Lots of catching up to do here, so let’s go.
I never covered the January ISM Non-Manufacturing report, so let’s start there:
Economic activity in the non-manufacturing sector grew in January for the 85th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.
… The NMI® registered 56.5 percent which is 0.1 percentage point lower than the seasonally adjusted December reading of 56.6. This represents continued growth in the non-manufacturing sector at a slightly slower rate.
The Non-Manufacturing Business Activity Index decreased to 60.3 percent, 0.6 percentage point lower than the seasonally adjusted December reading of 60.9 percent, reflecting growth for the 90th consecutive month, at a slightly slower rate in January. The New Orders Index registered 58.6 percent, 2.1 percentage points lower than the seasonally adjusted reading of 60.7 percent in December.
The Employment Index increased 2 percentage points in January to 54.7 percent from the seasonally adjusted December reading of 52.7 percent. The Prices Index increased 2.9 percentage points from the seasonally adjusted December reading of 56.1 percent to 59 percent; indicating prices increased for the 10th consecutive month, at a faster rate in January.
According to the NMI®, 12 non-manufacturing industries reported growth in January. The non-manufacturing sector begins 2017 with a cooling-off in the rate of growth month-over-month. The sector still reflects strong growth. Respondents’ comments are mixed indicating both optimism and a degree of uncertainty in the business outlook as a result of the change in government administration.
The 12 non-manufacturing industries reporting growth in January — listed in order — are: Mining; Other Services; Utilities; Health Care & Social Assistance; Finance & Insurance; Public Administration; Accommodation & Food Services; Retail Trade; Construction; Wholesale Trade; Professional, Scientific & Technical Services; and Management of Companies & Support Services. The five industries reporting contraction in January are: Real Estate, Rental & Leasing; Educational Services; Transportation & Warehousing; Information; and Arts, Entertainment & Recreation.
Backlog of Orders, the other primary future economic growth driver besides the already discussed Business Activity and New Orders figures was 50.0 percent, neither expanding nor contracting, up from 48.0 percent in December.
If there’s a downside here, it’s that one wouldn’t expect 5 industries to be in contraction with a relatively strong topside number. To me, that reinforces the idea that this index, as I believe is the case with ISM’s manufacturing’s index, has a positive selection bias.
Initial unemployment claims remain low, coming in at a seasonally adjusted 239K, 234K, and 246K for the past three reported weeks.
January’s retail sales, up a seasonally adjusted 0.4 percent and 0.8 percent ex-auto, blew away predictions of flatness and +0.3 percent, respectively. The year-over-year change in January was close to a genuinely healthy 5 percent. December was revised upward from 0.6 percent to 1.0 percent, which may foretell an increase in the final number for 4Q16 GDP when it’s released near the end of this month. People are spending like they believe things are getting better, though the justification for doing so is in my opinion remains pretty weak.
January’s Industrial Production is one such weakness. Released on Wednesday by the Federal Reserve, it told us that it fell by 0.3 percent, vastly disappointing expectations of between zero and 0.2 percent. December was revised down by 0.2 points, while November’s 0.7 percent decline was revised “up” to -0.2 percent. At least the manufacturing element has been positive in each of the past three months, but not by much. The overall 12-month change is a goose egg. The manufacturing change is 0.3 percent. Those figures are unacceptable.
The Business Inventories report shows some continued reduction in the dangerously high Inventory to Sales ratio (down from 1.41 during last year’s first quarter to 1.35 in December) – dangerous because if there’s a slowdown, a lot of merchandise is going to go through desperation markdowns or simply thrown away. That figure still needs to come down further.
Housing construction data was pretty strong. Seasonally adjusted building permits were the best since June 2015, and other than that flukey month, the best since August 2007. The raw number of permits (86,800) was the best January figure since 2007. The news on housing starts was mixed. Overall seasonally adjusted starts were down from December by 2.6 percent, but the single-family component was up almost 2 percent, and the raw number of single-family starts in January was also the best January since 2007.
Regional manufacturing data has improved significantly in the past few months. Philadelphia Fed, Richmond Fed, and Empire Manufacturing (New York) have moved into expansion. Dallas is in its 7th month of expansion. Kansas City showed expansion in December and January.
Overall, there’s reason for guarded optimism for an improved economy, but the light at the end of the tunnel remains distant.