It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let’s take a look at this week’s big headlines, starting with the market moving Unemployment Rate report:
Jobs Picture Brightened in September
The Labor Department reported that 248,000 new jobs were created in September, which was substantially better than expectations of 215,000. Also positive, the July and August payrolls were revised up by 69,000 jobs to 243,000 (up from 212,000 previously reported) and 180,000 (up from 142,000 previously reported), respectively. The unemployment rate dropped to 5.9% in September from 6.1% in August. Overall, this was a great report, and investors bought stocks today as they focused more on the health of the economy than questioning whether the strength in job creation could prompt the Fed to raise interest rates sooner than expected. I believe the Fed will keep rates low because when you dig into the full jobs report, we continue to see labor force participation falling and wage growth remaining anemic.
Americans Make A Little More, Spend A Little More
In August, personal income grew at a seasonally adjusted 0.3% rate, in line with economists’ expectations. Consumer spending climbed 0.5%, just beating economists’ estimates of a 0.4% increase. This also represents a turnaround from the unexpected 0.1% decline in consumer spending during July. Excluding the cost of food and energy, core personal consumption expenditures (PCE) climbed 0.1%. Economists had expected the common inflation metric to remain flat. There are two main takeaways from this report. First, salary and wage growth remains modest. Second, the uptick in consumer spending bodes well for third-quarter GDP.
For Americans, The Glass is Half Empty
The Conference Board’s measure of consumer confidence slipped to 86 in September, down from a revised reading of 93.4 in August. September’s reading was also well below economists’ consensus expectation of 92.8. The drop was largely caused both by consumers’ feelings about the present state of the economy (89.4 in September, down from 93.9 in August) as well as their outlook for the economy (83.7 in September, down from 93.1 in August). This was clearly a big drop in consumer confidence. It appears that August employment report led many Americans to think the economy is slowing. The reality is that growth remains fairly robust (as shown by Friday’s Unemployment Rate report), so I expect consumer confidence to rebound.
Building Activity Takes a Breather in August
In August, construction spending unexpectedly contracted 0.8%; economists had forecast a 0.5% increase. July construction spending was also revised lower to reflect a 1.2% increase, down from 1.8% earlier. Breaking down the August results, housing construction fell 0.1% on less remodeling activity, non-residential construction declined 1.4% and government project spending pulled back 0.9%. This is the second time in three months that construction spending has fallen. Even so, the current level of construction spending is still 5% higher than a year ago. Economists’ are maintaining their optimistic estimates for third-quarter growth on the belief that single-family and apartment construction will make up for August’s dip.
Layoff Activity Hits 2006 Levels
For the week ending on September 27, jobless claims declined to a 287,000 annual rate (8,000 lower than the prior week). Economists had expected the measure of layoff activity to tick up to a 300,000 annual rate, so these results were better than expected. Meanwhile, the four-week moving average fell 4,250 to 294,750. Initial claims for unemployment are trending at 2006 levels, which is a great sign for the job market.
Factory Goods Orders
In August, new orders for manufactured goods fell 10.1%. This was a steeper drop than expected; economists had forecast a 9.5% decline. This followed a 10.5% surge in orders in July. August orders for transportation equipment plunged 42.2%, dragging down the headline figure. Excluding transportation orders, factory goods orders inched down just 0.1%. Of these, non-durable goods orders fell 0.4%. These results largely mirror the durable goods orders report released last week. While this is the steepest drop in headline factory goods orders on record, much of the plunge came from the volatile aircraft component (which had surged the prior month). So I’m not particularly concerned about the drop and expect orders to rebound next month.
Petroleum Exports Squeeze Trade Gap
In August the U.S. trade deficit declined slightly to $40.1 billion, down from $40.3 billion in July. U.S. exports rose 0.2% to $198.5 billion, while imports rose 0.1% to $238.6 billion. The U.S. exported a record $14.1 billion in refined petroleum products and imported $27.2 billion of crude oil in August, so the petroleum deficit continues to shrink and is now at the lowest level in ten years. Overall, a shrinking trade deficit helps to boost overall GDP growth, so the fact that exports are rising faster than imports is good news.
That’s all I have for you this week. I’ll be in touch with the latest Portfolio Grader changes and Stock of the Day on Monday.
Have a great weekend,