KEY DATA: Consumption: +0.2%; Real Disposable Income: +0.1%/Orders: +0.4%; Business Investment: -1.3%/Jobless Claims: 313,000 (up 21,000)
IN A NUTSHELL: “On a day where there are a rafter of data, only some of them are turkeys.”
WHAT IT MEANS: The long weekend has created a backlog of numbers and they are all coming out this morning. The first group were somewhat mixed. Consumer spending continued to improve in October, which is very good news. Indeed, it rose despite a reduction in durable goods demand. That was a little odd as total vehicle sales edged upward. A solid holiday shopping season could push consumer demand up to 3% for the fourth quarter, which is where I have it. As for income growth, that was not as strong as we would like, but conditions are clearly changing. While gains are not spectacular, total wages and salaries have increased by 4.4% over the year. Yes, some of that is due to more jobs, but about half is due to actual wage increases. Still, adjusted for inflation, average wage increases continue to lag.
On the manufacturing front, durable goods orders rose in October. That was a bit of a surprise, but the details are what matter. There was a 45% increase in defense aircraft orders and that is not likely to be repeated given the spending restraints in place. Excluding defense, orders were down sharply. In addition, the best measure of business investment, nondefense, nonaircraft capital goods orders, posted a second consecutive 1.5% drop. That is not a sign of aggressive business investment activity. Order books are filling, so that should lead to more production.
Finally, there was the very strange large surge in weekly jobless claims. The individual state data don’t seem to jive with the overall change so it is hard to really know why that happened. Also, Thanksgiving is late this year so maybe there was an issue with the seasonal factors. In any event, this number should be viewed with caution. We need to see what happens over the next few weeks to determine if the labor market tightening process is moderating. Keep in mind; the level is still consistent with solid, though not robust, job gains.
MARKETS AND FED POLICY IMPLICATIONS: It is unclear what to make of today’s numbers. Nothing was overly strong and there were some weak reports as well. So the best that can be said is that confusion about the strength of fourth quarter growth remains high. The estimates range from the low 1% to over 4%, which shows that economists are clueless right now about what is happening. I still think we could approach 4%, but we need a really good holiday shopping season. So, go out and spend like crazy this next week.
Have a Happy Thanksgiving!