KEY DATA: Orders: +1.2%; Durables: +2%/ Deficit: $1.2 billion narrower/ Claims: -12,000
IN A NUTSHELL: “The hurricanes may have caused havoc, but the economy seems to be bouncing back.”
WHAT IT MEANS: This is one resilient economy. Neither rain, nor wind nor the gloom in Washington seems to stay businesses and consumers from their appointed rounds of producing and buying. Factory orders were strong in August, led by solid increases in durable goods demand. But orders for nondurable products were also up decently, indicating that the manufacturing sector is experiencing broadly based increases in sales. Indeed, the only major sector that posted a decline in demand was furniture products.
There was also good news on the trade front. Rising exports, especially consumer and capital goods, led to a narrowing of the trade deficit. However, the decline in imports is a warning. We bought less of most products, except vehicles and consumer goods. A strong economy should mean that our demand for all products, including foreign goods, should rise. It didn’t. Still the narrowing trade deficit implies that trade will likely be a nonevent in the third quarter GDP report. It shouldn’t help or hurt growth.
Consumer spending looks like it was pretty strong in September, though not for the reasons we would want to see. The destruction of so many vehicles led to a surge in sales as households began to replace their flooded out autos and SUVs. We also saw this week that job cuts in September were modest. Challenger, Gray and Christmas noted that the third quarter layoff announcements were the lowest third quarter total in 21 years. Jobless claims came down last week, but they remain well above what they had been before the hurricanes blew up the data. And finally, the Conference Board reported that there was a modest increase in online help wanted ads. In other words, most of the data reported this week were positive.
MARKETS AND FED POLICY IMPLICATIONS: Tomorrow is employment Friday and it is hard to really know what the report will look like because of the hurricanes. It is likely that the unemployment rate will rise, if the elevated number of jobless claims is any indicator. We could also see an unusually small number of jobs created. Houston was largely back online by mid-September, but some firms may never reopen. In Florida, Irma’s timing may have led to a lot of workers not being employed during the survey week. Thus, don’t be too surprised if the number of jobs added is well below the even modest consensus of 75,000 – 100,000. I am on the lower side, but I have been surprised at how well the economy has held up despite the hits it has taken. My point is that if we get a truly ugly report, don’t assume that is anything more than temporary. Just as vehicle sales rebounded well above what they would have been without the storm damage, expect job gains to bounce back as households and business start repairing and rebuilding.