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By HaleStewart February 18, 2018 8:38 am
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US Economic Week in Review: Some Disappointing Coincidental Numbers

            This was a mixed week for U.S. economic data.  One leading indicator – the 4-week moving average of unemployment claims – was positive.  But while the headline number for building permits was very strong (+7.4%), a huge jump in multi-unit structures (5+ unit permits rose 25%) were responsible for the increase.  1-unit structures were off 1.7%.   Retail sales were disappointingly weak and industrial production (which has been strong as of late) was also disappointing. 

Leading Indicators

            The 4-week moving average of initial unemployment claims continues to impress:

After hitting a multi-decade low last week, it rose modestly.  The only potential area of concern is in Michigan, where recent experience is just a tad above the last 5-years performance:

But the overall level and trend indicate the jobs market is on a very firm footing. 

            Turning to permits, the headline number was down by 1.3%.  This series, however, is in the middle of a strong uptrend, meaning this is just as likely a 1-off number:

There was a huge drop in Midwest permits, which was probably weather-related                 

            Retail sales disappointed; they were off .3% in January and December’s M/M reading was adjusted down to 0%.  This isn’t exactly the holiday shopping season we were hoping for – especially considering the strength in the jobs market.  However, this is a noisy data set.  When we look at the longer-term trend, it’s still positive:

 

The upper-left side shows the absolute value of retail sales, where, despite the disappointing two-month totals, the trend is still higher.  Looking at the longer-term perspective, this week’s data looks like a “blip” where consumers are simply taking a break from a period of faster activity.  The Y/Y percentage change (upper right chart) has dropped fairly sharply.     But this isn’t the first time we’ve seen a decline of that magnitude in the Y/Y figures.  We saw one just recently in 2017 and several others in 2013 and 2014.  The bottom chart shows the longer-term Y/Y data, which is trending between 2.5%-5% -- where it has been for the better part of the last six years.   And when we look at the 3, 6, and 12-month moving averages of the Y/Y percentage change in overall retail sales (bottom chart), the overall trend is still positive:

This doesn’t mean we should simply give the weak data a pass, however.  There are some areas of weakness.  Auto sales are lower:

The Y/Y percentage change (top chart, right) is now near a 5-year low.  The bottom chart shows that car and light truck sales have probably topped out for now – and potentially for this expansion.  Restaurant sales are weaker:

While they are still increasing on an absolute level (left chart), the Y/Y percentage change is also near a 5-year low.  And personal care and beauty store sales are also down:

These have only increased modestly since 2016 (left chart).  The Y/Y percentage change is nearly 0%.  Auto sales weakness is the most concerning.  Auto employment has a fairly large multiple, especially in a concentrated geographic area (the industrial Midwest).  While we blame weak restaurant sales on millennials proclivity to avoid dining, the absolute total of restaurant sales is in fact higher; the Y/Y data slowdown is more a function of math than lower overall activity.  And personal beauty care stores could just as easily be lower due to a shift from in-person to online buying.

            Industrial production was off .1%.  The following table from the release shows the two ways the Fed breaks the data down:

While the major market group (top panel) advanced slightly (+.1%), a large drop in construction combined with modest declines in defense, business supplies, and materials kept growth modest.  Turning to the industry groups (bottom panel), manufacturing was flat and utilities advanced a bit.  But mining dropped sharply.  Industrial production is a fairly volatile series.  Other data, such as the ISM manufacturing index and Markit surveys – confirm that this month’s report was more than likely a one-off.

     Next week is light on data; only existing home sales and the Conference Board's numbers come out.  There are, however, a number of Fed speeches to read.  And, the Fed will release their latest minutes.

In 2009, F. Hale Stewart, JD. LL.M. graduated magna cum laude from Thomas Jefferson School of Law’s LLM Program.  He is the author of three books: U.S. Captive Insurance LawCaptive Insurance in Plain English and The Lifetime Income Security Solution.  He also provides commentary to the Tax Analysts News Service, as well as economic analysis to TLRAnalytics and the Bonddad Blog.  He is also an investment adviser with Thompson Creek Wealth Advisors. 

           

 

  

 

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