The Independent Market Observer

Monday Update: More Signs of a Slowdown

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Oct 29, 2018 3:41:16 PM

and tagged In the News

Leave a comment

Monday updateLast week was a busy one on the economic front, giving us a final view of housing for the month, as well as whether business investment continued to improve. The week concluded with a preliminary look at how the economy performed in the third quarter. In the week ahead, we’ll see data on consumer income, spending, and confidence, as well as manufacturing industry sentiment, the trade balance, and, most important, the job market.

Last week’s news

On Wednesday, the new home sales report disappointed significantly. It dropped from 629,000 in August to 553,000 in September, well below the expected 625,000. This result suggests the ongoing housing slowdown continues. Housing is one of the most economically impactful sectors, and this decline could be an indicator that the cycle is turning.

On Thursday, the durable goods orders report was released. The headline index did better than expected, coming in with a 0.8-percent gain instead of the expected 1.5-percent decline. Although this result is down from a 4.4-percent gain in August, it is still healthy on an increase in orders for military aircraft. This headline index is notoriously volatile, as we can see from these numbers. The core index, which excludes transportation and is a much better economic indicator, underperformed on the month. Here, we saw a 0.1-percent increase, which was below the expected 0.4 percent. But the prior month was revised upward from flat to 0.3-percent growth. As such, we ended at the expected level on growing business investment. Overall, this remains a healthy level of growth but may indicate a gradual slowdown.

Finally, on Friday, the first estimate of third-quarter growth in gross domestic product showed that economic growth slowed from 4.2 percent in the second quarter to a still healthy 3.5 percent in the third; this result was better than the 3.3 percent expected. While there was some volatility in trade-related components, that largely netted out, leaving the slowdown due to slower domestic economic activity. This preliminary figure shows continued healthy growth but also suggests that growth at the level of last quarter was not sustainable.

What to look forward to

On Monday, the personal income and spending report revealed that personal income growth disappointed. It showed growth of 0.2 percent, down from 0.3 percent in August, as hiring slowed last month. Personal spending rose as expected, going from 0.3 percent in August to 0.4 percent in September on a spike in auto sales to replace those damaged by Hurricane Florence. In both cases, Hurricane Florence seems to have had an effect, slowing hiring and increasing spending. Overall, this remains a healthy level of income and spending growth.

On Tuesday, the Conference Board Consumer Confidence Index is expected to pull back slightly, going from 138.4 to a still very high 136.2 on rising gas prices. This result would still be close to the highest levels in the past 20 years and would be supportive of continued growth.

On Thursday, the Institute for Supply Management Manufacturing index is expected to drop slightly. It should go from 59.8 to 59.4, in another tick down 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 small decline, this level remains quite strong. The pullback is expected to come from slowing global growth in general and the recent appreciation in the dollar specifically, 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, there may be some downside risk to this indicator. Even with a larger pullback, however, this would still remain positive for the economy as a whole.

On Friday, the international trade report is expected to show the trade deficit improved slightly, going from $53.2 billion to $52.8 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 fourth-quarter growth.

Finally, on Friday, the employment report is expected to show that job growth rebounded to a very healthy 190,000 in October from a weak September report of 134,000. The unemployment rate is expected to stay at a very low 3.7 percent. Wage growth is expected to pull back a bit, from 0.3 percent in September to 0.2 percent for October, on a monthly basis; on an annual basis, however, wage growth is expected to rise from 2.8 percent to 3.1 percent on base effects. There is some downside risk here, depending on the impact from Hurricane Michael. But if the numbers come in as expected, this would be another healthy report and signal continued economic growth. It would also likely support another rate hike from the Federal Reserve in December.

Thanks for reading and have a great week!

Subscribe via E-mail

New call-to-action
Crash-Test Investing
Commonwealth Independent Advisor

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 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.


Please review our Terms of Use

Commonwealth Financial Network®