Note: for changes to the data release calendar related to the partial government shutdown, please see the “On the radar” from February 10.
In the February 4 week, first-tier economic data was scanty. However, the arrival of some of the backlogged reports was welcome. It is a little hard to discern the underlying picture of the economy behind the fog left by the shutdown. Some of the data is too old to help in providing a look at present conditions and some is obscured by short-term impacts from the closure and the arrival of the intensely cold weather late in January. Chair Jerome Powell’s assessment of a good economy that faces some heightened uncertainties is probably a realistic one. If the government funding impasse is settled, if trade negotiations with China are concluded on a positive note, if the global economy does not slip further into sluggish growth, and if there are no fresh geopolitical shocks, the US should be fine. No single one is likely to derail the long expansion, but a combination might.
On Tuesday, The ISM Non-Manufacturing Index for January was down to 56.7 from 58.0 in December. This was a bit below expectations, but not enough to be a big market disappointment. Comments from survey respondents pointed to the federal government partial closure as a large reason for reduced business activity and new orders. This could well rebound in February, so a one-month slowing to a still moderate pace of expansion was not alarming.
Monday saw the release of two months’ worth of data on sales of motor vehicles. The January total of all motor vehicles fell to 16.6 million units (SAAR) from 17.5 million in December which was close to the 17.4 million in November. Replacement of motor vehicles damaged and destroyed in natural disasters in September, October, and into November probably ramped up sales in the final months of 2018. The deceleration in January is likely in response to some sales being moved forward and demand being depleted. The good news for the retail sales data is that sales of motor vehicles remain strong in the light truck category – including minivans, SUVs, and crossovers – that are generally more expensive than passenger cars and should help boost the dollar value of retail spending.
Another reason for strong sales of light trucks was the rapid decline in gasoline prices that cored in November and December that make owning a less fuel-efficient vehicle more affordable. Prices have flattened out in January, but the cost per gallon is still relatively low.
Initial jobless claims in the week ended February 2 declined 19,000 to 234,000, unwinding some of the 53,000 jump higher in the prior week that could be largely attributed to the federal government shutdown. That it was not completely retraced may be due to some lingering impacts for government contractors as they await payment or the signing of new agreements, and also the deep freeze that put outdoor jobs on hold.
The data on Productivity and Costs for the fourth quarter was limited to productivity in the manufacturing sector as that was the only information the BEA could provide to the Bureau of Labor Statistics for the preliminary report. Manufacturing productivity was up 1.3% quarter-over-quarter and up 0.7% compared to the fourth quarter 2017. Unit labor costs were not provided. The full data will be reported on Thursday, March 7 at 8:30 ET and will include revised data from the Current Employment Statistics program that was part of the January Employment Situation.
The catch-up reports from the Census Bureau in the week were for November. Numbers on International Trade in Goods and Services narrowed sharply (-$49.3 billion in November versus $55.7 billion in October) with exports falling 0.6%, while imports were down 2.9%. New orders for all factory goods were down 0.6% with nondurables (down 1.9% on petroleum costs) more than offsetting a mild up 0.7% for durable goods (unrevised from advance report). It will now be possible to better estimate for the fourth GDP report scheduled for Thursday, February 28 at 8:30. This is being called “Initial GDP” and will combine the advance and second estimate data.
The Fed’s Senior Loan Officer Survey for January 2019 showed that since the October report, conditions have responded to some increased risks with modest tightening of standards and terms for C&I loans and for most types of consumer lending. However, demand is also off with some C&I borrowers seeking out other lenders and consumers exhibiting less demand for credit. Both commercial and residential real estate lending was less active on higher mortgage rates and perceptions of a riskier outlook.
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