Last week was a busy one on the data front, giving us a wide-ranging look at the economy. Overall, the news was good, with consumer and business confidence improving or holding steady, while the jobs report rebounded significantly. The big Federal Reserve news—the selection of Janet Yellen’s successor—was also well received.
Last week’s data
On Monday, we saw personal income and spending data. Personal income came in with growth of 0.4 percent for September, which was up from 0.2 percent in August and in line with expectations. Personal spending was up even more, by 1 percent. This result was slightly above expectations of 0.9-percent growth and well above the August level of 0.1 percent. Both of these numbers were affected by the hurricanes, with spending especially inflated as gasoline prices rose and new autos were bought to replace those destroyed by the storm. Nonetheless, these are solid numbers, are consistent with higher consumer confidence, and suggest growth continues.
The Conference Board survey of consumer confidence came in on Tuesday. At 125.9, it was much higher than expected, up from 119.8 and against an expected 121.5. This result is the highest level since December 2000 and includes strong gains not only in the present situation but also in future expectations. These healthy confidence figures reflect lower gas prices as the post-hurricane spike fades, as well as a strong stock market and a job market that continues to do well. Strong consumer confidence is likely to keep spending growing, which would be supportive for growth overall.
On Wednesday, the Institute for Supply Management (ISM) Manufacturing index pulled back slightly from 60.8 to a still very strong 58.7, which was marginally below expectations of 59. Last month’s spike was largely due to technical adjustments in the aftermath of the hurricanes. So, the small reduction is not a concern, especially since it remains at a very strong level. Positive results from other surveys continue to suggest that the manufacturing sector is expanding.
We got three big reports on Friday, starting with international trade. As expected, it pulled back a bit—from a downwardly revised deficit of $42.8 billion in August to $43.5 billion in September, slightly worse than the expected $43.2 billion. Again, this is due to hurricane effects, as petroleum exports were shut down during the storms. Preliminary data shows that trend has reversed, so the pullback is not of too much concern, as export growth continues.
Also on Friday, the ISM Nonmanufacturing index surprised to the upside. It rose from 59.8 to 60.1, against an expected small decline to 58.5. This takes the index to a 12-year high, suggesting that economic growth may accelerate into the fourth quarter. While there may be some persistent hurricane effects in the data, pushing it up a bit, all of the components were strong. With both ISM indices indicating strong growth, business should continue to be additive to the expansion.
Finally on Friday, the employment report showed a major reversal of last month's hurricane-induced loss in jobs. Job growth in September was revised up from a loss of 33,000 to a gain of 18,000. In October, it came in at 261,000, below expectations of 313,000. Note that the upward revision for September and the below-expectations result for October largely offset each other, leaving the actual number of jobs in line with expectations. While this was a wash, a weak area was in wage growth. Here, the number was flat, down from growth of 0.5 percent and below expected growth of 0.2 percent. While some decline was expected, as overtime pay due to the storms dropped out of the data, the result is a potential concern.
Other indicators held steady or improved, with unemployment down to 4.1 percent from 4.2 percent (a very low level) and the average workweek remaining constant at 34.4 hours. One notable improvement is that the underemployment rate dropped from 8.3 percent to 7.9 percent, which takes it close to the lows of the previous cycle. Overall, this is not a very strong report and has some areas of concern. Still, it indicates a healthy labor market and one that continues to expand—boding well for the future.
Other economic news this week was the regular meeting of the Federal Open Market Committee, which concluded on Wednesday. No major news was expected, and we got none. The big news for the Fed was the announcement of President Trump’s selection for the next chair, Jerome (Jay) Powell. Powell has been with the Fed for years and has generally been perceived as aligned with Chair Yellen, which should signal policy continuity.
What to look forward to
This week will be very slow on the economic news front. We expect only one major release.
On Friday, the University of Michigan consumer sentiment survey is expected to pull back slightly. After reaching the highest level in a decade at 100.7, expectations are for a small drop to 100, which would still be quite high. Given the strong performance of the stock market and gas prices dropping as the hurricane price spike winds down, there may be some upside risk here. In any event, if the data comes in as expected, it would signal continued economic strength.
Have a great week!