Last week was jam-packed with economic updates, many of which beat expectations. Faster-than-expected GDP growth in the third quarter and a stronger-than-expected October employment report highlighted a week in which the Fed cut the federal funds rate by 25 bps. This week will be quieter, with notable releases on international trade, the service sector, and consumer confidence.
Last week’s news
Tuesday saw the release of the Conference Board Consumer Confidence Index for October. Confidence increased modestly from 125.1 to 125.9 during the month, which was below expectations for an increase to 128. Despite the slight uptick in October’s index level compared with September’s, consumer confidence sits well below July’s recent high of 135.8. This marks the second straight month of declining confidence on a year-over-year basis, with October’s reading down more than 7.5 percent from a year ago. Overall, this result was disappointing, as high consumer confidence levels supported strong spending in the second and third quarters.
On Wednesday, we received the first estimate of third-quarter GDP growth. The economy grew by 1.9 percent on an annualized basis in the quarter, which was better than the 1.6 percent growth economists expected. This rate is down from the 2 percent growth generated in the second quarter and the 3.1 percent seen in the first quarter. This third-quarter slowdown was due to lowered government spending and business investment, as political and economic uncertainty negatively affected spending. The growth we did experience was driven primarily by consumer spending. Personal consumption grew 2.9 percent during the third quarter, which was better than the 2.6 percent predicted.
Wednesday also saw the release of the FOMC rate decision. The FOMC voted to cut the upper limit of the federal funds rate by 25 bps, from 2 percent to 1.75 percent. This marks the third straight meeting in which the Fed has voted to cut rates. Lackluster employment reports and falling inflation figures have spurred the central bank into action to support the current expansion. Fed Chair Jerome Powell tried to temper expectations for further rate cuts during his post-release press conference. Nonetheless, market participants are pricing in a greater than 50 percent chance of another cut by the end of January.
On Thursday, September’s personal income and personal spending reports were released. Spending increased by 0.2 percent during the month, up from 0.1 percent growth in August. This marks the seventh straight month of spending growth. The acceleration in September was quite welcome, even if economists expected 0.3 percent growth during the month. Personal income rose by 0.3 percent in September, which was in line with expectations.
On Friday, the October employment report was released, showing an addition of 128,000 new jobs during the month. This result was much better than the 85,000 new jobs that economists expected. Furthermore, September’s results were revised up to 180,000. This better-than-expected result came despite the General Motors (GM) strike that began in September and lasted through most of October. The strong October results, as well as the positive impact we should see in November when the GM strikers return to the workforce, are helping calm fears of a prolonged slowdown in new job growth. While the pace of growth is well below the more than 200,000 jobs added per month in 2018, the acceleration over the past two months is very encouraging.
Finally, we finished the week with Friday’s release of the ISM Manufacturing index for October. Manufacturer confidence increased slightly from 47.1 in September to 48.3 in October against expectations for a larger increase to 48.9. This is a diffusion index, where values below 50 indicate contraction. So, while the increase was welcome, it still leaves the manufacturing sector of the economy in a recessionary state. This marks the third straight month in which manufacturer confidence came in below 50.
What to look forward to
The week will start with Tuesday’s release of the September international trade report. Economists expect the trade deficit to narrow during the month from $54.9 billion in August to $52.5 billion in September. Previously released reports showed declining exports in September, with some of the falloff linked to the GM strike. Yet larger declines in imports are expected to be more than enough to offset the exports decline and shrink the deficit.
Also on Tuesday, the ISM Nonmanufacturing index will be released. This gauge of confidence for the service sector is set to increase slightly from 52.6 in September to 53.4 in October. While such an increase would be welcome, business confidence has been decreasing all year. Last October, this index sat at 60.
Friday, we’ll get the release of the University of Michigan consumer confidence survey. It’s expected to show moderate growth from 95.5 in October to 96 in November. As is the case with the ISM Nonmanufacturing index, while a modest monthly increase in confidence would be welcome, a decline is expected on a year-over-year basis. High consumer confidence has supported increased consumer spending throughout much of this year. So, a better-than-expected result here would bode well for future spending growth.
That’s it for this week—thanks for reading!