Monday Update: Slow But Stabilizing

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on Nov 30, 2015 12:23:52 PM

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Monday updateDespite the Thanksgiving holiday, there was quite a bit of data released last week. Let's take a closer look.

Last week’s data

Existing home sales dropped to 5.36 million, down from 5.55 million in September, which was slightly below expectations. Along with the decrease in housing starts from the previous week, this suggests housing growth is slowing. But note that the September increase was substantial, so some pullback was reasonable, while the long-term trend remains positive. New home sales increased, but by less than expected—to 495,000 rather than 510,000—and the previous month was revised down, suggesting that housing growth may well have slowed but still continues.

The major negative news of the week was an unexpected decline in consumer confidence, as surveyed by the Conference Board, to 90.4 from a revised 99.1. Both the present expectations and expectations indices declined substantially. Worth noting is that the survey took place before the Paris attacks, so current numbers might be even worse. Although this is worrying, the other major consumer survey, from the University of Michigan, was down by much less. The principal concern appeared to be jobs, so this may be a lagged reflection of the jobs weakness over the third quarter. This is worth watching, but nothing more at the moment.

The most important data releases of the week were the personal income and spending reports. Income growth increased from an upwardly revised pace of 0.2 percent in September to 0.4 percent in October, reflecting hourly wage gains and employment growth. Spending, however, continued to lag, with an increase from 0.1 percent (the same as the prior month)—perhaps reflecting weak confidence—while the savings rate increased from 5.3 percent to 5.6 percent. As I’ve noted, spending growth lagging income growth is not something I personally consider a problem at the moment.

Finally, the headline number for durable goods orders, which includes transportation, popped up to an increase of 3.0 percent, from a decline of 1.2 percent, but was less encouraging in the details. Much of the gain came from large orders for Boeing, and aircraft orders are extremely volatile. Excluding transportation, orders were up by a still reasonably healthy 0.5 percent, though. More encouraging were the core goods orders, excluding defense and aircraft, which were up by 1.3 percent, beating expectations. These numbers are not outstanding, but they do provide further evidence of stabilization in the industrial sector.

Overall, last week’s data was mixed, with several signs of a slowdown. In many cases, this is due primarily to a pullback from strong recent performance, while the long-term trend remains positive. In addition, more forward-looking indicators are, in many cases, more positive than those that look back, suggesting the slowdown is passing.

The week ahead

This week, we again have a full slate of data releases. The Institute of Supply Management will release both business surveys, with manufacturing on Tuesday and nonmanufacturing on Thursday. The manufacturing survey is expected to tick up slightly and remain in positive territory, from 50.1 to 50.5, again suggesting stabilization in this sector. The nonmanufacturing survey, on the other hand, is expected to decline slightly to 58.0 from 59.1, which still remains quite high by historical standards and is consistent with economic growth of around 3.0 percent.

The major release of the week will be the employment report on Friday. Expectations are for a gain of 220,000 jobs, down from the prior month’s very strong 271,000, but still healthy. Wage growth is expected to revert to 0.2 percent month-on-month, down from 0.4 percent, with the employment rate constant at 5.0 percent.

Have a great week!

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