Monday Update: Confidence Spikes, Spending Growth Moderates

Posted by Brad McMillan, CFA, CAIA, MAI

This entry was posted on Oct 1, 2018 2:15:15 PM

and tagged In the News

Leave a comment

Monday updateLast week was a busy one on the economic data front. It gave us a solid look at the consumer—both how they feel and what they are actually doing—as well as at business activity and some housing data. The week ahead will also be very busy. We’ll have looks at business sentiment across the board, the trade balance, and, most important, the job market.

Last week’s news

On Tuesday, the Conference Board consumer confidence survey was released. Once again, it went higher—from 133.4 to 138.4—against an expected small decline to 131.5. This result takes the index to an 18-year high and should signal prolonged spending growth. The continued rise in confidence, particularly to such extreme levels, will remain positive for the economy.

On Wednesday, the new home sales report showed an increase, rising slightly from 627,000 to 629,000; however, this number was below expectations of 631,000. This result continues a slow recovery from an earlier pullback. This figure also signals that while housing growth continues to slow, it remains at healthy levels overall.

Also on Wednesday, the Fed meeting concluded. As markets expected, the Fed raised interest rates by 25 basis points. The press conference was also quite positive on the Fed’s take on economic growth (strong) and on inflation (under control). The clear suggestion was that another rate increase is likely in December. This rate increase was expected and had minimal market impact.

On Thursday, the durable goods orders report was released. The headline index bounced by even more than expected. It went from a 1.7-percent decline in July to a 4.5-percent increase in August, on an increase in airplane orders. This headline index is notoriously volatile, as we can see from this bounce. The core index, which excludes transportation and is a much better economic indicator, disappointed. Here, growth remained steady at 0.1-percent growth in August, against an expected increase to 0.4 percent, on growing capacity constraints in many businesses.

On Friday, the personal income and spending report also came in below expectations. Personal income rose by 0.3 percent in August, the same as July, but was below expected growth of 0.4 percent. Personal spending growth also fell. It went from 0.4 percent in July to 0.3 percent in August. This drop was expected, as retail sales surveys showed modest growth and auto sales declined. Despite the decline, this remains a healthy level of spending growth and is well supported by income growth.

What to look forward to

On Monday, the Institute for Supply Management (ISM) Manufacturing index dropped slightly. It went from 61.3 to 59.8, after an unexpected surge in August. This is a diffusion index, where values above 50 indicate expansion and below 50 indicate contraction. So, even with the decline, this result remains quite strong. In general, the pullback looks to have come from slowing global growth. More specifically, it may have resulted from the recent appreciation in the dollar, which has been increasing the costs of U.S. products to foreign buyers. Uncertainty over trade policy remains a headwind as well. With manufacturing growth slowing, the pullback is reasonable. Even with the pullback, however, sentiment remains quite strong and positive for the economy as a whole.

On Wednesday, the ISM Nonmanufacturing index is also expected to pull back slightly—from 58.5 to 58—after an increase in August. As with the manufacturing report, this is a diffusion index. So, it should continue to indicate expansion on strong retail sales growth, as well as strong regional surveys. With consumer confidence high and spending growth solid, this indicator should remain positive for the economy as a whole, despite the small expected decline.

On Friday, the international trade report is expected to show the trade deficit has worsened. It is anticipated to go from $50.1 billion to $50.7 billion. We already know from the advance report that the trade deficit in goods widened, as export growth has now dropped back even as imports have increased. As such, there may be some additional downside risk to this report. Overall, if the numbers come in as expected, trade will likely be a drag on third-quarter growth.

Finally, on Friday, the employment report will be released. It is expected to show that job growth pulled back to a still healthy 188,000 in September from a strong August report of 201,000. The unemployment rate is expected to drop from 3.9 percent to 3.8 percent. Wage growth should also pull back a bit. It should go from 0.4 percent in August to 0.3 percent for September on a monthly basis and from 2.9 percent to 2.8 percent on an annual basis. If these numbers come in as anticipated, this would be another healthy report and signal continued economic growth. It would also likely support another rate hike from the Fed in December.

Thanks for reading and have a great week!

5 Ways to Affiliate
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

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®