The Independent Market Observer

Monday Update: Personal Income and Spending Beat Expectations

Posted by Sam Millette

This entry was posted on Nov 29, 2021 10:52:10 AM

and tagged In the News

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In his Monday Update, Commonwealth’s Sam Millette highlights home sales, durable goods orders, personal income and spending, and the recent FOMC meeting. Last week saw a number of important economic updates, with reports on home sales, durable goods orders, personal income and spending, and the most recent FOMC meeting. Among the largely positive reports, the better-than-expected personal income and spending growth provided a highlight. This week will be another busy one for data updates, with a focus on consumer and business confidence and the November employment report.

Last Week’s News

On Monday, the October existing home sales report was released. Sales of existing homes increased by 0.8 percent, against an expected 1.4 percent drop. As a result, the pace of existing home sales hit a nine-month high, signaling the continued strength of demand. Existing home sales, which sit well above pre-pandemic levels, are on track to break the six-million mark for the year, a figure that would represent the highest number of sales in year since 2006. Housing sales have been strong throughout 2021, as low mortgage rates and shifting buyer preferences for more space due to the pandemic have supported a surge despite low inventory and rising prices. This encouraging report showed that prospective home buyer demand remains robust and that the housing sector continues to show healthy growth and recovery.

Wednesday saw the release of the preliminary estimate for October’s durable goods orders report. Orders fell by 0.5 percent during the month, in a result well below economist estimates for a 0.2 percent increase. This surprise was primarily due to a slowdown in volatile aircraft orders. Core durable goods orders, which strip out the impact of transportation orders, increased by 0.5 in October, in line with estimates. In addition, September’s core durable goods orders growth was upwardly revised. Core durable goods orders are often used as a proxy for business investment, so this solid result is an encouraging sign for business spending. October marks eight consecutive months with core durable goods orders growth. This strength demonstrates that business investment has continued in order to meet high levels of pent-up consumer demand throughout much of the year.

Wednesday also saw the release of the October personal income and personal spending reports. Both income and spending beat expectations. Personal income increased by 0.5 percent against calls for a 0.2 percent rise, and spending went up by 1.3 percent against forecasts for 1 percent growth. Personal income growth has been volatile throughout the pandemic. The October result represents a solid rebound in income growth, following a drop in September caused by the expiration of the enhanced federal unemployment benefits. Personal spending growth has been steadier throughout the year compared with income growth, and October marks eight consecutive months with spending growth. Personal spending has been supported by improvements on the public health front and the associated reduction in state and local restrictions. Given the importance of consumer spending to the overall economy, the October report is a good sign for the pace of economic growth.

We finished the holiday-shortened week with Wednesday’s release of the FOMC minutes from the Fed’s November meeting. At the meeting, the Fed announced plans to taper its secondary market asset purchases by $15 billion in November, with more reductions to come in the months ahead. Although the announcement was widely expected, the minutes revealed some discussion about increasing the future size of purchase reductions, providing a more hawkish result than anticipated. In addition, some members expressed growing concerns at the meeting about the potential for persistent inflation, given the broadening price pressure of the past few months. Overall, the minutes largely showed that the Fed is expected to continue to normalize monetary policy in the short term, with inflation becoming a more pressing concern.

What to Look Forward To

On Tuesday, the Conference Board Consumer Confidence Index for November is set to be released. Expectations are for consumer confidence to decline, with the index set to drop from 113.8 in October to 110.7 in November. If accurate, the estimated result would bring the index in line with September’s 109.8 reading. Over the past few months, consumer confidence has been challenged by rising concerns about inflation and the pace of the overall economic recovery. Still, despite the declining confidence compared with data from earlier in the summer, the index should remain well above the initial lockdown-induced lows recorded last year. Additionally, consumer spending has continued to show solid growth throughout the fall, despite the lowered confidence over the same period. This data indicates that consumers are going out and spending despite rising concerns. Still, although it’s encouraging that we haven’t seen spending fall alongside confidence, this report will continue to be widely monitored. Declining confidence could weigh on spending in the months ahead.

Wednesday will see the release of the ISM Manufacturing index for November. This widely followed monitor of manufacturer confidence is expected to rise modestly, from 60.8 in October to 61 in November. This is a diffusion index, where values above 50 indicate expansion, so an improvement would signal that the manufacturing recovery picked up steam. Despite the headwinds for manufacturers created by tangled global supply chains and rising prices, high demand has continued to support manufacturer confidence throughout the year. Manufacturer confidence rebounded swiftly following the expiration of initial lockdowns last year, and the index is expected to remain well above pre-pandemic levels in November. Historically, high manufacturer confidence has supported faster growth in business spending, so any improvement would be a positive sign for business investment.

On Friday, the November employment report is set to be released. Economists expect to see that 525,000 jobs were created during the month, in a slight decline from the 531,000 jobs added in October. Nonetheless, the anticipated result would mark a very strong month of job growth. This year’s labor market recovery has evolved in fits and bursts, including an acceleration in job growth in October that followed improvements on the medical front. Another strong month of job growth in November would be a very positive sign for the pace of the overall economic recovery. The unemployment rate is expected to show further improvement, with economists calling for a drop from 4.6 percent in October to 4.5 percent in November. As long as estimates hold, this report should demonstrate a continued healthy recovery for the labor market heading into the end of the year.

We’ll finish the week with Friday’s release of the ISM Services index for November. This measure of service sector confidence is expected to decline modestly from 66.7 in October to 65 in November. This is another diffusion index, where values above 50 indicate expansion, so the anticipated result would leave the index in healthy expansionary territory. October’s reading was a record high for the index. If estimates for November hold, service sector confidence would end the month at the second-highest level on record. As was the case with manufacturing confidence, service sector confidence rebounded swiftly once initial lockdowns were lifted last year. This year, as the continued easing of state and local restrictions led to a surge in consumer demand for services, we’ve seen another step up in service sector confidence. October’s record result was powered by growth in all 18 of the service sector industries covered in this report, highlighting the widespread improvements for this sector. Given that the service sector accounts for the majority of economic activity in the country, continued high levels of confidence would be a welcome signal for the overall economic recovery.

That’s it for this week—thanks for reading!

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