Monday Update: Mixed Results, Healthy Overall

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on Dec 11, 2017 12:41:38 PM

and tagged In the News

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Monday updateLast week was a busy one for economic data, with significant reports across all areas. The news was mixed, with declines in several areas, although the overall levels remain healthy. This suggests that the recovery continues but that it may be peaking.

Last week’s news

On Tuesday, the international trade report showed the trade deficit worsened, down from $43.5 billion to $48.7 billion. This result was worse than the anticipated drop to $46 billion. As expected, imports rose and exports declined. The export decline, however, was due to a seasonally adjusted fall in soybean exports—likely the result of an adjustment problem based on last year’s surge in exports. Without that adjustment, exports would have risen. If that is the case, the shortfall will be reversed later.

Also on Tuesday, the Institute for Supply Management’s survey of the service sector, the Nonmanufacturing index, was released. It declined by more than expected, from 60.1 to 57.4, as opposed to expectations of a decline to 59. Much of the drop came from an unwinding of the statistical effects from the hurricanes, which distorted results in the previous months, rather than actual slowing. This is a diffusion index, and any number above 50 indicates expansion. So, even with the decline, this index remains well above average levels of the past couple of years and is an indicator of growth.

The employment report, released on Friday, did somewhat better than expected. Job gains came in at 228,000, above projections of 200,000, with the unemployment rate holding steady at 4.1 percent. The average workweek rose to 34.5 hours from 34.4 hours, indicating even stronger labor demand. Pay growth, however, came in below expectations at 0.2 percent, while the previous month was revised down from flat to –0.1 percent. While labor demand continues to be strong, the weak wage growth remains a concern.

Also on Friday, the University of Michigan consumer confidence survey declined from 98.5 to 96.8, against expectations of a small increase to 99. While current conditions rose, expectations fell. Despite the decline, this index remains at relatively high levels. But the decline in the expectations may be a cautionary signal going forward.

What to look forward to

This week will be relatively slow, with the release of just a few reports, though they will cover the spectrum of economic activity.

On Wednesday, the Consumer Price Index is expected to show that headline inflation accelerated 0.4 percent in November, up from growth of 0.1 percent in October. This would bring the annual rate from 2 percent to 2.2 percent. Rising energy prices—especially gasoline—are expected to contribute to the increase. The core inflation index, which excludes food and energy, is expected to grow by 0.2 percent in November, leaving the annual figure unchanged at 1.8 percent.

Also on Wednesday, the Fed is expected to raise interest rates at its final meeting of 2017, followed by Chair Yellen’s last press conference. Markets will be watching closely to see what they can learn about next year.

On Thursday, the retail sales report is expected to rise by 0.3 percent in November, up from 0.2 percent in October. This figure may be affected by lower auto sales after the post-hurricane surge. Core sales, which exclude autos, are expected to grow by 0.7 percent in November, up significantly from 0.1 percent in October. The growth should be driven by faster spending in general, as well as by higher gasoline prices.

Finally, on Friday, industrial production is expected to increase by 0.3 percent in November, which is down from 0.9-percent growth in October. The strong October number was due to a rebound from hurricane disruptions in September, so the decline is normal, and the expected growth remains healthy. Manufacturing activity also is expected to decline from 1.3 percent to 0.2 percent, which would also maintain a healthy growth level. 

Have a great week!

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