The Independent Market Observer

Monday Update: Consumers Rocking, Business Rolling Over

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Sep 6, 2016 3:44:03 PM

and tagged In the News

Leave a comment

monday updateLast week’s economic data showed that U.S. consumers continue to earn and spend while business continues to struggle. With both income and spending up, and surprisingly high levels of confidence, consumers are still driving economic growth. Business, on the other hand, has stepped back from the stronger results of the previous several months.

Overall, last week’s numbers show that while consumers continue to do well, business is not yet ready to take a role in expanding the recovery.

Last week’s data

Income and spending. Kicking off a busy week for economic reports, personal income and spending data was released on Monday. In line with expectations, income increased by 0.4 percent, well above the May and June increases of 0.2 percent, which were both revised up to 0.3 percent. Personal spending was up 0.3 percent, also in line with expectations, but down from the June figure of 0.4 percent, which was revised up to 0.5 percent.

These strong numbers suggest that U.S. workers and consumers continue to do well. In addition, the savings rate bounced back to 5.7 percent from 5.5 percent, which demonstrates that this level of spending growth remains sustainable.

Consumer confidence. The strong income and spending data was bolstered by the Conference Board’s Consumer Confidence Survey, which came in much better than expected. It increased from 97.3 to 101.7—its highest level in almost a year—against an expected small decline to 97. Underlying details were also strong, with the present conditions index up to a nine-year high and the expectations index up as well, although more modestly. Labor sentiment also improved, suggesting job growth remains strong and wage growth is likely to continue to accelerate.

Manufacturing and industry. The news was not as good in the manufacturing and industrial sectors. The Institute for Supply Management’s manufacturing survey significantly disappointed, dropping from 52.6 to 49.4 and taking the index from expansion to contraction for the first time since February. Although this is concerning, regional surveys remain relatively positive and are more timely, and other surveys have been improving.

That said, this report leaves the manufacturing recovery in question, as the details were weak across the board. Only 6 of 18 industries expanded, while both production and (more significantly) new orders were down.

U.S. trade balance. Returning to the good news, the international trade balance surprised to the upside, with June’s deficit of $44.5 billion revised down by $5.2 billion. Most of the improvement was from trade in goods, suggesting that net exports might add to growth in the third quarter. In other positive news, exports rose by 1.9 percent, the most since early 2014, which should continue to boost overall economic growth.

Jobs. The most important economic news of the week was the employment report.

  • Job growth came in at 151,000, below the expected level of 180,000.
  • The average workweek declined by 0.1 hours, pointing to a further drop in labor demand equivalent to several hundred thousand jobs.
  • The unemployment rate remained at 4.9 percent.
  • Growth in average hourly earnings declined to 0.1 percent from 0.3 percent.

Though a weak report, it was not a disaster. The level of job growth is still high enough to absorb new entrants to the labor force and probably reflects some giveback from May and June’s very strong results, rather than a collapse in labor demand. It’s also worth noting that August has come in below expectations for the past five years, only to be revised up significantly later, suggesting some seasonal flaw in the adjustment process for estimates. Nonetheless, the report does call into question whether the strong gains of the previous two months can continue.

The week ahead

This week will be a quiet one on the data front.

The only major report is the ISM Non-Manufacturing survey, which tracks the service sector. Released this morning, it declined from 55.5 to 51.4—significantly worse than expectations. Although the index remains in expansion territory, it confirms the weakness of last week’s manufacturing survey and suggests that the business slowdown extends beyond the industry.

Have a great week!

  Subscribe to the Independent Market Observer

Subscribe via Email

Crash-Test Investing

Hot Topics

New Call-to-action



see all



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 in an index.

The MSCI EAFE (Europe, Australia, Far East) Index 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.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on 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.


Please review our Terms of Use

Commonwealth Financial Network®