Personal Incomes/Spending Rise Less Than Estimates, Inflation Contained, Chicago PMI Surges, Construction Spending Falls

- Personal Income for October rose .2% versus estimates of a .4% gain and a .4% increase in September.

- Personal Spending for October rose .2% versus estimates of a .3% gain and a .3% increase in September.

- The PCE Core for October rose .2% versus estimates of a .2% gain and a .2% increase in September.

- The Chicago Purchasing Manager November rose to 52.9 versus estimates of 50.5 and a reading of 49.7 in October.

- Construction Spending for October fell .8% versus estimates of a .3% decline and a .2% increase in September.

BOTTOM LINE: Consumer spending and incomes in the US rose less than forecast in October, Bloomberg reported. The Fed’s favorite inflation gauge, the Core PCE rose .2% for a second straight month and is up 1.9% year-over-year, which is within the Fed’s comfort zone. Consumer spending should accelerate next month on more seasonal weather and incomes will remain relatively healthy over the intermediate-term as unemployment stays low by historic standards. I continue to believe inflation concerns have peaked for this cycle.

A measure of US business activity expanded more than expected in November, as employment and production rebounded, Bloomberg reported. The Production Component surged to 57.4 from 46.9 the prior month. The New Orders component continued to show expansion, remaining at 53.9. The Order Backlogs component rose to 45.9 versus 39.9 the prior month. The Employment component of the index jumped to 54.4 from 49.5 the prior month. The Inventories component fell to 47.1 from 49.6 the prior month. The Prices Paid component rose to 76.2 from 74.7 the prior month. The gain in this index is a big positive. I continue to believe manufacturing will help boost overall economic growth to around 2-2.5% over the intermediate-term as companies gain confidence in the sustainability of the current expansion and rebuild depleted inventories as exports boom.

Spending on US construction projects fell in October, Bloomberg reported. Private residential construction spending fell 2%, the 20^th consecutive decline. Non-residential construction rose .1%. I continue to believe overall construction spending will remain muted over the intermediate-term as homebuilders pare down inventories.