by Bill McBride on 10/20/2012 08:01:00 AM
Saturday, October 20, 2012
The US economic data clearly improved last week. This was the third week in a row with mostly better than expected data, and suggests some recent pickup in economic activity.
The week started off with a strong retail sales report for September. Although some of the increase in sales was related to higher gasoline prices, sales excluding gasoline picked up too.
And once again the housing reports showed significant improvement. Housing starts were up sharply (as were permits), and residential investment is now a fairly strong tailwind for the economy (I expect this to continue in 2013 and beyond). On Friday, existing home sales disappointed a few people, but the underlying details were solid. For some analysis, see: Existing Home Sales: A few comments and NSA Sales Graph
There was even a little improvement in the regional manufacturing reports (these have been showing contraction for months). The Empire State report still showed contraction in October, but at a slower pace than in September, and the Philly Fed report showed expansion for the first time since April.
One negative report was for initial weekly unemployment claims. Claims were down significantly in the prior week, and increased sharply last week. The large swings over the last two weeks were related to timing and technical factors, and are a reminder to use the 4-week average. On a 4-week average basis, unemployment claims are still elevated, but near the cycle low.
Here is a summary of last week in graphs:
• Housing Starts increased sharply to 872 thousand SAAR in September
Click on graph for larger image.
The first graph shows single family and total housing starts.
Total housing starts were at 872 thousand (SAAR) in September, up 15.0% from the revised August rate of 758 thousand (SAAR). Note that August was revised up from 750 thousand.
Single-family starts increased 11.0 to 603 thousand in September.
This was way above expectations of 765 thousand starts in September. This was partially because of the volatile multi-family sector, but single family starts were up sharply too - and above 600 thousand SAAR for the first time since 2008. Right now starts are on pace to be up about 25% from 2011.
• Existing Home Sales in September: 4.75 million SAAR, 5.9 months of supply
This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.
Sales in September 2012 (4.75 million SAAR) were 1.7% lower than last month, and were 11.0% above the September 2011 rate.
According to the NAR, inventory declined to 2.32 million in September down from 2.40 million in August. Inventory is not seasonally adjusted, and usually inventory increases from the seasonal lows in December and January to the seasonal high in mid-summer.
This graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.
Inventory decreased 20.0% year-over-year in September from September 2011. This is the 19th consecutive month with a YoY decrease in inventory. Months of supply declined to 5.9 months in September.
This was at expectations of sales of 4.75 million. For existing home sales, the key number is inventory - and the sharp year-over-year decline in inventory is a positive for housing.
• Retail Sales increased 1.1% in September
On a monthly basis, retail sales were up 1.1% from August to September (seasonally adjusted), and sales were up 5.4% from September 2011.
Sales for August were revised up to a 1.2% increase (from 0.9% increase).
This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).
Retail sales are up 24.6% from the bottom, and now 9.0% above the pre-recession peak (not inflation adjusted)
Excluding gasoline, retail sales are up 20.9% from the bottom, and now 8.6% above the pre-recession peak (not inflation adjusted).
This graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.
Retail sales ex-gasoline increased by 5.3% on a YoY basis (5.4% for all retail sales). Retail sales ex-autos increased 1.1% in September.
This was above the consensus forecast for retail sales of a 0.7% increase in September, and above the consensus for a 0.5% increase ex-auto.
• Industrial Production increased 0.4% in September, Capacity Utilization increased
From the Fed: "Capacity utilization for total industry moved up 0.3 percentage point to 78.3 percent, a rate 2.0 percentage points below its long-run (1972--2011) average."
This graph shows Capacity Utilization. This series is up 11.5 percentage points from the record low set in June 2009 (the series starts in 1967).
Capacity utilization at 78.3% is still 2.0 percentage points below its average from 1972 to 2010 and below the pre-recession level of 80.6% in December 2007.
Note: y-axis doesn't start at zero to better show the change.
The second graph shows industrial production since 1967.
Industrial production increased 0.4 percent in September to 97.0. This is 16% above the recession low, but still 3.7% below the pre-recession peak.
The consensus was for Industrial Production to increase 0.2% in September, and for Capacity Utilization to increase to 78.3%. IP was slightly above expectations (some bounce back from shut downs related to Hurricane Isaac) and Capacity Utilization was at expectations. Overall Industrial Production has moved sideways this year.
• Key Measures show low inflation in September
This graph shows the year-over-year change for four key measures of inflation. On a year-over-year basis, the median CPI rose 2.3%, the trimmed-mean CPI rose 1.9%, and core CPI rose 2.0%. Core PCE is for August and increased 1.6% year-over-year.
On a monthly basis, two of these measure were above the Fed's target; trimmed-mean CPI was at 2.6% annualized, median CPI was at 2.6% annualized. However core CPI increased 1.8% annualized, and core PCE for August increased 1.3% annualized. These measures suggest inflation is close to the Fed's target of 2% on a year-over-year basis.
The Fed's focus will probably be on core PCE and core CPI, and both are at or below the Fed's target (year-over-year and on a monthly basis).
• Weekly Initial Unemployment Claims increase sharply to 388,000
The DOL reports:
In the week ending October 13, the advance figure for seasonally adjusted initial claims was 388,000, an increase of 46,000 from the previous week's revised figure of 342,000. The 4-week moving average was 365,500, an increase of 750 from the previous week's revised average of 364,750.The previous week was revised up from 339,000.
The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 365,500. The 4-week average has mostly moved moving sideways this year, but is now near the cycle bottom.
The large swings over the last two weeks were related to timing and technical factors, and is a reason to use the 4-week average.
Weekly claims were higher than the consensus forecast of 365,000.
• Regional Fed Surveys were mixed
The Philly Fed manufacturing index showed expansion in October after five consecutive months of contraction. From the Philly Fed: October Manufacturing Survey: "Firms responding to the October Business Outlook Survey reported a modest improvement in business activity this month. ... The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased 8 points, to 5.7, marking the first positive reading since April."
Earlier in the week, the NY Fed reported: "The October Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to decline for a third consecutive month. The general business conditions index increased four points but remained negative at -6.2."
Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through October. The ISM and total Fed surveys are through September.
The average of the Empire State and Philly Fed surveys increased in October but was still slightly negative. This suggests another weak reading for the ISM manufacturing index - but maybe slightly better than last month.