New orders for durable goods fell 2.8 percent (nonannualized) in May following three consecutive monthly gains, including April’s estimate, which was revised a bit higher—from 0.6 percent to 1.1 percent. Orders for nondefense capital goods excluding aircraft more than reversed April’s 2.3 percent gain, falling 3.0 percent in May. Shipments continued to rise, posting a slight gain (0.4 percent), after last month’s strong 2.0 percent increase. Inventories grew by 0.2 percent, but the inventory-to-shipments ratio remained unchanged from 1.5 in April.
Existing single-family home sales fell 8.9 percent in May (annualized rate) after falling a combined 20.6 percent (annualized rate) over the previous two months. Since peaking in September 2005, existing single-family home sales have fallen in 13 out of 20 months and is down just over 17 percent. Over the same period, the median sales price of existing single-family homes has fallen 2.7 percent.
Single-family housing starts fell 3.4 percent (nonannualized rate) in May after increasing in each of the previous three months. The decline brings starts down 36.3 percent from their peak in January 2006. Permits for single-family homes continue to fall rapidly, dropping 1.8 percent (nonannualized rate) in May. Permits are now down 41.3 percent from their peak in September 2005.
Total retail sales rebounded from April’s 0.7 percent drop, rising 18.3 percent (annualized rate) in May. Retail sales growth excluding auto sales jumped 16.8 percent (annualized rate) during the month and is now up 4.6 percent on a year-over-year basis. Sales growth in May was broad based—even sales at building materials, garden equipment, and supply dealers, which has declined at an average monthly rate of 4.5 percent since the beginning of 2006, rebounded from their 23.7 percent decline in April, jumping 27.8 percent in May.
The Producer Price Index exceeded expectations, jumping 11.4 percent (annualized rate) in May, following three months of sharp producer price growth. Both food and energy contributed to the monthly growth in producer prices: The PPI excluding food and energy was up a more moderate 2.3 percent, after remaining unchanged in March and April. This increase reflected a broad-based rise in prices among core consumer goods, which rose 3.6 percent in May, after falling 1.4 percent in April.
The Consumer Price Index (CPI) surged 8.4 percent in May—its highest monthly growth rate since September 2005 (following Hurricane Katrina)—reflecting a brisk rise in food prices and surging energy prices. The core CPI inflation measures were considerably more favorable. The monthly growth in the core inflation measures continued to moderate a bit and decelerated from their longer-term trends. The core CPI was up a modest 1.8 percent. The median CPI fell to 1.0 percent, its slowest monthly growth rate in almost four years. And the monthly growth rate of the 16% trimmed-mean CPI dropped to 2.3 percent in May, below its 3-month, 6-month, and 12-month averages (2.7 percent, 2.9 percent, and 2.7 percent, respectively).
Industrial production inched down at a 0.5 percent annualized rate in May, following a 5.4 percent rise in April. Manufacturing output rose a mere 0.7 percent (annualized rate) during the month: Increases in nonmetallic mineral, primary metal, and computer and electronic parts production offset declines in machinery, electrical equipment, and motor vehicles and parts production. Manufacturing output is currently only 1.9 percent above year-ago levels.
The Consumer Sentiment Index dropped 4.6 points in June (from 88.3 in May to 83.7) and is at its lowest level since August 2006. Average inflation expectations also dropped in early June: Year-ahead average inflation expectations inched down from 4.3 percent to 4.1 percent, while expectations for inflation over the next five to ten years fell from 3.7 percent to 3.3 percent.
The nominal trade deficit decreased $3.9 billion in April after increasing a combined $5.6 billion in February and March. Export growth was weak, increasing a modest 2.3 percent (annualized), while imports dropped 20.6 percent. The decline in imports was led by a $1.5 billion decline in consumer goods and a $1.0 billion decline in auto-related imports. Imports of petroleum-related products were largely unchanged. Since reaching record highs last summer, the trade deficit has fallen steadily and is currently down about $9.0 billion.
The University of Michigan's Index of Consumer Sentiment, which has declined in five of the last six months, rose 1.2 points to 88.3 in May, reflecting modest improvement in both the current economic conditions and consumer expectation components. Short-term average inflation expectations in late May reached 4.3 percent, their highest level since last summer, while expectations of inflation over the next 5- to 10-years remained at 3.7 percent, a bit above the range in which they have generally fluctuated throughout the past decade.
Nonfarm business sector productivity was revised down from 1.7 percent to 1.0 percent as a result of the downward revision to GDP. Lower productivity growth combined with an upward revision to compensation per hour led to a substantial upward revision in unit labor costs from 0.6 percent to 1.8 percent. Although the four-quarter growth rate in unit labor costs is down from levels throughout 2006, it remains elevated from the average four-quarter growth rate over the past decade.
New orders for manufacturers fell short of expectations, rising 3.8 percent (annualized rate) in April, following an upwardly revised 61.2 percent surge in orders in March. The year-over-year growth rate of new orders, which had been negative over the past six months, rose to 1.0 percent during the month. Meanwhile, new orders excluding transportation orders rose 8.4 percent, following a 32.6 percent jump in March, reflecting strength in primary metals, fabricated metails, and electrical equipment orders that more than offset declines in computers, machinery, and nondurable goods.
The ISM manufacturing Index was virtually unchanged in May, rising 0.3 points to 55.0, its highest level in a year. The production and new orders indexes improved during the month: Both indexes rose to their highest levels in at least a year, reaching 58.3 and 59.6, respectively. The inventories index continued on a downward trend. The price index declined for the first time this year, falling 2 points, yet remains high at 71.0.
Real GDP growth in the first quarter of 2007 was revised down from 1.3 percent (annualized rate) to 0.6 percent, the smallest quarterly growth rate since the fourth quarter of 2002. The downward adjustment was primarily due to an upward revision to imports, from 2.3 percent to 5.7 percent (annualized rate), and a downward revision to private inventory investment, which was partly offset by an upward revision to personal consumption expenditures (from 3.8 percent to 4.4 percent).
Total private construction spending fell 0.1 percent in April after increasing 2.4 percent over the previous two months. A 1.5 percent increase in private nonresidential construction spending only partially offset a 1.0 percent decline in residential construction spending. Private residential construction spending has now fallen in 13 of the last 16 months and is down 15.4 percent since its peak in December 2005. Over the same period, nonresidential construction spending increased 22.3 percent.
According to the OFHEO House Price Index, home price appreciation slowed to its lowest quarterly growth rate in over a decade, slipping from 5.2 percent in the fourth quarter of 2006 to 1.8 percent in the first quarter of 2007. On a year-over-year basis, the rate of growth declined for a fifth straight quarter: Home prices are currently just 4.3 percent higher than year-ago levels.
Personal income fell 0.7 percent (annualized rate) in April, its first decline since August 2005 (during Hurricane Katrina). Wages and salaries declined for the first time in almost a year, falling 5 percent (annualized rate). This decline reflects the removal of an adjustment made by the Bureau of Economic Analysis to wages and salaries in the first quarter to reflect unusually large bonus payments and the exercise of stock options. Wages and salaries are up 5.2 percent from last year's level. Real consumer spending, which was essentially unchanged in March, rose at a 3.0 percent annualized rate in April, a bit down from the average monthly growth (3.6 percent) over the past year.
Like the Consumer Price Index (CPI), the Personal Consumption Expenditure Price Index (PCE) remained "elevated" in April, rising 3.6 percent following two months of gains of 5 percent or more. However, the core PCE was more encouraging--this inflation measure rose at a 1.4 percent annualized rate in April, down from its six-, nine-, and twelve-month trends. On a year-over-year basis, the core PCE inched down to 2.0 percent, its lowest 12-month growth rate since the beginning of 2006.
Nonfarm payroll employment exceeded expectations, rising by 157,000 in May. Employment growth in service-providing industries rose by 176,000 net jobs during the month, reflecting robust increases in education and health services (54,000), leisure and hospitality (46,000), and professional business service (32,000) payrolls. Goods-producing industries continued to soften, and job loss was entirely concentrated in the manufacturing sector (down 19,000). Reductions in manufacturing payrolls reflected ongoing weakness in the motor vehicles and parts sector: Almost half of manufacturing payroll reductions over the last 12 months have come from the motor vehicles and parts sector. So far, the average monthly job gain in 2007 is 133,000 jobs, down from the average monthly gain of 189,000 jobs in 2006.