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Look behind at November 25, 2019 week: The US economy is chugging along, powered by consumer confidence in the labor market

A look behind at the November 25 week requires a deep breath and a bit of patience to sort out the barrage of data packed into Tuesday and Wednesday. However, if I were to bottom line the numbers, I would actually turn to the anecdotal evidence in the Fed’s Beige Book which was the last significant economic report released in the week.

The Beige Book broadly reported economic activity was slight-to-modest across the 12 Districts in October through mid-November. Two Districts reported no growth (New York and Kansas City), one more than in the prior report. However, two Districts reported moderate growth (Richmond and Dallas) said growth was moderate, one more than in the prior report. Additionally, two other Districts upgraded their assessment of conditions (Boston and Minneapolis) from slight to modest expansion. On net, while broader economic conditions are only middling for most Districts with pockets of concern like manufacturing, the resilient US economy is adapting and finding its way through the uncertainties. With the labor market still experiencing shortages of workers – skilled and unskilled – and wages and benefits responding to scarcity, the economy could manage to weather the slowdown due to consumers’ positive outlook and improved circumstances.

With data consistent with continued expansion 2/3 of the way through the fourth quarter, the upward revision to third quarter GDP to up 2.1% in the second estimate doesn’t have a lot of impact for markets. However, as evidence of the support from consumer spending to keep the economy chugging also, it is welcome. The Atlanta Fed’s GDPnow estimate for the fourth quarter was revised noticeably higher on Wednesday to up 1.7% (previously up 0.4%) after the release of the advance estimates for international trade in goods and retail and wholesale inventories in October.

Personal income for October was a bit of a disappointment at the headline with a flat reading month-over-month, but the 0.4% gain for wages and salaries took any sting out of that. Personal consumption was up 0.3%, a trend-like reading that might have been higher except for the 0.7% decrease in spending on durables that was part in response to a strong September and part due to slow sales of some models of motor vehicles during the strike at GM.

The PCE deflator for October was not much changed with a year-over-year rise of 1.3%, the same as in September. The core PCE deflator was up 1.6% year-over-year, a tick lower than the 1.7% in September. This is the Fed’s preferred measure of inflation. Policymakers are going to watch it closely for lagged effects from the three rate cuts in July, September, and October.  As of the present report, however, it may be a little too soon for any to be visible.

New orders for durable goods in October surprised to the upside with an increase of 0.6%. While any sign of a pickup in orders is a relief, October was mostly in defense goods which tends to be short-term in its impact. Transportation orders were up a bit for defense and nondefense aircraft while motor vehicle orders were down.

The last of the November surveys for regional manufacturing and non-manufacturing solidified what those in the prior two weeks had to say. Softness in the manufacturing sector is widespread with new orders lacking and order backlogs being worked down. There is little prospect of a turnaround any time soon, although the outlook for six months from now remains narrowly positive. Non-manufacturing is faring better with a little upward momentum from the start of the government’s 2020 fiscal year and the signing of new contracts. Activity in services was uneven, but on net expansionary. There was data from the Districts Banks of Dallas, Richmond, and Philadelphia. The MNI-ISM Chicago Business Barometer – which has respondents in both manufacturing and services – echoed the Fed regional surveys.

The Conference Board’s Consumer Confidence Index for November told a similar story to the numbers in the University of Michigan’s Consumer Sentiment Index. Consumers may perceive some month-to-month ups-and-downs in conditions, but on the whole the underlying trend is for solid confidence supported by a tight labor market, affordable interest rates, and rising earnings with improved discretionary incomes and low inflation.

Initial claims for jobless benefits were down a sharp 15,000 to 213,000 in the week ended November 23, unwinding the brief escalation in the November 9 week that lasted into the following week. What is more notable is that the insured rate of unemployment in the November 16 week accomplished the feat of dipping one-tenth to 1.1%., an historical low that has only been matched twice in the September 14 and 21 weeks. It really isn’t effectively different from the 1.2% that has otherwise dominated the readings since May 2018. However, it is another affirmation that the labor market has essentially no slack.

Housing market data continued to show the influence of mortgage interest rates that are only just above recent three-year bottoms. If consumers are driving hard bargains on prices and getting concessions from sellers, nonetheless, they are actively seeking to buy a home while rates are favorable. The FHFA House Price Index for September pointed to steady – if unspectacular – year-over-year increases for homes being repurchased. Sales of new single-family homes were solid with a small 0.7% decline to 733,000 in October after an upward revision in September to 738,000, the highest level since 778,000 in July 2007. The NAR’s Pending Home Sales Index was down 1.7% to 106.7 in October, but still a very good reading and up 4.4% from the same month last year. There’s nothing to suggest that housing won’t continue to do well in the coming months.

 

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