Economic Week in Review

ECRI Weekly Leading Index 131.80 +.30%

Factory Orders for August fell .1% versus estimates of a .1% gain and an upwardly revised 1.7% increase in July. Bookings for products other than transportation equipment rose 1.3%, the biggest advance since March, Bloomberg said. "The manufacturing sector is doing quite well." said Stephen Stanley, chief economist at RBS Greenwich Capital. "We did have a soft patch in June, but we've recovered," and there's no sign of business spending weakness. Overall orders were restrained last month by a drop in bookings for commercial aircraft, which doubled in July. Through August, factory orders were up 12% compared with the same period in 2003, Bloomberg reported.

ISM Non-Manufacturing for September came in at 56.7 versus estimates of 59.0 and a reading of 58.2 in August. The gauge has now shown service sector expansion for 18 straight months, Bloomberg said. The effects of the record-setting hurricanes likely dampened an otherwise stronger report, Bloomberg reported. The survey's employment index rose to 54.6, the highest level since June. Lee Scott, CEO of Wal-Mart, told analysts and investors recently that he is "optimistic about sales in the November/December holiday season and expects a strong finish to the year." The index of prices paid, a measure of costs for purchased materials and services, fell to 67.1 last month, the lowest since March.

Initial Jobless Claims plunged to 335K last week versus estimates of 355K and 372K the prior week. Continuing Claims were 2864K versus estimates of 2875K and 2865K prior. Monster Worldwide, the NY-based operator of the biggest Internet job service, said earlier that its index of online job postings rose to the highest level since its inception last year, Bloomberg reported. "As the employment data arrive over the next several months, we may very well see the job numbers snap back," said Federal Reserve Bank of Cleveland President Pianalto. Claims in recent week have been difficult to interpret because of the effects of Hurricanes Charley, Frances, Ivan and Jeanne, which caused billons of dollars of damage while disrupting business substantially in some southern states, Bloomberg said.

Consumer Credit for August fell $2.4B versus estimates of a $6.0B rise and an increase of $11.2B in July. The decline in borrowing, which left total outstanding consumer debt at $2.4 trillion, coincided with a pause in consumer spending during August after the biggest jump in almost two years.

The Unemployment Rate for September was 5.4% versus estimates of 5.4% and 5.4% in August. Average Hourly Earnings rose .2% in September versus estimates of a .3% increase and a .3% gain in August. Change in Non-farm Payrolls for September was 96K versus estimates of 148K and a 128K gain in August. Change in Manufacturing Payrolls for September was -18K versus a 10K estimate and a 4K gain in August. The effects of the hurricanes likely dampened otherwise more positive numbers. Robert Gay, chief strategist at Commerzbank Capital Markets, said 1.89 million people in the household survey said they worked fewer hours because of bad weather. As well, the Labor Dept. said the economy likely gained an additional 236,000 jobs that weren't originally reported during the 12 months ended in March 2004. The U.S. economy has now created almost 2 million new jobs over the last 13 months, Bloomberg reported.

Wholesale Inventories for August rose .9% versus estimates of a .8% gain and a 1.5% rise in July. The report suggests wholesalers remain optimistic about the prospects for U.S. economic growth and are building inventories in anticipation of increased orders from customers, Bloomberg reported. "The fact that sales rose too means this was planned inventory growth, and that's good growth," said Wesley Beal, an economist at IDEAglobal in New York.

Bottom Line: Overall, last week's economic data were modestly positive. Recent measures of manufacturing activity continue to show acceleration from a mid-year pause and should strengthen into year-end. The ISM Non-manufacturing Index, a measure of activity in the service sector, should accelerate into year-end as the negative effects of the hurricanes diminish and consumers become more confident. Once again, the mainstream media and the Bears are downplaying the effects of these record-setting storms in an attempt to paint the U.S. economy in a negative light. There are STILL almost 1 million people in Florida without power. While the change in non-farm payrolls was disappointing, hiring activity was definitely suppressed to some extent by the storms. Moreover, other recent surveys and indices continue to point to an improving labor market. Finally, I believe the uncertainty over the course of the U.S. government and the possibility of election-related domestic terrorism is having a much larger impact on hiring activity than is suggested by most pundits and analysts. A recent survey by TEC International shows that 75% of the 5,700 small-to-medium-sized business owners that create 75% of all U.S. jobs favor President Bush for re-election. With a closely contested race for the Presidency and the prospects of having their taxes and regulations increased, these job creators will likely wait until the outcome of the election is clear to significantly alter hiring practices. I view the decline in consumer credit as a positive considering the excessive level of debt consumers have taken on over the years. As well, recent measures of home and car sales remain very strong, suggesting August's decline in consumer credit was just a pause that refreshes rather than a significant decline in consumer spending.