A look behind at the October 28 week centers on the FOMC decision on Wednesday. The rate cut of 25 basis points to 1.50%-1.75% was accompanied by a plain signal that monetary policy could be on hold for a while. Chair Jerome Powell expanded on this is his press briefing. In light of the lagged effects of monetary policy and evidence that the US economy continued to grow through the third quarter at a modest 1.9% pace with a solid labor market, provision of further accommodation may not be needed after three cuts in short-term rates. The risks to the outlook have been around for a while and haven’t changed in character or severity. A “resilient” economy seems to have kept its temperate stride in spite of this. Growth continued to look a lot like the FOMC’s forecast and policymakers are not expecting a recession in the immediate future.
The data over the course of the week largely back up this anticipation.
First and foremost, the October Employment Situation was above expectations in adding 128,000. If the 46,000 UAW workers on strike are added back in, the total is 174,000. On top of this was a meaty upward revision of 95,000 to the prior two months. These are solid readings especially in the context of a mature expansion. Earnings are continuing to rise steadily if – unspectacularly – at up 3.0% compared to a year ago. The unemployment rate crept back up a tenth to 3.6% and was still within reach of 50-year lows. The participation rate managed to gain a tenth to 63.3% in October. There really wasn’t much to dislike or distrust in the numbers.
The increase in private payrolls in the BLS data was 131,000, a very near match to the ADP National Employment Report and its up 125,000 for October. The two don’t often line up so exactly, but they do tend to move in the same direction.
It was the same story with levels of initial jobless claims for the week ended October 26. A small rise to 218,000 was probably due to the Chicago teachers strike as the school district laid off some support personnel. Otherwise, there was little enough layoff activity. The insured rate of unemployment through the October 19 week maintained its nearly uninterrupted string of 1.2% readings since May 2018 and remained just off its record lows.
The Challenger numbers on layoff announcements for October was up 21.0% to 50,275 month-over-month, although it was down 33.5% compared to 75,644 a year ago when the retail sector was losing jobs rapidly. The month-over-month increase was mainly due to a single announcement of 9,000 workers at Hewlett Packard. Otherwise the level would have been quite close to the 41,557 in September. Layoff activity is likely to be more prevalent in November and December as businesses adjust payrolls at year-end. However, as the UAW strike demonstrated, businesses are reluctant to lose skilled employees even if economic activity isn’t a strong as it was. Hiring intentions were lackluster in October outside of temporary workers for the holiday season.
As noted above, GDP was reported at up 1.9% in the third quarter advance estimate. At the headline it scarcely different from the up 2.0% in the second quarter. Once again personal consumption expenditures carried the day as it is expected to do in the fourth quarter as well. Personal income rose in September, although flat wages and salaries were not the reason for the increase. Consumer spending was mixed with durables and services higher and nondurables down due to low gasoline prices.
The PCE deflator – the Fed’s preferred measure of inflation – dipped a tenth to 1.3% year-over-year and the core PCE deflator was also off a tenth 1.7% compared to a year-ago. Inflation persistently below the Fed’s 2% objective was a point mentioned by Chair Powell on Wednesday, and the FOMC is concerned that inflation hasn’t risen in spite of some earlier idiosyncratic factors that suppressed the deflator early in 2019.
The Employment Cost Index (ECI) for the third quarter showed compensation continued to rise modestly and on trend with the past two years. There was a hint of some slowing in growth of wages and salaries outside of manufacturing and service sector unions. However, this might have been a single quarter’s reading. In any case, higher costs for wages and benefits are not leaking into overall inflation and are no threat to price stability.
The Conference Board’s Consumer Confidence Index for October showed consumers’ elevated optimism hasn’t diminished all that much. It is off the recent peaks, but the 125.9 for October was only slightly down from the 126.3 in September and remains quite high in the historical context. The strong labor market continued to outweigh any worries about the future, and those were relatively mild.
The ISM Manufacturing Index for October remained in recessionary territory for a third straight month. Still, the 48.3 was a slight improvement from the 47.8 in September, and not far below the 49.1 in August. If the factory sector is struggling, it is only just failing to expand. One hopeful note in the report was that export orders managed to expand in a rebound from the decline in the prior month. Nonetheless, it will take a broader improvement in new orders to lift the sector back into growth.
Most of the big numbers for the housing market were out of the way by this past week. However, the NAR’s Pending Home Sales Index for September offered a hint that sales of existing homes are likely to remain healthy into October. If so, it will be due to low mortgage rates that have helped renew interest in buying a home after rising rates choked them off at this time last year.
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