New orders of durable goods rose 2.5 percent in February following January's dramatic 9.3 percent decline. The February orders number was just short of the 3.1 percent rise analysts had expected, and durable goods orders are now essentially unchanged from last year's level. Nondefense capital goods rose 9.5 percent last month, retaking some of the ground lost after January's 21.2 percent decline. However, much of this rebound reflected growth in aircraft orders. Nondefense capital goods orders excluding aircraft declined for the second consecutive month, falling 1.2 percent in February.
Real GDP growth in the fourth quarter of 2006 was revised upward from a preliminary estimate of 2.2 percent (annualized) to 2.5 percent. This uptick primarily reflected an upward revision to private inventory investment, which was partially offset by a downward revision to fixed investment, which fell 9.1 percent during the quarter. Corporate profits in the fourth quarter of 2006 declined an annualized 1.2 percent, down from their third quarter growth rate of 16.4 percent, but still up 18.3 percent over last year.
New home sales continued to decline in February, falling 3.9 percent during the month, following a 15.8 percent decline in January. The recent declines bring new home sales down 38.0 percent from their peak in July 2005 and to their lowest level since 2000. The months’ supply of new homes on the market jumped for the second straight month: At 8.1 months, inventory is nearly double its 10-year average.
Existing single-family home sales rose 3.7 percent in February after a 3.1 percent increase in January. The increase brought the annual sales pace up to 5.88 million, exactly halfway between the peak sales pace, seen in September 2005, and the trough, seen in September 2006. On a year-over-year basis, sales are still off 3.4 percent, and the median sales price is down 1.5 percent. Nonetheless, sales have increased in four of the past five months, and prices in two of the past three.
Retail sales were weak and fell below expectations in February, rising a mere 0.1 percent (nonannualized), while auto sales rose 0.9 percent. Excluding auto sales, retail sales declined 0.1 percent and reflected broad-based sales declines among furniture, electronics, building materials, clothing, and general merchandise stores. However, some of this retraction followed robust gains in previous months. Sales at gas stations and grocery stores rose, while sales among nonstore retailers jumped 2.7 percent. On a year-over-year basis, retail sales excluding auto sales are up 3.1 percent--their lowest 12-month growth rate in over three years.
As largely expected among economists and financial market participants, nonfarm business productivity growth in the fourth quarter of 2006 was revised downward to 1.6 percent from 3.0 percent (preliminary report), and productivity growth in the third quarter of 2006 was revised downward to -0.5 percent from -0.1 percent. Reduced output growth accounted for most of the downward revisions in fourth-quarter productivity growth. Perhaps more surprisingly, hourly compensation increased dramatically, rising from the advance extimate of 4.8 percent to 8.2 percent (annualized rate) in the fourth quarter of 2006. Lower productivity and higher compensation caused unit labor costs to increase significantly from the advance report, rising from 1.7 percent to 6.6 percent (annualized rate).
New orders for manufacturers came in below expectations, plunging 5.6 percent (nonannualized rate) in January to their lowest level since September 2005. Unfilled orders were virtually unchanged, at their highest level since first being reported in 1992, while inventories fell 0.2 percent, following 10 months of growth.
Payroll employment rose by 97,000 jobs in February, in line with market expectations, but down from an average 189,000 monthly gain during the previous three months. Construction employment dropped dramatically in February, losing 62,000 jobs--adverse weather conditions in many areas likely contributed to the decline. The service-providing sector continued to expand robustly: Health care employment continued to rise, adding 33,000 jobs during the month, while leisure and hospitality services added 31,000 jobs, and professional and business services added 29,000 jobs.
The nominal trade deficit fell $2.3 billion to $59.1 billion in January, as exports increased a moderate 1.1 percent and imports fell 0.5 percent. Despite a decline in crude oil prices, petroleum imports increased 5.4 percent, partially offsetting a 1.8 percent decline in all other imports. The trade deficit has now fallen in four of the last five months and is nearly $10 billion lower that its August 2006 peak of $68.9 billion.
The Reuters/University of Michigan Consumer Sentiment Index fell from 96.9 in January to 91.3 in February, primarily reflecting concerns among lower-income households about incomes and jobs. The recent stock market decline didn't have an impact on the February survey since few surveys were conducted after the decline. Meanwhile, year-ahead inflation expectations remained steady at 3.6 percent, while 5- to 10-year-ahead inflation expectations ticked down from 3.5 percent in January to 3.3 percent in February.
Real GDP growth in the fourth quarter of 2006 was generally consistent with expectations and was revised down from 3.5 percent (annualized) to 2.2 percent. Real GDP growth in the fourth quarter marked the third consecutive quarter that registered growth under its longer-term trend of about 3 percent. This revision reflected downward corrections to private inventory investment and goods consumption, and an upward revision to imports.
New home sales fell 16.6 percent (nonannualized) in January to a seasonally adjusted annualized rate of 937,000 units. The large decline in January more than reversed the gains seen throughout November and December combined, bringing new home sales to their lowest level since the beginning of 2003. Sales are currently down 31.5 percent from their peak in July 2005. The median sales price of new homes is down 2.1 percent from a year ago.
Personal income jumped 1.0 percent (nonannualized) in January, reflecting a sharp gain in wages and salaries, which was boosted by several special factors including bonus payments, gains from the exercise of stock options, federal government pay raises, and cost-of-living adjustments to several federal transfer payment programs. Real consumer spending rose a solid 0.3 percent. The Personal Consumption Expenditure Price Index (PCE) rose 2.5 percent (annualized rate), while the core PCE jumped 3.1 percent. On a year-over-year basis, the core PCE inched up from 2.2 percent to 2.3 percent.
The ISM Manufacturing Index rose to 52.3 in February from a three-year low of 49.3 in January. An index level above 50 indicates expansionary manufacturing activity. New orders, production, and employment contributed to growth, while the backlog of orders index jumped significantly. Inventories remained below 50, but climbed from January when the index hit a five-year low.
Total private construction spending fell 1.2 percent (nonannualized) in January, primarily reflecting a continued decline in private residential construction spending, which has fallen in 11 of the past 13 months. Since its peak in December 2005, private residential construction spending has declined 13.6 percent. Meanwhile, private nonresidential construction was virtually unchanged in January, after increasing 2.3 percent in December.
The OFHEO House Price Index increased at a 4.5 percent annualized rate in the fourth quarter of 2006, following a 4.2 percent rise in the third quarter of 2006. On a year-over-year basis, the rate of growth in home prices continued to decline for the fourth consecutive month: Home prices are now 5.9 percent higher than year-ago levels.