Strong retail sales boost optimism before U.S. election, but it may be short lived

By Jonnelle Marte

(Reuters) – In an ordinary presidential election, Friday’s retail sales report would have been a dream for an incumbent like Republican President Donald Trump. Headline sales topped expectations by a wide margin and spending was up from August in all but one of the major categories.

Still, this is no ordinary election. Despite the gains seen in September, spending in key sectors that suffered massive job losses during the pandemic, such as restaurants and clothing stores, remain deeply below last year’s levels.

The report from the Commerce Department offered a reminder that millions of Americans are still out of work, leaving them with less money to spend on dinners out or new outfits. Without a vaccine or effective treatment, many consumers also hesitate to head out to stores or restaurants where they may be exposed to the virus.

On the one hand, the retail report showed that overall retail spending is now above pre-pandemic levels. That is a sign that some people may have spent the $300 supplement the federal government temporarily added to unemployment benefits. Other people may have boosted spending after being called back to work.

If more people continue to see their finances improve, that could bode well for the economy and for the overall outlook people carry when they vote in the Nov. 3 election.

But some economists are also questioning whether the increase in spending seen in September will continue with virus infections rising, job growth stalling and government aid fading.

Enhanced unemployment benefits and direct cash payments distributed as part of the CARES Act made it possible for jobless Americans to boost spending and pad their savings. But much of those savings were spent in August after the supplement to unemployment benefits expired, according to a study released Friday by the JPMorgan Chase Institute.

The White House and Congress have yet to reach a deal on another package. Job growth is also slowing and the number of Americans filing new claims for jobless benefits reached a two-month high last week.

“The progress we’ve made, which has been better than expected, may be slowing,” said John Briggs, head of strategy for the Americas at NatWest Markets. “I don’t know how much it hurts Trump’s chances, but I don’t see how it can help him.”

(Reporting by Jonnelle Marte; Editing by Andrea Ricci)

U.S. new home sales vault to near 14-year high in August

WASHINGTON (Reuters) – Sales of new U.S. single-family homes increased to their highest level in nearly 14 years in August, suggesting the housing market continued to gain momentum even as the economy’s recovery from the COVID-19 recession appears to be slowing.

The Commerce Department said on Thursday new home sales rose 4.8% to a seasonally adjusted annual rate of 1.011 million units last month, the highest level since September 2006. New home sales are counted at the signing of a contract, making them a leading housing market indicator.

July’s sales pace was revised upward to 965,000 units from the previously reported 901,000 units. Economists polled by Reuters had forecast new home sales, which account for about 14% of housing market sales, slipping 1% to a rate of 895,000-units.

The report followed on the heels of data this week showing sales of previously owned homes near a 14-year high in August.

The housing market is being powered by record-low mortgage rates and a pandemic-fueled migration to suburbs and low-density areas in search of more spacious accommodation as many people work from home. Unemployment has disproportionately affected low-wage workers in the services sector, who are typically young and renters.

In August, new home sales rose 5.0% in the Northeast. They jumped 13.4% in the South, which accounts for the bulk of transactions. But sales fell 1.7% in the West and decreased 21.4% in the Midwest. The median new house price fell 4.3% to $312,800 in August from a year ago. New home sales last month were concentrated in the $200,000 to $499,000 price range.

There were 282,000 new homes on the market last month, down from 291,000 in July. At August’s sales pace it would take 3.3 months to clear the supply of houses on the market, down from 3.6 months in July. About 71% of the homes sold last month were either under construction or yet to be built.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

U.S. Justice Department to propose changes to internet platforms immunity: source

By David Shepardson and Ayanti Bera

WASHINGTON (Reuters) – The U.S. Justice Department will unveil later on Wednesday a proposal that seeks to limit legal protections for internet platforms on managing content, a person briefed on the matter confirmed.

The proposal, which takes aim at Facebook Inc, Twitter Inc and Alphabet Inc’s Google, would need congressional approval and is not likely to see action until next year at the earliest.

President Donald Trump in May signed an executive order that seeks new regulatory oversight of tech firms’ content moderation decisions and backed legislation to scrap or weaken the relevant provision in the 1996 Communications Decency Act, Section 230.

Trump will meet on Wednesday with a group of state attorneys general amid his criticism of social media companies. Twitter has repeatedly placed warning labels on Trump tweets, saying they have included potentially misleading information about mail-in voting.

Trump will meet with state attorneys general from Texas, Arizona, Utah, Louisiana, Arkansas, Mississippi, South Carolina and Missouri – like Trump, all Republicans – according to a person briefed on the matter.

“Online censorship goes far beyond the issue of free speech, it’s also one of protecting consumers and ensuring they are informed of their rights and resources to fight back under the law,” White House spokesman Judd Deere said on Monday.

Trump directed the Commerce Department to file a petition asking the Federal Communication Commission to limit protections under Section 230 after Twitter warned readers in May to fact-check his posts about unsubstantiated claims of fraud in mail-in voting. The petition is still pending.

A group representing major internet companies including Facebook, Amazon.com Inc and Google urged the FCC to reject the petition, saying it was “misguided, lacks grounding in law, and poses serious public policy concerns.”

The Wall Street Journal reported the planned Justice Department proposal earlier.

U.S. Commerce OKs exports on goods in transit to Hong Kong through August 28

WASHINGTON (Reuters) – The U.S. Commerce Department said Tuesday it will allow exports of some goods to Hong Kong through August 28 under existing license exceptions after it announced it was suspending those exceptions.

The department said it was taking the action because China imposed new security measures on Hong Kong that “undermine its autonomy and thereby increase the risk that sensitive U.S. items will be illegally diverted.”

The department said licenses will need to be obtained going forward, but shipments of items on Tuesday that were on the dock for loading or en route aboard a carrier may proceed to their destination.

(Reporting by David Shepardson, Editing by Franklin Paul)

U.S. construction spending increases to record high

WASHINGTON, (Reuters) – U.S. construction spending increased by the most in nearly two years in January, but the upbeat news is likely to be overshadowed by financial market fears that the fast-spreading coronavirus could tip the economy into recession.

The Commerce Department said on Monday that construction spending surged 1.8% to a record high of $1.369 trillion as investment in both private and public projects increased. Data for December was revised up to show construction outlays rising 0.2% instead of decreasing 0.2% as previously reported.

Economists polled by Reuters had forecast construction spending would increase 0.6% in January. Construction spending advanced 6.8% on a year-on-year basis in January.

The coronavirus epidemic, which has killed at least 3,000 people and infected more than 80,000, has left financial markets

fearing the end of the longest economic expansion on record, now in its 11th year.

U.S. stock indexes suffered their worst week since the 2008 global financial crisis last week as investors sold equities and bought U.S. Treasuries. The yield on the two-year Treasury note fell below 1% for the first time since 2016.

In January, spending on private construction projects jumped 1.5% to the highest level since February 2018, after gaining 0.1% in December. It was boosted by a 2.1% surge in spending on homebuilding after a 1.5% increase in December.

Residential construction is being supported by lower mortgage rates. Residential investment increased solidly in the second half of 2019, after contracting for six straight quarters, the longest such stretch since the last recession.

Spending on nonresidential structures, which includes manufacturing plant and mining exploration, shafts and wells, increased 0.8% in January. Spending on nonresidential structures fell 1.5% in December. The government in its fourth-quarter GDP report last week said spending on nonresidential structures contracted in 2019 by the most since 2016.

Outlays on private non-residential structures have been depressed by a manufacturing downturn due to trade tensions and cheaper energy products.

Investment in public construction projects increased 2.6% in January after gaining 0.6% in December.

Spending on state and local government construction projects surged 2.0% after rising 0.5% in December. Outlays on federal government construction projects soared 9.9% in January to the highest level since May 2012.

That followed a 1.5% increase in December.

((Reporting by Lucia Mutikani; Editing by Paul Simao))

U.S. economy slows in second quarter; consumer spending accelerates

FILE PHOTO: Shoppers carry bags of purchased merchandise at the King of Prussia Mall in King of Prussia, Pennsylvania, U.S., December 8, 2018. REUTERS/Mark Makela/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. economic growth slowed less than expected in the second quarter as a surge in consumer spending blunted some of the drag from declining exports and a smaller inventory build, which could further allay concerns about the economy’s health.

The fairly upbeat report from the Commerce Department on Friday will probably not deter the Federal Reserve from cutting interest rates next Wednesday for the first time in a decade, given rising risks to the economy’s outlook, especially from a trade war between the United States and China.

Despite the better-than-expected GDP reading, business investment contracted for the first time in more than three years and housing contracted for a sixth straight quarter. Fed Chairman Jerome Powell early this month flagged business investment and housing as areas of weakness in the economy.

But robust consumer spending, together with a strong labor market, further diminish expectations of a 50 basis point rate cut and could raise doubts about further monetary policy easing this year.

Gross domestic product increased at a 2.1% annualized rate in the second quarter, the government said. The economy grew at an unrevised 3.1% pace in the January-March quarter. Economists polled by Reuters had forecast GDP increasing at a 1.8% rate in the second quarter.

The economy has expanded for 10 years, the longest run in history. Activity is slowing largely as the stimulus from the White House’s $1.5 trillion tax cut package fades. The tax cuts together with more government spending and deregulation were part of measures adopted by the Trump administration to boost annual economic growth to 3.0% on a sustained basis.

The economy grew 2.9% in 2018 and growth this year is expected to be around 2.5%. Economists estimate the speed at which the economy can grow over a long period without igniting inflation at between 1.7% and 2.0%.

The GDP report showed a pickup in inflation last quarter, though the trend remained benign. A gauge of inflation tracked by the Fed increased at a 1.8% rate last quarter, just below the U.S. central bank’s 2% target. Inflation increased 1.5% compared the second quarter of 2018.

The government also published revisions to GDP data from 2014 through 2018. The updated data showed growth in the second and third quarters of last year was not as robust as previously estimated, and the economy grew much more slowly in the fourth quarter than had been reported in March. Revised price data showed moderate inflation last year.

The dollar extended gains versus a basket of currencies after the data, while prices for U.S. Treasury fell. U.S. stock index futures pared gains.

STRONG CONSUMER SPENDING

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, surged at a 4.3% rate in the second quarter, the fastest since the fourth quarter of 2017. Consumer spending grew at a 1.1% rate in the first quarter.

Some of the slowdown in consumer spending early in the year was blamed on a 35-day partial shutdown of the government.

Spending is being supported by the lowest unemployment rate in nearly 50 years, which is lifting wages.

The jump in consumer spending helped to offset some of the weakness from exports, which fell at a 5.2% rate last quarter, in a reversal of the strong growth experienced in the first quarter.

The plunge in exports caused a deterioration of the trade deficit. As result, trade subtracted 0.65 percentage point from GDP growth last quarter after contributing 0.73 percentage point in the January-March period.

The acceleration in consumer spending also helped businesses to whittle down an inventory overhang, leading to a smaller inventory build.

Inventory investment increased at a $71.7 billion rate, slowing from the first quarter’s $116.0 billion pace of increase. While inventories cut 0.86 percentage point from GDP growth in the second quarter, the smaller pace of stock accumulation is a potential boost to manufacturing.

Businesses have been placing fewer orders with factories while working through stockpiles of unsold goods, which contributed to undercutting manufacturing production. Inventories added 0.53 percentage point to GDP growth in the first quarter.

Business investment fell at a 0.6% rate in the second quarter, the first contraction since the first quarter of 2016. It was pulled down by a 10.6% pace of decline in spending on structures, which includes oil and gas well drilling.

Investment in structures was depressed by decreases in commercial and healthcare, and mining exploration, shafts and wells. Spending on intellectual products, including research and development, increased. Business spending on equipment rebounded at a 0.7% rate in the second quarter. It is seen constrained by design problems at aerospace giant Boeing.

Boeing reported its biggest-ever quarterly loss on Wednesday due to the spiraling cost of resolving issues with its 737 MAX airplane and warned it might have to shut production of the grounded jet completely if it runs into new hurdles with global regulators to getting its best-selling aircraft back in the air.

The plane was grounded worldwide in March after two fatal crashes in Ethiopia and Indonesia. Production of the aircraft has been reduced and deliveries suspended.

Growth in government investment accelerated, notching its best performance in 10 years, but spending on homebuilding contracted for a sixth straight quarter.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

U.S. factory orders post largest increase in seven months

FILE PHOTO: Line workers spot weld parts of the frame on the flex line at Nissan Motor Co's automobile manufacturing plant in Smyrna, Tennessee, U.S., August 23, 2018. REUTERS/William DeShazer/File Photo

WASHINGTON (Reuters) – New orders for U.S.-made goods rose by the most in seven months in March amid strong demand for transportation equipment, but rising inventories and a marginal rebound in unfilled orders pointed to slower manufacturing activity.

Factory goods orders rebounded 1.9 percent, also boosted by orders for computers and electronic products, the Commerce Department said on Thursday. That was the largest rise since August 2018. Data for February was revised up to show factory orders slipping 0.3 percent instead of falling 0.5 percent as previously reported.

Economists polled by Reuters had forecast factory orders would rise 1.5 percent in March. Factory orders increased 1.7 percent compared to March 2018.

Inventories at factories increased 0.4 percent in March. The stock of unsold goods has increased in 28 of the last 29 months. Unfilled others at factories rose 0.2 percent in March after falling 0.2 percent in February.

Manufacturing, which accounts for about 12 percent of the economy, is being pressured by sluggish global demand, continued uncertainty over trade talks between the United States and China, and a large inventory build. Fading depreciation provisions for capital equipment as a result of the Trump administration’s tax restructuring has also slowed business investment, further squeezing manufacturing.

A survey on Wednesday showed a measure of national factory activity fell to a 2-1/2-year low in April.

In March, orders for machinery edged up 0.1 percent after falling 0.9 percent in the prior month. Orders for electrical equipment, appliances and components rose 0.5 percent while those for computers and electronic products jumped 2.2 percent.

Transportation equipment orders surged 7.0 percent in March after falling 2.9 percent in the prior month. Orders for civilian aircraft and parts soared 31.0 percent. Motor vehicles and parts orders increased 1.5 percent.

The Commerce Department also said March orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans on equipment, increased 1.4 percent instead of the 1.3 percent jump reported last week.

Orders for these so-called core capital goods were unchanged in February. Shipments of core capital goods, which are used to calculate business equipment spending in the gross domestic product report, were unchanged in March rather than slipping 0.2 percent as previously reported.

Core capital goods shipments rose 0.3 percent in February. Business spending on equipment spending stalled in the first quarter.

(Reporting by Lucia Mutikani Editing by Paul Simao) ((Lucia.Mutikani@thomsonreuters.com; 1 202 898 8315; Reuters Messaging: lucia.mutikani.thomsonreuters.com@reuters.net)

U.S. job growth cools as labor market nears full employment; wages rise

Job seekers line up to apply during "Amazon Jobs Day," a job fair being held at 10 fulfillment centers across the United States aimed at filling more than 50,000 jobs, at the Amazon.com Fulfillment Center in Fall River, Massachusetts, U.S., August 2, 2017.

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job growth slowed more than expected in December amid a decline in retail employment, but a pick-up in monthly wage gains pointed to labor market strength that could pave the way for the Federal Reserve to increase interest rates in March.

Nonfarm payrolls increased by 148,000 jobs last month after surging by 252,000 in November, the Labor Department said on Friday. Retail payrolls decreased by 20,300 in December, the largest drop since March, despite reports of a strong holiday shopping season.

The unemployment rate was unchanged at a 17-year low of 4.1 percent. Economists polled by Reuters had forecast payrolls rising by 190,000 in December. The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population.

“We do not think that today’s employment report will keep the Federal Reserve from tightening again at the March policy meeting, given other strong recent economic data,” said David Berson, chief economist at Nationwide in Columbus, Ohio.

Job growth surged in October and November after being held back in September by back-to-back hurricanes, which destroyed infrastructure and homes and temporarily dislocated some workers in Texas and Florida.

Taking some sting out of the moderation in job gains, average hourly earnings rose 9 cents, or 0.3 percent, in December after a 0.1 percent gain in the prior month. That lifted the annual increase in wages to 2.5 percent from 2.4 percent in November.

Prices of U.S. Treasuries were mostly flat while the U.S. dollar <.DXY> was slightly stronger against a basket of currencies. U.S. stock indexes opened at fresh record highs.

Employment gains in December were below the monthly average of 204,000 over the past three months. Job growth is slowing as the labor market nears full employment, but could get a temporary boost from a $1.5 trillion package of tax cuts passed by the Republican-controlled U.S. Congress and signed into law by President Donald Trump last month.

The lift from the fiscal stimulus, which includes a sharp reduction in the corporate income tax rate to 21 percent from 35 percent, is likely to be modest as the stimulus is occurring with the economy operating almost at capacity. There are also concerns the economy could overheat.

“With the tax cuts we get solid GDP growth in the near-term and then a fiscal hangover, which will likely put the economy at a greater risk of recession,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania.

NEAR FULL EMPLOYMENT

Data ranging from housing to manufacturing and consumer spending have suggested solid economic growth in the fourth quarter, despite a widening of the trade deficit in both October and November, which could subtract from gross domestic product.

In a separate report on Friday, the Commerce Department said the trade gap widened 3.2 percent in November to $50.5 billion, the highest level since January 2012.

The deficit was boosted by record high imports, which offset the highest exports in three years. The economy grew at a 3.2 percent annualized rate in the third quarter.

For all of 2017, the economy created 2.1 million jobs, below the 2.2 million added in 2016. Economists expect job growth to slow further this year as the labor market hits full employment, which will likely boost wage growth as employers compete for workers.

Economists are optimistic that annual wage growth will top 3.0 percent by the end of this year. The December employment report incorporated annual revisions to the seasonally adjusted household survey data going back five years.

There was no change in the unemployment rate, which declined by seven-tenths of a percentage point last year.

Economists believe the jobless rate could drop to 3.5 percent by the end of this year. That could potentially unleash a faster pace of wage growth and translate into a much stronger increase in inflation than currently anticipated.

That, according to economists, would force the Fed to push through four interest rate increases this year instead of the three it has penciled in. The U.S. central bank raised borrowing costs three times in 2017.

“If the unemployment rate declines and wages rise faster, which is likely, the Fed is going to start worrying about wage inflation,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

Employment gains were largely broad-based in December. Construction payrolls increased by 30,000 jobs, the most since February, reflecting recent strong increases in homebuilding. Manufacturing employment increased by 25,000 jobs.

Manufacturing is being supported by a strengthening global economy and a weakening dollar. Employment in the utilities sector fell for a second straight month.

General merchandise stores payrolls tumbled by 27,300 in December, with employment at clothing stores dropping by 3,800 jobs.

For all of 2017, retail employment dropped by 67,000 jobs after rising by 203,000 in 2016. Further job losses are likely this year as major retailers, facing stiff competition from online sellers like Amazon.com Inc <AMZN.O>, close stores.

Sears Holdings Corp said on Thursday it was shuttering 103 unprofitable Kmart and Sears stores. Macys Inc also announced 11 store closures, which could leave 5,000 workers unemployed.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

U.S. factory activity jumps, construction spending unchanged

A man walks his dog past a mural depicting factory workers in the historic Pullman neighborhood in Chicago

By Lindsay Dunsmuir

WASHINGTON (Reuters) – U.S. factory activity jumped in June suggesting economic growth in the second quarter gained some steam, while construction spending held steady in May.

The Institute for Supply Management (ISM) said on Monday its index of national factory activity rose to a reading of 57.8 last month from 54.9 in May.

A reading above 50 in the ISM index indicates an expansion in manufacturing, which accounts for roughly 12 percent of the overall U.S. economy.

The ISM survey’s new orders sub-index rose to 63.5 in June from 59.5 the prior month. A measure of factory employment increased to a reading of 57.2 from 53.5 in May.

According to ISM, comments from those surveyed generally reflected expanding conditions, “with new orders, production, employment, backlog and exports all growing in June compared to May and with supplier deliveries and inventories struggling to keep up with the production pace.” Fifteen of the 18 manufacturing industries reported growth in June.

The dollar rose to a session high against a basket of currencies after the data, while the yield on the 2-year U.S. Treasury note rose to a more than eight-year high. U.S. stocks extended gains.

 

CONSTRUCTION SPENDING MIXED

Meanwhile, U.S. construction spending unexpectedly remained flat in May but federal government outlays on construction projects were the highest in more than four years.

The Commerce Department said on Monday that construction spending in May remained unchanged at $1.23 trillion. Spending in April was revised to show it declining 0.7 percent after a previously reported 1.4 percent fall.

Economists polled by Reuters had forecast construction spending rising 0.3 percent in May. Construction spending increased 4.5 percent from a year ago.

Federal government construction spending jumped 6.4 percent in May to its highest monthly level since January 2013.

The May construction spending release included revisions to data back to January 2015, the Commerce Department said.

In May, private construction spending fell 0.6 percent, the biggest decline since October 2015, after declining 0.2 percent in April. Investment in private residential construction also declined 0.6 percent, the biggest fall since July 2014, after rising 0.5 percent the prior month.

Spending on private nonresidential structures fell 0.7 percent in May, the fifth straight monthly decline.

Investment in public construction projects rose 2.1 percent in May after dropping 2.7 percent in April.

Outlays on state and local government construction projects increased 1.7 percent in May after falling 2.7 percent in April.

 

(Reporting by Lindsay Dunsmuir; Editing by Andrea Ricci)

 

U.S. wholesale inventories post biggest drop in more than a year

Shelves are stacked with wholesale merchandise at a Wal-Mart Stores Inc company distribution center in Bentonville, Arkansas June 6, 2013. REUTERS/Rick Wilking

WASHINGTON, June 9 (Reuters) – – U.S. wholesale inventories fell more steeply in April than the government had previously estimated, posting their biggest drop in more than a year as sales also fell sharply.

The Commerce Department said on Friday that wholesale inventories fell 0.5 percent in April after increasing 0.1 percent in March. The department reported last month that wholesale inventories slipped 0.3 percent in April.

Automotive inventories fell 1.4 percent while petroleum inventories dropped 5.0 percent, their biggest fall since December 2015. Paper inventories fell 1.8 percent in the category’s biggest drop since January 2013.

Wholesale stocks of electrical goods also slipped 0.1 percent while machinery inventories were flat.

Sales at wholesalers fell 0.4 percent in April after falling 0.2 percent in March. Sales of electrical goods rose 0.7 percent while those of machinery fell 0.8 percent. Auto sales were up 1.3 percent.

At April’s sales pace it would take wholesalers 1.28 months to clear shelves, unchanged from March.

(Reporting by David Lawder; Editing by Paul Simao)