday, February 19, 2016

CPI Unchanged in January

The Consumer Price Index was unchanged in January, as an increase in the index for all items less food and energy was offset by a decline in the energy index. Over the last 12 months, the index increased 1.3 percent after seasonal adjustment, driven by increases in prices for food and services less energy services.

The energy index fell 2.8 percent from the previous month and 6.5 percent from the previous year, as all of the major energy component indexes declined for the second consecutive month. On a monthly basis, the index for fuel oil fell most sharply, falling by 6.5 percent. Gasoline prices fell 4.4 percent on the month to its lowest level since March 2009.

Prices for all items less food and energy increased 0.3 percent, up 10 basis points from December’s gain. The increase for this index was broad-based as most major components rose. The indexes for shelter and medical care were the largest contributors however, rising 0.3 and 0.4 percent respectively.

The food index was unchanged during the month after declining in November and December. The food at home index fell 0.2 percent from December – the third consecutive monthly decline, while the index for food away from home rose 0.3 percent. The food index has increased by 0.8 percent over the past year.

Read the BLS release.
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Wednesday, February 17, 2016

Fed Officials Concerned about Global Turmoil

In the minutes of their January 26 – 27th Federal Open Market Committee (FOMC) meeting, Fed officials showed greater concern regarding the balance of risks to the medium-term economic outlook for inflation and economic growth, noting that uncertainty had increased due to recent developments in financial markets and emerging economies.

“Almost all participants cited a number of recent events as indicative of tighter financial conditions in the United States’ these events included declines in equity prices, a widening in credit spreads, a further rise in the exchange value of the dollar, and an increase in financial market volatility.”

Participants also expressed concern regarding the slowdown in China’s industrial sector and the possibility that structural and financial changes to their economy could cause a sharper decline in growth, and increase economic and financial stresses on other commodity producers and emerging market economies such as Canada and Mexico.

Committee members viewed incoming data regarding the labor market as encouraging. Inflation however, continued to run below the 2 percent objective. Participants pointed out that some market-based measures of long-term inflation compensation declined to historically low levels, increasing concern about whether inflation expectations could be moving lower.

Read the FOMC minutes.
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Industrial Production Posts First Increase since July

Industrial production increased 0.9 percent in January, the first increase since July 2015. The Federal Reserve notes that a storm late in the month likely held down January production by a small amount. Total industrial production is now 0.7 percent below the year ago level.

Manufacturing output increased by 0.5 percent amid increases in both durable and nondurable goods production. Within nondurable goods, the largest gains were posted by food, beverage and tobacco products.

The index for utilities jumped by 5.4 percent, amid increased demand for heating this January after an unseasonably warm December.

Mining output was unchanged following four consecutive months of declines. Mining output is now 9.8 percent below year ago levels.

Capacity utilization increased to 77.1 percent, up 70 basis points from December, but 2.9 percent below its long-run average.

Read the Federal Reserve release.
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Housing Starts Fall for Second Consecutive Month

Housing starts fell in January to a seasonally adjusted annual rate of 1.099 million, 3.8 percent below December’s revised estimate of 1.143 million, but 1.8 percent above the January 2015 rate. Housing starts have remained above the 1.0 million rate for ten consecutive months.

Housing activity fell across all regions, with starts falling 12.8 percent in the Midwest, 3.7 percent in the Northeast, 2.9 percent in the South and 0.4 percent in the West.

New building permits also fell in January, falling 0.2 percent below the December rate to 1.202 million, but grew 13.5 percent from January 2015.

Housing completions grew in January to a seasonally adjusted annual rate of 1.057 million, a 2.0 percent monthly increase, and an 8.4 percent increase from a year ago.

Read the Census release.
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Producer Prices Increased in January

Producer prices increased 0.1 percent in January, seasonally adjusted, after falling 0.2 percent in December, according to the U.S. Bureau of Labor Statistics. The increase was attributable to an increase in prices for final demand services.

Prices for final demand services increased 0.5 percent, the third consecutive month of increases. Nearly half of the increase could be traced to a 4.0 percent advance in margins for machinery and equipment wholesaling. In contrast, margins for food and alcohol retailing fell by 4.1 percent.

The index for final demand goods fell 0.7 percent. The decrease could be traced to a 5.0 percent fall in prices for final demand energy goods, which included a sharp decline in prices for gasoline. Prices for final demand goods less foods and energy were unchanged however.

Read the BLS release.
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Tuesday, February 16, 2016

Builder Confidence Slipped in February

The National Association of Home Builders/Wells Fargo Housing Market Index fell to 58 points in February, down three points from January’s revised reading.

“Builders are reflecting consumers concerns about recent negative economic trends. However, the fundamentals are in place for continued growth of the housing market,” said NAHB Chief Economist David Crowe. “Historically low mortgage rates, steady job gains, improved household formation and significant pent up demand all point to a gradual upward trend for housing in the year ahead.”

The majority of index components posted losses in February. Current sales conditions fell three points to 65, and the buyer traffic index component fell five points to 39. However, sales expectations for the next six months increased one point to 65.

The three-month moving averages for regional HMI scores declined. The West fell three points to 72, the Midwest fell one point to 57, and the Northeast and South fell two points to 47 and 59 respectively.

Read the NAHB release.
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Friday, February 12, 2016

Retail Sales Rose 0.2 Percent in January

There were $449.9 billion of retail and food service sales in January (after adjustment for seasonal variation and holiday and trading-day differences, but not for price changes), up 0.2 percent from December, and 3.4 percent above January 2015, according to the U.S. Census Bureau.

Core retail sales – excluding automobiles and parts – increased 0.1 percent last month, consistent with December. Year-over-year sales excluding automobiles and parts increased 2.5 percent. Retail trade sales were up 0.3 percent on the month, and 3.1 percent on the year.

Sales at gasoline stations declined 3.1 percent from the previous month and 8.1 percent from the previous year. Sales at motor vehicle and parts dealers increased 0.6 percent from December and 6.9 percent from January 2015.

Read the Census release.
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Wednesday, February 10, 2016

Yellen: Conditions Less Supportive of Growth

In a hearing before the House Financial Services Committee, Chair Yellen reiterated that the Fed intends to raise rates gradually, while also noting that financial conditions have deteriorated some.

“Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar. These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market.”

In her prepared remarks, the chair noted that foreign developments pose a risk to growth, as changes in the renminbi exchange rate have led to increased global volatility.

The chair also faced several questions from members regarding whether the Fed would consider implementing negative interest rates in the future, and whether or not they have the authority to do so. Yellen stated that the option was explored during 2010, but needs to be explored further. She does not know of any legal restrictions for implementing negative rates and also noted that it would not be a preferred tool.

Read Chair Yellen’s statement here.

Tuesday, February 9, 2016

Small Business Optimism Slipped in January

The NFIB Small Business Optimism Index fell 1.3 points to 93.9 in January. Three of the ten index components posted gains on the month, while six components declined.

Labor market conditions weakened some but remained healthy, as 52 percent of small businesses reported hiring or trying to hire, compared to 55 percent in December. Forty-five percent of employers reported few or no qualified applicants for available positions. A seasonally adjusted net 11 percent of employers plan to create new jobs, down 4 points from the previous month.

The percent of owners reporting higher sales in the past three months fell to a net negative 7 percent, down 2 points from December. Twelve percent of small business owners reported weak sales as their top business problem, up 1 point from December.

Capital spending slowed as well, with 61 percent of businesses reporting capital outlays, down 1 point on the month. The percent of owners planning outlays in the next 3-to-6 months was unchanged at 25 percent.

Credit conditions remained satisfactory, as 3 percent of owners reported that all their borrowing needs were unmet. Fifty percent of respondents explicitly stated that they did not want a loan, down 2 points from December. Just 2 percent of owners cited financing as their top business problem, compared to 5 percent during the great recession.

Read the NFIB release.
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Friday, February 5, 2016

Consumer Credit Grew 7.2 Percent (SAAR) in December

Consumer Credit increased in December at a seasonally adjusted annual rate of 7.2 percent, rising $21.3 billion (compared to $14.0 billion in November) to $3.55 trillion.

Revolving credit rose at an annual rate of 7.5 percent and by $15.4 billion (up from $7.7 billion in November) to $935.6 billion.

Non-revolving credit increased at an annual rate of 7.1 percent and by $5.8 billion (down from $6.4 billion in November) to $2.61 trillion

Federal government holdings of student loans continue to be the largest portion of non-revolving credit, comprising approximately 36 percent of outstanding credit. Depository institutions and finance companies are the secondary and tertiary holders, with 25 percent and 24 percent, respectively, of outstanding non-revolving credit.

Read the Federal Reserve release.
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U.S. Foreign Trade Deficit Widened in December

The U.S. international trade deficit widened in December to $43.4 billion, up $1.1 billion from November. The widening of the balance was driven by a $0.5 billion decrease in exports, along with a $0.6 billion increase in imports.

The goods deficit increased $1.3 billion to $62.5 billion, while the services surplus increased $0.1 billion to $19.2 billion.

Exports of goods fell $0.8 billion to $121.2 billion, driven by a $0.6 billion decrease in automotive vehicles and parts, and a $0.4 billion decrease in Industrial supplies and materials. Exports of services increased $0.3 billion to $60.3 billion, as financial services, and other services such as research and development increased.

Imports of goods increased $0.5 billion to $183.7 billion, largely due to a $1.0 billion increase in imports of automotive vehicles and parts. Industrial supplies and materials also increased by $0.5 billion. Imports of services grew $0.1 billion, due to an increase in travel and business services.

Read the Census/BEA release.
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Bank Economists See Moderate Growth Despite International Challenges

This year will mark the seventh straight year of expansion for the U.S. economy, a trend that will continue through at least 2017, according to the Economic Advisory Committee of the American Bankers Association. The committee forecasts 2.3 percent growth over the four quarters of this year, followed by 2.2 percent growth next year.

“While the current economic expansion is old compared to the five-and-a-half year average we’ve seen over the last half century, it is in some ways young at heart,” said Carl Tannenbaum, chairman of the group and chief economist of Northern Trust. “Important avenues for growth remain and the financial system is far healthier than it was eight years ago. This means that potential global maladies are unlikely to produce contagion for the U.S. economy.”

The committee, which includes 15 chief economists from among the largest banks in North America, believes the ongoing progress will create jobs and lead wages higher. The group expects that 2.2 million jobs will be added in 2016, pushing wages up 2.5 percent and the national unemployment rate down to a nine-year low of 4.7 percent.

Consumer spending will be a key driver this year, as it was last year, according to the committee. The group forecast is that personal consumption will grow 2.5 percent in 2016 and then 2.1 percent next year.

“Household fundamentals are positive, with impressive job gains, low oil prices and stronger balance sheets,” Tannenbaum said.

Housing will be a pillar of growth this year, according to the group. Residential investment is expected to rise 7.0 percent this year and 4.2 percent next year. Strong fundamentals, along with low mortgage rates, should sustain the recovery in home values, which increased 4.9 percent last year on a nationwide basis and are expected to rise 3.9 percent this year.

The committee’s outlook also calls for business capital investment to support growth this year, increasing 3.5 percent.

Moderating import and commodity prices are expected to drive inflation closer to the Federal Reserve’s target of 2 percent over the next two years, according to the committee.

“Outside of stabilizing oil prices, the improving domestic economy and rising wages could put upward pressure on the price level,” Tannenbaum said. “However, the weak global backdrop and a strong dollar may limit any acceleration of inflation.”

With a modest pick-up in inflation and declining unemployment, the group expects the Federal Reserve to raise its federal funds target zone three times over the course of 2016, from 0.25–0.50 percent at present to 1.00–1.25 percent. Thereafter, the bank economists see a gradual rise in rates over the next several years.

“We see this as a gentle normalization of monetary policy rather than an attempt to curb growth and contain inflation,” Tannenbaum said.

While the consensus calls for sustained growth, the committee sees risks to the outlook as skewed toward the downside.

“The potential threats are largely external, and include faltering emerging markets and related financial risks, which could impair market and economic performance,” said Tannenbaum.

The group’s consensus is that the 10-year Treasury rate will rise from 2.0 percent at present to 2.6 percent at year-end, and mortgage rates will increase from 3.9 percent to 4.2 percent over the same period.

The committee sees sustained strength in the quality and availability of bank loans. Delinquency and charge-off rates will remain near historical lows. Consumer bank credit is expected to grow more than 5 percent and business bank credit more than 8 percent over the course of this year.

“The economy may have challenges to address, but the availability of bank credit is not one of them,” Tannenbaum said.

Read the EAC forecast.

151,000 Jobs Added in January, Unemployment Fell to 4.9 Percent

Total nonfarm payroll employment rose by 151,000 in January, down from last month’s downwardly revised total of 262,000 jobs. The national unemployment rate fell to 4.9 percent.

The services sector added 118,000 jobs, down from 197,000 in January. The majority of new service jobs were in retail sales, which added 57,700. Retail employment rose in general merchandise stores, electronics and appliance stores, and motor vehicles and parts dealers. January’s retail gains help to negate some of the planned retail layoffs announced earlier in the month. Healthcare and social assistance followed with 44,000 new jobs, consistent with last month’s total.

Among goods producing industries, manufacturing posted strong gains, adding 29,000 jobs, an increase from 13,000 in December. Growth in construction employment trailed off, adding 18,000 jobs in January, less than half of December’s total. The mining industry continued to shed jobs, falling by 7,000 in January. Since peaking in September 2014, the industry has lost 146,000 jobs.

The civilian labor force participation rate was little changed at 62.7 percent in December.

The number of long-term unemployed, those jobless for 27 weeks or more, was also unchanged at 2.1 million. The number of discouraged workers, those who gave up looking for work was 623,000, unchanged from a year ago.

Average hourly earnings rose by 12 cents to $25.39 in January. Year-over-year, earnings grew 2.5 percent.

Read the BLS release.
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Thursday, February 4, 2016

Bank Economists Forecast Continued Economic Growth Through 2017

The U.S. economy will continue to expand, with growth in 2016 forecast to reach 2.3 percent and diminishing risk from global volatility, the ABA Economic Advisory Committee said yesterday.

The committee of 15 chief economists at some of the nation’s largest banks said the seven-year expansion is “likely to last at least another couple of years,” said EAC Chairman Carl Tannenbaum, chief economist at Northern Trust. “Important avenues for growth remain and the financial system is far healthier than it was eight years ago. This means that potential global maladies are unlikely to produce contagion for the U.S. economy.”

The EAC said it expects growth to continue to create jobs and lead wages higher, projecting 2.2 million new jobs in 2016, which will push wages up 2.5 percent and unemployment down to a nine-year low of 4.7 percent.

“Consumers are in awfully good shape,” said Tannenbaum, noting that personal consumption is projected to grow 2.5 percent in 2016 and 2.1 percent in 2017. The housing market is “gradually finding its footing,” he added, noting that the committee expects low mortgage rates, increasing home values and a projected 7 percent rise in residential investment in 2016 to continue to drive its recovery.

Committee members also echoed the Federal Reserve’s expectations for gradual rate increases over the next several years as inflation and unemployment allow.

Read the ABA release.
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Manufactured Goods Orders Fell in December

New orders for manufactured goods fell 2.9 percent to $456.5 billion in December, following a 0.7 percent decrease in December, according to the U.S. Census Bureau. This was the fourth decline in the last five months. Excluding transportation, new orders fell 0.8 percent to $385.3 billion.

New orders for manufactured durable goods fell 5.0 percent to $225.6 billion in December, following a 0.5 percent decrease in November. Transportation equipment led the decrease, as it fell by 12.6 percent to $71.2 billion.

Shipments of manufactured durable goods fell 2.1 percent to $236.1 billion, following a 0.6 percent increase in November. Shipments excluding transportation fell 0.4 percent, compared to a 0.6 percent decline in the previous month. Shipments of nondurable goods fell 0.8 percent on account of weaker petroleum and coal demand.

Read the Census release.
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Job Cuts Surge as Retail Downsizes

Employers announced plans to cut 75,114 jobs in January, the highest number of planned layoffs since July 2015, according to a report issued by Challenger, Gray & Christmas. January’s announced cuts were 218 percent higher than December’s total, and 42 percent above the year-ago rate. The planned cuts were led by retailers, which announced nearly 54,000 future layoffs.

“Retail job cuts came on the heels of relatively strong holiday sales, which increased by nearly 8.0 percent. However, a growing portion of the sales gains are occurring online,” said John A. Challenger, CEO of Challenger Gray & Christmas. “At Macy’s for example, November and December sales at its brick-and-mortar stores fell by 5.0 percent, while orders through its online entities were up 25% from a year earlier.”

Walmart led the cuts in retail, announcing plans to close 269 stores, which will impact 16,000 employees. The energy sector also saw significant cuts, with firms announcing plans to reduce employment by 20,246, the highest total since January of 2015.

“With oil prices expected to stay low for the foreseeable future, the potential for continued layoffs remains elevated,” said Challenger.

Read the Challenger Gray & Christmas release.
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Wednesday, February 3, 2016

ISM: Non-Manufacturing Sector Slowed in January

The ISM Non-Manufacturing Business Index fell to 53.5 points in January, 2.3 points below December’s seasonally adjusted rate. Despite the decline, January marked the 72nd consecutive month of growth, as indicated by readings over 50. Ten non-manufacturing industries reported growth in January, while eight reported contractions.

Growth in the Business Activity Index slowed 5.6 points from December’s seasonally adjusted reading to 53.9. Some respondents noted that regional weather conditions and instability in China were affecting spending activity. Nine of the eighteen industries reported an increase in business activity, while nine reported a decline.

Non-manufacturing employment grew for the 23rd consecutive month in January, but at a slower pace, as the index fell 4.2 points to 52.1. Four industries, including finance and insurance, retail trade, and healthcare and social assistance reported growth. Eight industries, including accommodation and food services, and arts entertainment and recreation contracted.

The New Orders Index registered 56.5, down 2.4 points from December. Respondents reported that business was “not growing, but still very strong” and that some orders had slowed.

Supplier deliveries slowed in January, as the index rose 3.0 points to 51.5 (readings above 50 for this index indicate slower deliveries). Eight industries reported slower deliveries, while five, including mining, educational services, and wholesale trade reported faster deliveries.

Read the ISM release.
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ADP: 205,000 Jobs Added in January

The non-farm private sector added 205,000 jobs in January according to the ADP National Employment Report, down from December’s revised figure of 267,000. Growth in both the goods and services sector trailed off slightly, but remained positive.

“Job growth remains strong despite the turmoil in the global economy and financial markets,” said Mark Zandi, chief economist of Moody’s Analytics. “Manufacturers and energy companies area reducing payrolls, but job gains across all other industries remain robust. The U.S. economy remains on track to return to full employment by mid-year.”

Small businesses, businesses with less than 50 employees added 79,000 jobs in January compared to 101,000 in December. Medium-sized businesses with 50-499 employees added 82,000 jobs, up from 77,000 in December. Large businesses added 44,000 jobs, half of December’s total.

Goods producing employment rose by 13,000 jobs after rising by 30,000 last month. Construction grew by 21,000, while manufacturing employment remained unchanged.

Service providing jobs grew by 192,000, largely due to expansion in the professional and business services sector, which increased by 44,000. The trade, transportation and utilities sector added 35,000 jobs, a 2,000 job increase from the previous month, while financial activities jobs increased by 19,000.

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Monday, February 1, 2016

Commercial Lending Standards Tighten amid Increased Demand

Over the past three months, banks reported easing lending standards and weaker demand for a variety of home loan types. In contrast, lending standards for C&I and CRE loans tightened amid strengthening fourth quarter demand, according to the January Federal Reserve Senior Loan Officer Opinion Survey.

Although the majority of banks did not change their lending standards, a net 8.3 percent of banks reported tightening standards for commercial and industrial lending to large and middle market firms, while a net 4.2 percent of respondents reported tightening standards for small business lending. Most respondents who tightened standards reported a less favorable or more uncertain economic outlook, as well as worsening of industry related problems in the oil and gas sectors. Some banks also attributed tightening to a reduced risk tolerance, decreased liquidity in the secondary market for loans, and increased concerns about the effects of legislative changes or supervisory actions.

A moderate net fraction of banks reported easing standards on GSE-eligible mortgage loans, while a modest net fraction of banks reported having eased standards on qualified mortgage loans. Despite an easing of standards, a moderate net fraction of banks reported weaker demand across most mortgage categories.

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Construction Spending up Slightly in December

Construction spending rose 0.1 percent in December to $1,116.6 billion (SAAR). November’s spending estimate was revised down to $1,116.0 billion. Construction spending during 2015 amounted to $1,097.3 billion, 10.5 percent above construction spending in 2014.

Total private construction fell to a seasonally adjusted annual rate of $824.0 billion, 0.6 percent below November’s estimate of 828.8 billion.

Private residential construction rose to $429.6 billion (SAAR), a 0.9 percent increase from November’s estimate, as construction of single and multi-family housing posted gains.

Private nonresidential construction fell 2.1 percent to a rate of $394.4 billion, as construction fell broadly across most nonresidential categories.

Public construction grew 1.9 percent to $292.5 billion (SAAR), due largely to highway and street construction. Public construction spending in 2015 totaled $291.2 billion, 5.6 percent above spending in 2014.

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Manufacturing Industry Continues to Contract

The ISM Manufacturing index rose to 48.2 points in January – up 0.2 points from December’s seasonally adjusted reading of 48.0. January’s reading marks the third consecutive monthly decline in the manufacturing sector, as readings below 50 indicate contraction in the manufacturing industry. Of the eighteen industries, eight reported expansion, while ten reported contraction. Business sentiment was mixed as some respondents reported strong sales, while others reported slowing activity.

The Employment Index fell 2.1 points from December to 45.9, indicating a decline in employment growth. Four industries reported growth, while ten, including petroleum and coal, apparel, chemical products, and primary metals reported contractions.

The index for new orders rose 2.7 points to 51.5, indicating growth in new orders after two consecutive months of decline. Eight industries reported new growth, while seven reported decreases.

Export orders fell 4 points to 47.0, after increasing in December. Wood products, furniture, primary metals, and chemical products reported increases, while twelve other categories reported declines.

Inventories registered 43.5 points, indicating that raw materials inventories contracted for the seventh consecutive month.

The price index registered 33.5, unchanged from December, but indicating a decrease in raw materials prices for the 15th consecutive month.

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Personal Income Rose, Consumption Fell in December

Personal income increased $42.5 billion, or 0.3 percent in December, according to the Bureau of Economic Analysis, consistent with November’s rise. Personal consumption expenditures fell $0.7 billion, or less than 0.1 percent.

Real disposable personal income – personal income less taxes – increased 0.4 percent, up from a 0.2 percent in November.

The personal savings rate – personal savings as a percentage of personal income – was 5.5 percent, up from 5.3 percent in November.

Wages and salaries increased $13.1 billion in December, after a $37.9 billion increase in November. The majority of the month’s gain was due to private sector wage increases.

The price index for PCE fell 0.1 percent, in contrast to a 0.1 percent increase in November. The index excluding food and energy increased by less than 0.1 percent.

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