What You Need To Know (Before You Go)

The shortened workweek certainly didn’t slow down public and private research organizations as they released several economic reports in the past three days. So before you sign off to go spend Thanksgiving with your family, let’s run down the latest economic news so that you’re fully prepared when the market resumes regular trading hours on Monday, December 2. (As a reminder, the market is closed tomorrow and is only open half a day on Friday—closing at 1:00 p.m. ET). So let’s get to it.

Building Permits Break One Million

In October, permits for future home construction rose 6.2% to a seasonal rate of 1.03 million. This is the highest level since June 2008 and positively trounced economists’ expectations for a 930,000 rate. Permits for multifamily units surged 15.3% while single-family home permits rose 0.8%. With building permits now at a five-year high, it’s likely that the U.S. residential real estate market will strengthen further next year. While single-family homes continue to comprise the bulk of the housing market, multifamily units are leading the way in terms of new construction.

Layoff Activity Continues Its Retreat

Last week, initial claims for unemployment fell 10,000 to a seasonally adjusted 316,000. The four-week moving average also declined 7,500 to a 331,750 annual rate. Jobless claims have now fallen in six of the past seven weeks. The number of Americans seeking unemployment benefits is now at pre-recession levels. But while hiring has picked up, the U.S. labor market is still improving in fits and starts. I’ll be very interested to see what happens when the November Unemployment Rate is released next week.

Shutdown Weighs on Durable Goods Orders

In October, orders for durable goods fell 2%. This matched economists’ estimates. The main drag on the headline figure was a 5.9% drop in orders for transportation equipment (especially aircraft). Excluding transportation orders, orders ticked down 0.1%. The ex-transportation figure was worse than expected as economists had forecast a 0.3% gain in that measure. The shutdown of the federal government clearly hurt headline durable goods orders. And considering that durable goods orders had gapped up 4.1% in September, a pullback was to be expected. Once the U.S. government more clearly outlines its plans for the government, we should see a rebound in business investment and growth.

Consumer Confidence Confounds

In November, the Conference Board’s consumer confidence index fell to a reading of 70.4, down from 80.2 in September. This was a worse reading than expected—economists had estimated a reading of 72.4.  At face value, this was a weak report: This represents the lowest reading in seven months. Consumers were skittish about what the next six months hold in terms of job prospects. However, given that the holidays are right around the corner, I expect the index to rebound for December. And as I’ll discuss momentarily, the Conference Board’s reading diverges from what the University of Michigan found for November.

In November, the University of Michigan’s consumer sentiment index climbed to a 75.1 reading, up from the 73.2 final reading in October. This was a stronger gain than expected; the consensus estimate had called for a reading of 73.5. While the current conditions sub-index fell from 89.9 to 88.0 in November, the consumer expectations index rose from 62.5 to 66.8. This is interesting because it contradicts what the Conference Board found with its own consumer confidence survey. It’s clear that there are mixed opinions about the state of the U.S. economy so we’ll need to see things settle before noting any new trends in consumer sentiment.

Third-Quarter Picture is Looking Up

In October, the index of leading economic indicators ticked up 0.2%. Economists had expected the measure to remain unchanged.  The gauge was lifted by strong factory goods orders as well as building permits data. The temporary surge in jobless claims (caused by California’s computer glitches) and mixed consumer sentiment weighed on the index. Meanwhile, September’s reading was revised up from 0.7% to 0.9%. This is encouraging. With the latest results, the LEI index has risen for four months in a row. However, we’ll get a better big picture view of the economy with next week’s third-quarter Gross Domestic Product announcement.

I hope you have a happy and safe Thanksgiving!

Sincerely,

signed: Louis Navellier

Louis Navellier

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