Written by Steven Hansen
This past week I have read too many posts claiming how industrial production growth for November had significantly improved – and things were looking up in the manufacturing sector. Yes, Industrial Production looks to improve in 2020 but it has nothing to do with November’s growth.
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Manufacturing was negatively affected in the previous month by the GM strike – and was positively affected in November when the strike ended. The strike began on 15 September 2019 and ended on 25 October 2019. But the following rolling average graphic which averages growth continued to decline in November.
Unadjusted Industrial Production year-over-year growth has been declining since mid-2018. But in 2020, industrial production and manufacturing’s growth will be compared to fairly poor 2019 growth. I expect better year-over-year growth in 2020.
And as for the transport sector’s growth – I expect that to improve also in 2020. Transportation and industrial sectors generally move in concert – not to mention that transport data in 2020 will also be compared to poor 2019 data.
I also expect the relatively good growth in the new residential housing sector to continue into 2020 – although existing home sales will continue to suffer from lack of inventory and price increases. I see no dynamic which would impede the ever-improving increase in building permits issued following the destruction of the housing market during the Great Recession unless interest rates were to rise significantly. Mortgage rates 1-2% (or more) higher than today could dampen homes sales.
Seasonally Adjusted Residential Building Permits
At his point, the tea leaves look like 2020 will be a better year economically than 2019.
Economic Forecast
The Econintersect Economic Index (December 2019) forecast fell again this month and is now in contraction. The continuing weakness of manufacturing, transport, and exports/imports continues to weigh on our economic forecast.
Although our index is now in negative territory similar to 2016, the penetration into negative territory is not severe or persistent – and our opinion is that our index is not suggesting an economic contraction at this point.
The fundamentals which lead job growth are now showing a significant slowing growth trend in the employment growth dynamics. We are currently predicting the jobs growth to be below the growth needed to maintain participation rates and the employment-population ratios at the current levels.
Economic Releases This Past Week
The following table summarizes the more significant economic releases this past week. For more detailed analysis – please visit our landing page which provides links to our complete analyses.
Overall this week:
new residential construction slowed but still moving at a fast pace
existing home sales slowed
industrial production improved because of the end of the GM strike
transport continues weak and in contraction
| Release | Potential Economic Impact | Comment |
|---|---|---|
| November Building Permits, Starts, and Completions | growth is still better than average | The headline residential building permits and completions improved relative to last month – but the year-over-year growth rate did slow. The backward revisions this month were slight. It is always difficult to understand the trends as the backward revisions sometimes reverse trends month-to-month. The nature of this industry normally has large variations from month-to-month (mostly due to weather) so the rolling averages are the best way to view this series. In summary, the rolling averages say this sector is in another growth spurt – however this month the permits rate of growth slowed. We consider this report worse than last month. Unadjusted Year-over-Year Change New Homes – Permits (blue line) and Construction Completions (red line)
|
| November Industrial Production | improved but in contraction | The headlines say seasonally adjusted Industrial Production (IP) improved month-over-month. Our analysis shows the three-month rolling average declined. Industrial production remains in a downtrend. From the Federal Reserve:
Note that manufacturing is in contraction year-over-year – and capacity utilization remained in expansion year-over-year. Consider this report better than last month. Comparing Seasonally Adjusted Year-over-Year Change of the Industrial Production Index (blue line) with Components Manufacturing (red line), Utilities (green line), and Mining (orange line)
|
| October JOLTS | in contraction but improved | The BLS Job Openings and Labor Turnover Survey (JOLTS) can be used as a predictor of future job growth, and the predictive elements show that the year-over-year growth rate of unadjusted private non-farm job openings improved but remains in contraction. The unadjusted data this month remained well below average for the rate of growth seen in the last year. With this low average rate of growth, JOLTS is predicting lower employment growth than we have seen over the past year. Jolts predicted the slowing of employment growth.
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| November Existing Home Sales | not enough homes for sale | The headline existing home sales declined relative to last month with the NAR stating “The new home construction seems to be coming to the market, but we are still not seeing the amount of construction needed to solve the housing shortage”. The rolling averages for existing home sales had been improving for the previous 5 months. The rolling averages are now in expansion. This report is weaker than last month.
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November Conference Board Leading Indicators | the data continues to show soft growth | The Conference Board Leading Economic Index (LEI) for the U.S was unchanged in November – and the authors say “While the six-month growth rate of the LEI remains slightly negative, the Index suggests that economic growth is likely to stabilize around 2 percent in 2020.”. This index remains on the low side of values seen since the Great Recession.
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| 3Q2019 GDP (third estimate) | no change to GDP | AThe third estimate of third-quarter 2019 Real Gross Domestic Product (GDP) was 2.1 % (unchanged from the second estimate). Headline GDP is calculated by annualizing one quarter’s data against the previous quarter’s data. A better method would be to look at growth compared to the same quarter one year ago. For 3Q2019, the year-over-year growth is now 2.1 % – down from 2Q2019’s 2.3 % year-over-year. So one might say that the rate of GDP growth decelerated by 0.2 % from the previous quarter. Real GDP Expressed As Year-over-Year Change
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| November Personal Income and Spending | consumption growth rate continues to trend down | The trend continues where income growth is outpacing consumption growth. However, this month there was an increase in the year-over-year growth rate for income, but expenditures’ growth was unchanged.
Seasonally Adjusted Spending’s Ratio to Income (a declining ratio means the consumer is spending less of its Income)
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| Surveys | consumer optimism remains relatively high | New York Fed Manufacturing – The Empire State Manufacturing Survey index marginally improved but barely remains expansion. Overall this survey remains below values seen in the last 2+ years. Key elements declined. I would consider this report worse than last month.
Philly Fed Manufacturing – The Philly Fed Business Outlook Survey declined but remains barely in expansion. Although the survey index declined, the key elements improved. Overall, this report was better than last month’s report.
Michigan Consumer Sentiment – The final University of Michigan Consumer Sentiment for December came in at 99.3 – up from the preliminary of 99.2 and up from November’s 96.8.
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| Movements | Definitely not positive news | Rail so far in 2019 has changed from a reflection of a strong economic engine to contraction. Currently, not only are the economic intuitive components of rail in contraction, but the year-to-date has slipped into contraction.
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Links To All Of Our Analysis This Past Week
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