The Personal Consumption Expenditure (PCE) price index rose 1.5 percent (annualized rate) in February, and the PCE price index excluding food and energy (core PCE) increased 1.3 percent. This comes on the heels of a substantial downward revision to January’s numbers. Due to the timing of the PPI report in January, the BEA was unable to incorporate PPI prices for several components of the PCE price index (such as physician’s prices, which fell at an annualized rate of 10.7 percent in January). As a result, January’s PCE price index was revised down from 4.5 percent to 3.6 percent. Also, core PCE was revised down from 3.7 percent to 2.7 percent. Over the past 12-months, PCE prices have risen 3.4 percent, while core PCE prices are up 2.0 percent.
Nominal personal income rose 5.8 percent (annualized rate) in February, following a revised 3.1 percent increase in January. Wages and salaries increased 3.9 percent during the month and are up 3.6 percent over the last 12 months. Disposable personal income increased 5.8 percent in February, in line with 2007’s average of 5.7 percent. Real (inflation-adjusted) personal consumption expenditures were unchanged in February, after posting a 1.5 percent gain last month. Spending on real durable goods rebounded, rising 2.5 percent after four consecutive decreases.
The University of Michigan’s Index of Consumer Sentiment slipped another 1.3 points to 69.5 in March, after falling 7.6 points to 70.8 in February. This is the lowest consumer sentiment has been since February 1992. The consumer expectations component continued to fall as well, decreasing from 62.4 to 60.1 during the month. The current economic conditions component actually improved slightly, up 0.4 point to 84.2. Short-term average inflation expectations surged in February, jumping up 0.7 percentage point to 4.6 percent. Longer-term (5-year to 10-year) average inflation expectations ticked down to 3.2 percent.
Real GDP, according to the final estimate by the BEA, was unchanged from both the preliminary and advance estimates, rising at an annualized rate of 0.6 percent in the fourth quarter. While the overall growth rate in GDP remained identical to the advance estimate, the underlying component performance changed. Personal consumption was revised up from the 2.0 percent of the advance release, to 2.3 percent in the final. After incorporating more complete information about the fourth quarter, net exports improved as well. Imports (which subtract from GDP) fell from 0.3 percent in the advance release to -1.4 percent in the final. Final exports rose 6.5 percent, an upward adjustment of 2.6 percentage points over the advance estimate. Offsetting these improvements to growth, both business and residential investment worsened with the revisions. Business fixed investment was adjusted down from 7.5 percent to 6.0 percent in the fourth quarter. Also, residential investment worsened, from -23.9 percent to -25.2 percent, according to the final estimate. Fourth-quarter corporate profits were released with the final estimate as well. Nominal pre-tax corporate profits decreased $52.9 billion during the quarter, following a $20.5 billion loss in the third quarter, the first back-to-back decrease in the series since the fourth quarter of 2000 and the first quarter of 2001.
New orders for durable goods fell 1.7 percent (nonannualized) in February, following a 4.7 percent decrease in January. Orders for nondefense capital goods excluding aircraft decreased 2.6 percent during the month, after a 1.8 percent loss last month. Despite this month’s negative number, the 12-month growth rate in nondefense capital goods excluding aircraft is still up 4.7 percent. Shipments of durable goods fell 2.8 percent in February but are up 1.9 percent over the past 12 months. Inventories continued to expand, rising 0.5 percent in February.
New home sales fell 1.8 percent in February, following a 1.6 percent decline in January. The good news in the report is that sale figures for the previous three months were revised up. Since November’s 13.0 percent drop, new single-family home sales are down a relatively modest 6.5 percent. The median sales price of new single-family homes increased to $244,100, which is down just 2.7 percent from a year ago. The inventory of new homes for sale relative to the current sales pace was unchanged at its cyclical peak of 9.8 months, but the actual number of homes on the market fell another 2.1 percent over the course of the month. At the end of February, there were 13.4 percent fewer new single-family homes on the market than a year ago.
The 10-city and the 20-city S&P/Case-Shiller Home Price Indexes fell 2.3 percent and 2.4 percent, respectively, in January. The declines in both series were the largest on record (the 10-city index goes back to 1987, while the 20-city index begins in 2000). On a year-over-year basis, prices are off 11.4 percent according to the 10-city index, and 10.7 percent according to the 20-city index.
The Office of Federal Housing Enterprise and Oversight (OFHEO) monthly home price index shows a 1.1 percent decline in January and a 3.0 percent decline from a year ago. The monthly OFHEO index is relatively new and only contains data only back to July 2006.
Existing single-family home sales increased 2.8 percent in February, following a modest 0.7 percent increase in January. February’s gain was the largest increase in the series in 12 months. However, sales are still down 22.9 percent since last February. The inventory of existing single-family homes for sale fell in both actual units and in terms of the months of supply at the current sales pace, but both measures still remain elevated.
Total housing starts fell a modest 0.6 percent in February, due in large part to a 14.4 percent increase in multi-unit starts. The less volatile single-family series fell 6.7 percent over the month to a new cyclical low. Permits for single-family homes, another indicator of new housing activity, fell 6.2 percent in February. The multi-unit permits series did not fare as well as its counterpart in starts, falling10.8 percent over the month.
The Producer Price Index (PPI) increased 4.2 percent (annualized rate) in February, following a 12.6 percent jump in January. The index's 12-month growth rate is now at 6.8 percent, the fifth consecutive month it has been above 6 percent. Maybe even more disconcerting is the fact that producer prices for finished goods excluding food and energy (core PPI) rose 6.8 percent during the month and have been rising fairly consistently from a low of 0.7 percent in September 2007. Over the past 12 months, core PPI prices have risen 2.5 percent. Further back on the production line, both core intermediate goods prices and crude goods prices were elevated as well, advancing 7.9 percent and 47.0 percent, respectively.
Industrial production fell 6.3 percent (annualized rate) in February, following a 1.1 percent increase in January. Much of the decrease was due to a 36.7 percent decrease in utilities output; however, manufacturing output declined as well, falling 3.0 percent during the month. Over the past 12 months, production has increased 1.0 percent, its lowest 12-month growth rate since November 2003. Total industry capacity utilization fell from 81.5 percent in January, to 80.9 percent in February.
The Consumer Price Index (CPI) was virtually unchanged from January, rising only 0.3 percent at an annualized rate in February. This moderation—from increases of 4.8 percent in January and 4.4 percent in December—reflected a modest increase in food prices that was offset by a decrease in energy prices, and a slowdown in price appreciation among all items less food and energy. The CPI excluding food and energy (core CPI) was unchanged during the month and has increased 2.3 percent over the past 12 months. The median and 16 percent trimmed-mean CPI measures rose 1.4 percent and 1.0 percent, respectively in February. This is in stark contrast to last month, when both measures of underlying inflation rose in excess of 4 percent. Over the past 12 months, the median CPI has increased 3.0 percent, while the 16 percent trimmed-mean CPI has risen 2.8 percent.
Total retail sales fell 6.5 percent (annualized rate) in February, surprising forecasts of slight growth. Retail sales, excluding motor vehicles and parts decreased 2.6 percent during the month. Nine out of thirteen major components of retail sales had negative sales growth in February. The bright spots were health and personal care stores (+6.1 percent), clothing stores (+2.0 percent), sporting goods and hobby stores (+4.7 percent), and general merchandise stores (+4.8 percent). Sales at motor vehicle and parts dealers fell 20.9 percent, and are now 4.2 percent below sales from a year ago.
Import prices increased 1.9 percent (annualized rate) in February, after surging 21.7 percent in January. Imported petroleum prices fell 16.8 percent, helping to offset a 7.9 percent increase in nonpetroleum imports. On a year-over-year basis, nonpetroleum imports are up 4.6 percent, their largest growth rate since 1995. Export prices remained elevated, rising 11.5 percent during the month, following a 15.0 percent jump in January. Over the last 12 months, export prices have risen 6.9 percent.
The nominal trade balance was virtually unchanged in January, as a 1.6 percent increase in exports was offset by a 1.3 percent increase in imports, resulting in a very modest $0.3 billion increase in the trade deficit. The increase in imports was led by a 10.6 percent nominal increase in petroleum products. In real terms, petroleum imports still increased 8.8 percent in January, but they were only up 0.4 percent from a year ago. Export growth continued to remain strong in January, as exports increased for the eleventh straight month. At 16.6 percent, the 12-month growth rate in exports is at its highest level since 2004.
Nonfarm payrolls fell by 63,000 in February, their largest drop in five years, following a downwardly revised 22,000 job loss in January. Employment in goods-producing industries, which has been falling steadily since March 2007, decreased by 89,000 jobs, with 52,000 coming from manufacturing employment. Over the past 12 months, manufacturing payrolls have lost 299,000. The service sector faired better in February, increasing by 26,000 jobs. Education and health services gained 30,000 workers, while government payrolls added 38,000. Not everything was rosy on the service side, as retail trade fell by 34,000 jobs, financial activities pared back 12,000 workers, and professional and business services lost 20,000 (with a 28,000 drop in temporary help services).
Nonfarm business sector productivity (output per hour of all persons) was revised up 0.1 percentage point to 1.9 percent in the fourth quarter of 2007. The slight upward revision was due to a downward adjustment to hours, which was partially taken back by a small downward revision to output. Unit labor costs, a measure some use to track the onset of inflationary pressures, were also revised up, rising to 2.6 percent from -2.7 percent in the third quarter. This release also incorporates an annual benchmark revision from the BLS, which left productivity higher than was previously reported, up from 1.6 percent to 1.8 percent for 2007. Also, while real hourly compensation increased from a 1.8 percent gain during the year, to a 2.3 percent increase as a result of the benchmark, the increase in unit labor costs remained at 3.1 percent for 2007.
New orders for manufactured goods fell 2.5 percent (nonannualized rate) in January, more than reversing December’s 2.0 percent gain. New orders for durable goods excluding aircraft decreased 1.5 percent during the month, following a 5.2 percent upward spike in December, but are still up 5.2 percent over the last 12 months. Shipments of manufactured goods rebounded from December’s 0.4 percent decrease, rising 1.1 percent in January. Inventories continued to accumulate in January, rising 1.3 percent, their largest increase in three years.
Total private construction spending fell 2.2 percent in January, its largest decline in 14 years. The decline was led lead by a 3.0 percent drop in private residential construction, which is the second largest drop in the series since it began declining in March 2006. For the first time in 16 months, the nonresidential side contributed to decline in private construction, as it fell 1.2 percent in January. Over the past 23 months, nearly 40 percent of the decline in private residential construction has been offset by gains on the nonresidential side.
The ISM manufacturing index fell 2.4 points to 48.3, dipping into contractionary territory for the second time in three months. The production component decreased 4.5 points to 50.7. The employment index continued its decline, falling to 46.0 during the month, down from a recent high of 51.8 in October. The new orders index fared the best out of all the major components of the ISM manufacturing index, diminishing only by 0.4 point to 49.1 in February.