Last week, a number of important economic data releases came in with mixed results. Disappointing consumer confidence reports and rising initial unemployment claims provided a contrast for better-than-expected reports on October durable goods orders and personal spending. This week will be another busy one for updates, with November’s business confidence and employment reports serving as highlights.
Last Week’s News
We started the week with Tuesday’s release of the Conference Board Consumer Confidence Index for November. This widely followed measure of consumer confidence showed a larger-than-anticipated decline, falling from an upwardly revised 101.4 in October to 96.1 in November, against forecasts for a drop to 98. This result brought the index to its lowest level in three months and was in line with a similar decline the in the University of Michigan consumer sentiment survey for the month. Historically, improving consumer confidence has supported faster spending growth, so this decline is concerning, but it is also understandable given the continued COVID-19 case growth. Despite the worsening public health picture in November, confidence remains well above the lockdown-induced low of 85.7 the index hit in April. This indicates consumers are weathering the third wave of infections with more resilience than we saw earlier in the year.
On Wednesday, the initial jobless claims report for the week ending November 21 was released. The report showed that an additional 778,000 initial unemployment claims were filed during the month, up from 748,000 initial claims the week before and above economist estimates for 730,000 initial claims. This disappointing result marks the first back-to-back week of rising initial claims since July, highlighting the headwinds for the labor market created by the continuing pandemic. Some of the increase may be attributable to state and local measures to combat the third wave of the pandemic, given that some local governments have reinstated stay-at-home restrictions. Continuing unemployment claims, which are reported with a one-week lag to initial claims, fell from 6.37 million to 6.071 million, against calls for a decline to 6 million. Overall, this report was concerning, as it showed the pandemic’s negative impact on the economic recovery and the labor market in November.
Wednesday also saw the preliminary release of the October durable goods orders report. Durable goods orders increased by more than expected during the month, rising by 1.3 percent against calls for a more modest 0.8 percent increase. Core durable goods orders, which strip out the impact of volatile transportation orders, also beat expectations, rising by 1.3 percent against calls for 0.5 percent growth. Core durable goods orders are often viewed as a proxy for business investment, so this result is another sign that businesses are continuing to recover following the end of the lockdowns. This report was encouraging, demonstrating that businesses were willing and able to invest in October despite the uncertainty created by rising COVID-19 case counts and the November election. Looking forward, we will have to wait to see if this healthy investment growth will continue, given the worsening public health picture in November.
The October personal income and personal spending reports were also released on Wednesday. Spending came in slightly above expectations, rising by 0.5 percent against forecasts for 0.4 percent growth. This result is down from the downwardly revised 1.2 percent spending increase recorded in September. It marks the lowest level of monthly spending growth since April, highlighting the slowdown in consumer spending we’ve seen in the fall season. Personal income disappointed, falling by 0.7 percent against forecasts for a 0.1 percent decline. Income has been very volatile on a month-to-month basis, due to changing federal stimulus and expiring unemployment benefits. For example, wage income increased in October, but the expiration of the supplemental lost wage program caused overall income to drop during the month.
Wednesday also saw the release of the second and final reading of the University of Michigan consumer sentiment survey for November. The preliminary estimate, released earlier in the month, showed a surprise decline from 81.8 in October to 77 at the start of November. The second report showed a further decline during the month to 76.9. As with the initial report, stark differences in consumer sentiment were based on the political party of consumers. Republican expectations for future growth cratered in November, while Democrat expectations rose notably, likely due to the results of the November election. The monthly decline for the index is a concern. Nonetheless, as we saw with the Conference Board Consumer Confidence Index, this survey remains above the pandemic-induced low of 71.8 it hit in April. This indicates that consumers remain resilient.
The October new home sales report was also released on Wednesday. Housing has been a bright spot in the economic recovery. This report showed continued strength, with the annualized pace of new home sales coming in at 999,000 during the month. This result was down slightly from the upwardly revised 1.002 million rate we saw in September, but well above economist estimates for 975,000. Record low mortgage rates and shifting home buyer preferences for more space due to the pandemic have notably boosted the pace of home sales. New home sales now sit near their highest level since 2006. Overall, the housing market remains healthy. The strong pace of new home sales in October is another sign that home buyer demand remained resilient despite the month’s rising case counts.
Finally, we finished the week with Wednesday’s release of the FOMC meeting minutes from the Fed’s November meeting. As expected, this delayed release did not offer much additional information. FOMC members discussed the future path of asset purchases, but the minutes showed broad agreement that no need exists for any immediate changes to the Fed's plans for asset purchases. With that said, some participants noted a desire to provide forward guidance for potential additional purchases fairly soon, but there was pushback on this issue from other participants. The FOMC will next meet in mid-December. Economists and market participants expect the central bank to provide continued supportive policy at this final meeting of the year.
What to Look Forward To
Tuesday will see the release of the ISM Manufacturing index for November. This measure of manufacturer confidence is expected to decline from 59.3 in October to 57.8 in November. If estimates prove accurate, the index would sit at its second-highest level since December 2019. Accordingly, the anticipated decline is not a major concern. This is a diffusion index, where values above 50 indicate expansion, so the expected result would keep the index in expansionary territory. Manufacturer confidence has rebounded notably since hitting a lockdown-induced low of 41.5 in April. Going forward, it should support growth in manufacturing investment and output, which remains below pre-pandemic levels.
On Thursday, the initial jobless claims report for the week ending November 28 is set to be released. Economists expect to see 763,000 initial claims filed during the week, down from 778,000 claims the week before. This result would break a two-week streak of increasing initial claims, but the pace of weekly initial claims would remain very high on a historical basis. For reference, during the great financial crisis, the worst single week for initial claims saw 661,000 initial filers. This year, we have been above that level every week since lockdowns started in mid-March. This fact highlights the continued labor market weakness created by the ongoing pandemic, so this weekly release will continue to be widely monitored.
Thursday will also see the release of the ISM Services index for November. Service sector confidence is expected to show a modest decline from 56.6 in October to 56.1 in November. This is another diffusion index, where values above 50 indicate expansion, so this result would leave the index in expansionary territory. As with manufacturing confidence, service sector confidence rebounded swiftly once lockdowns were lifted. That said, if estimates prove accurate, the index would be left at its lowest point since May, highlighting the very real risk that the worsening pandemic presents for service sector businesses. This sector accounts for the lion’s share of economic activity. Going forward, given the anticipated decline and the worsening public health picture, monitoring this release will be important.
On Friday, the November employment report is set to be released. Economists expect to see 500,000 jobs added during the month. This level would be down from the 638,000 jobs gained in October, but still a step in the right direction. The unemployment rate is also expected to show further improvement, with economists looking for a modest drop from 6.9 percent in October to 6.8 percent in November. If estimates hold, this report would mark the fewest number of jobs added in a month since lockdowns ended, highlighting the slowing pace of recovery for the labor market. As we saw with rising initial unemployment claims, the job market remains under considerable stress. We have a long way to go to return to pre-pandemic levels, so this monthly report will continue to be widely followed.
We’ll finish the week with Friday’s release of the October international trade report. Economists expect to see the trade deficit widen during the month, from $63.9 billion in September to $64.8 billion in October. If estimates prove accurate, the deficit would sit at its second-widest point since 2008, trailing only the $67 billion gap recorded in August. The advance trade in goods report showed rising imports and exports of goods in October. Nonetheless, a net widening in the trade of goods was recorded during the month, with the deficit going from $79.4 billion to $80.3 billion. Overall, trade levels remain below pre-pandemic levels, so work remains to be done in this area. In the short term, however, rising COVID-19 case counts in November are expected to serve as a headwind for global demand growth.
That’s it for this week—thanks for reading and stay safe!