by Calculated Risk on 4/26/2019 08:54:00 AM

Investment was weak in Q1 (although private inventories increased).   Also personal consumption expenditures (PCE) was weak (only increased at a 1.2% annual rate).

The first graph below shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter trailing average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

In the graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.

The dashed gray line is the contribution from the change in private inventories.

Click on graph for larger image.

Residential investment (RI) decreased in Q1 (-2.8% annual rate in Q1).  Equipment investment increased slightly at a 0.2% annual rate, and investment in non-residential structures decreased at a 0.8% annual rate.

On a 3 quarter trailing average basis, RI (red) is down slightly, equipment (green) is slightly positive, and nonresidential structures (blue) is down slightly.

Recently RI has been soft, but the decrease is fairly small.

I'll post more on the components of non-residential investment once the supplemental data is released.

The second graph shows residential investment as a percent of GDP.

Residential Investment as a percent of GDP decreased in Q1, however RI has generally been increasing.  RI as a percent of GDP is only just above the bottom of the previous recessions - and I expect RI to continue to increase further in this cycle.

The increase is now primarily coming from single family investment and home remodeling.

I'll break down Residential Investment into components after the GDP details are released.

Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

The third graph shows non-residential investment in structures, equipment and "intellectual property products".  Investment in equipment and  non-residential structures - as a percent of GDP - declined slightly.

by Calculated Risk on 4/26/2019 08:34:00 AM

From the BEA: Gross Domestic Product, First Quarter 2019 (Advance Estimate)

Real gross domestic product (GDP) increased at an annual rate of 3.2 percent in the first quarter of 2019, according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2018, real GDP increased 2.2 percent....

The increase in real GDP in the first quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, state and local government spending, and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased. These contributions were partly offset by a decrease in residential investment.

The acceleration in real GDP growth in the first quarter reflected an upturn in state and local government spending, accelerations in private inventory investment and in exports, and a smaller decrease in residential investment. These movements were partly offset by decelerations in PCE and nonresidential fixed investment, and a downturn in federal government spending. Imports, which are a subtraction in the calculation of GDP, turned down.
emphasis added

The advance Q1 GDP report, with 2.6% annualized growth, was above expectations.

Personal consumption expenditures (PCE) increased at 1.2% annualized rate in Q1, down from 3.2% in Q4.   Residential investment (RI) decreased 2.8% in Q1. Equipment investment increased at a 0.2% annualized rate, and investment in non-residential structures decreased at a 0.8% pace.

I'll have more later ...

by Calculated Risk on 4/25/2019 08:25:00 PM

From Goldman Sachs today on Q1 GDP:

We boosted our Q1 GDP forecast by two tenths to +2.6% (qoq ar) ahead of tomorrow’s advance release, reflecting the firm pace of durable inventory growth and the surprising rebound in commercial aircraft shipments in March.
emphasis added

Friday:
• At 8:30 AM ET, Gross Domestic Product, 1st quarter 2019 (Advance estimate). The consensus is that real GDP increased 2.0% annualized in Q1, down from 2.2% in Q4.

• At 10:00 AM, University of Michigan's Consumer sentiment index (Final for April). The consensus is for a reading of 97.1.

by Calculated Risk on 4/25/2019 04:20:00 PM

A few brief excerpts from a Merrill Lynch research note:

We look for nonfarm payroll employment growth of 250k in the April Bureau of Labor Statistics (BLS) employment report, to be released on May 3rd. …

we think the strong job growth should put further downward pressure on the unemployment rate and look for it to decline to 3.7% from 3.8%. …

we look for wage growth to return back to the recent trend and forecast that average hourly earnings growth of 0.3% mom

by Calculated Risk on 4/25/2019 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Grew More Modestly

The Federal Reserve Bank of Kansas City released the April Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity grew more modestly, but expectations for future activity remained generally solid.

“Regional factory growth in April was a bit weaker than in March, but similar to previous months,” said Wilkerson. “About a third of firms noted that flooding and extreme weather had negatively affected their activity in recent months.”
...
The month-over-month composite index was 5 in April, down slightly from 10 in March but higher than 1 in February. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Growth eased slightly in factory production of both durable and nondurable goods, particularly food, machinery, electronic, and chemical products. Most month-over-month indexes slowed in April but remained positive, with production, shipments, order backlog, and employment all decreasing. In contrast, the new orders index edged higher from 4 to 10. Most year-over-year factory indexes fell in April, and the composite index eased from 27 to 22. The future composite index also moved lower from 22 to 11, as most future factory activity indexes eased somewhat.
emphasis added

Most of the regional surveys have shown slower growth in April than in March.

by Calculated Risk on 4/25/2019 10:10:00 AM

The Census Bureau released the Residential Vacancies and Homeownership report for Q1 2019.

This report is frequently mentioned by analysts and the media to track household formation, the homeownership rate, and the homeowner and rental vacancy rates.  However, there are serious questions about the accuracy of this survey.

This survey might show the trend, but I wouldn't rely on the absolute numbers.  The Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply or household formation, or rely on the homeownership rate, except as a guide to the trend.

"National vacancy rates in the first quarter 2019 were 7.0 percent for rental housing and 1.4 percent for homeowner housing. The rental vacancy rate of 7.0 percent was virtually unchanged from the rate in the first quarter 2018, but 0.4 percentage points higher than the rate in the fourth quarter 2018 (6.6 percent). The homeowner vacancy rate of 1.4 percent was 0.1 percentage point lower than the rate in the first quarter 2018 (1.5 percent), but not statistically different from the rate in the fourth quarter 2018.

The homeownership rate of 64.2 percent was virtually unchanged from the rate in the first quarter 2018, but 0.6 percentage points lower than the rate in the fourth quarter 2018 (64.8 percent)."

Click on graph for larger image.

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate decreased to 64.2% in Q1, from 64.8% in Q4.

I'd put more weight on the decennial Census numbers - given changing demographics, the homeownership rate has bottomed.

The HVS homeowner vacancy decreased to 1.4% in Q1.

Once again - this probably shows the general trend, but I wouldn't rely on the absolute numbers.

The rental vacancy rate increased to 7.0% in Q1.

The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey.

Overall this suggests that vacancies have declined significantly, and my guess is the homeownership rate has bottomed - and that the rental vacancy rate is close to the bottom for this cycle.

by Calculated Risk on 4/25/2019 08:34:00 AM

The DOL reported:

In the week ending April 20, the advance figure for seasonally adjusted initial claims was 230,000, an increase of 37,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 192,000 to 193,000. The 4-week moving average was 206,000, an increase of 4,500 from the previous week's revised average. The previous week's average was revised up by 250 from 201,250 to 201,500.
emphasis added

The previous week was revised up.

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 206,000.

This was well above the consensus forecast.

by Calculated Risk on 4/24/2019 07:26:00 PM

Thursday:
• At 8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 200 thousand initial claims, up from 192 thousand the previous week.

• At 8:30 AM: Durable Goods Orders for March from the Census Bureau. The consensus is for a 0.8% increase in durable goods orders.

• At 10:00 AM: the Q1 2019 Housing Vacancies and Homeownership from the Census Bureau.

by Calculated Risk on 4/24/2019 03:28:00 PM

Note: This appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Shows Second Monthly Gain in April

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), rose 0.5 percent in April on a three-month moving average (3MMA) basis, the second monthly gain after several weak months.
...
“The latest CAB signals gains in U.S. commercial and industrial activity through mid-2019, but at a slow pace,” said Kevin Swift, chief economist at ACC. “As a result, the recovery and expansion underway is likely to surpass the record of 120 months set during the 1990s. The CAB reading suggests that there are glimmers of hope for improving activity in the closing months of the year.”
...
Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added

Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

The year-over-year increase in the CAB suggests further gains in industrial production into 2019, but at a slow pace.

by Calculated Risk on 4/24/2019 10:58:00 AM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for March 2019. Over the past three months, the indexes increased in 44 states, decreased in five states, and remained stable in one, for a three-month diffusion index of 78. In the past month, the indexes increased in 37 states, decreased in eight states, and remained stable in five, for a one-month diffusion index of 58.
emphasis added

Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing by production workers, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

Click on map for larger image.

Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and all or mostly green during most of the recent expansion.

The map is mostly green on a three month basis, but there are some red and grey (unchanged) states.

Source: Philly Fed.

Note: For complaints about red / green issues, please contact the Philly Fed.

And here is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In March, 41 states had increasing activity (including minor increases).