Monday Update: Amid Disappointing Data, Economy Still Growing

Posted by Brad McMillan, CFA, CAIA, MAI

This entry was posted on Oct 31, 2016 3:44:29 PM

and tagged In the News

Leave a comment

monday updateLast week’s economic data was a mixed bag, focusing mostly on the consumer but also touching on business and the economy as a whole.

A look at last week’s data

On Tuesday, the Conference Board’s Consumer Confidence Survey dropped from a revised 103.5 to 98.6, much worse than the 101.5 that had been expected. Last month marked a nine-year high for the survey, so a decline was both reasonable and expected, just not one as big as we saw. The larger drop wasn’t a total surprise, however. Given the upcoming election and last month's very high reading, additional downside risk had been noted by some analysts. Overall, confidence remains consistent with economic growth, and the drop simply appears to be an adjustment to a level more in line with other indicators.

The final piece of September housing data—new home sales—was released on Wednesday. The news here disappointed as well, with sales down from 609,000 to 593,000, worse than the expected 602,000. July saw a spike in sales, however, and the decline has continued to move the numbers closer to normal levels. Further, the drop appears to be due more to lack of supply than lack of demand. The longer-term averages, for the past 6 and 12 months, continue to rise and are now at the highest levels since 2008, showing that the upward trend remains intact.

Moving away from the consumer, durable goods orders, released on Thursday, gave us a look at business sentiment. On the surface, the news was also a disappointment, with headline orders down by 0.1 percent, against an expected increase of 0.1 percent. This is somewhat misleading, however, as the drop was due to a 44.5-percent decrease in defense aircraft orders, which has little to do with the health of the private economy. Core orders, which exclude the transportation sector, swung from a decline of 0.2 percent to a gain of 0.2 percent, as expected, which is a much better signal. Overall, though the third quarter probably showed a decline in business investment, the trend is improving and may well change next quarter.

Finally, the first estimate of economic growth for the third quarter was released on Friday. Growth beat expectations, coming in at 2.9 percent versus an expected 2.5 percent on an annualized basis. More than double the growth of 1.4 percent in the second quarter, this was largely due to a surge in exports and inventory restocking, but the economy also benefited from a rebound in energy industry investment. Consumer spending growth slowed somewhat but, at 2.1 percent, still helped sustain growth. The acceleration in growth suggests the slowdown of the first half may be passing—a significantly positive data point.

The week ahead

This week’s data is also wide ranging and should give us an idea of whether faster growth is continuing.

We start with the personal income and spending report, released this morning.

  • Personal spending increased by 0.5 percent in September, up from the prior month’s downwardly revised drop of 0.1 percent and slightly above expectations of a 0.4-percent gain.
  • Personal income, on the other hand, was up only 0.3 percent, better than the previous month’s 0.2 percent but below expectations of a 0.4-percent increase.

Both of these figures suggest continued growth, but higher spending and lower income growth raise questions as to the sustainability of that growth.

We’ll get a look at the business sector with the ISM Manufacturing Index on Tuesday and the ISM Non-Manufacturing Index on Wednesday.

  • The manufacturing index is expected to remain stable at 51.5, signaling continued slow but positive growth.
  • The non-manufacturing survey is expected to drop back slightly, from 57.1 to 56.0, which is still a very strong level and consistent with continued growth.

If these indicators come in as expected, it would be a good sign for continued growth.

On Friday, the international trade report is expected to reveal that the trade deficit remains essentially stable, down to $41 billion from $40.7 billion. There is some upside risk here, as goods exports increased by 0.8 percent, and services imports are expected to decline.

Finally, the most important news will be the jobs report, also slated for release on Friday. Job growth is expected to rise from 156,000 to 173,000, with the unemployment rate dropping back down to 4.9 percent and wage growth ticking up from 0.2 percent to 0.3 percent. This would be another strong report, signaling continued growth with the possibility of further acceleration.

The other economic news this week will be the Federal Reserve’s regular meeting. Although the Fed probably won’t decide to raise rates due to the pending election, analysts will be watching for any signal that December is likely to be a go.

Have a great week!

  Subscribe to the Independent Market Observer
5 Ways to Affiliate
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

In The News

Don't Ignore the Dow's Discards
The Wall Street Journal, 06/21/18

RIP General Electric
Advisor Perspectives, 6/20/18

How Rising Interest Rates Impact the Market [Video]
CNBC, 06/14/18

Kudlow will return to the White House
Politico, 06/14/18

Fed Hikes Rates, Indicates 2 More to Come This Year
ThinkAdvisor, 06/13/18

More

Conversations

Subscribe via E-mail

Subscribe

Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly into an index.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.  

Third party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®