ECRI Weekly Leading Index 132.30 -.30%
Preliminary 3Q GDP rose 3.9% versus estimates of 3.7% and a 3.7% prior estimate. Preliminary 3Q Personal Consumption rose 5.1% versus estimates of a 4.7% increase and a 4.6% prior estimate. The Preliminary 3Q Price Deflator rose 1.3% versus estimates of a 1.3% increase and a prior estimate of a 1.3% gain. The 5.1% gain in consumer spending was the fastest in almost 3 years, Bloomberg said. "The economy had a lot more momentum and underlying strength in the third quarter," said James Glassman, a senior economist at J.P. Morgan. The Price Deflator, a measure of inflation, decelerated to 1.3% from 3.2% during the second quarter. As well, the prices of goods and services bought by consumers excluding food and energy rose at a .7% annual pace, the smallest gain since the 4th quarter of 1962. Finally, final sales to domestic purchases, a good gauge of U.S. demand, because it excludes trade and inventories, rose at a 4.9% annual rate, the strongest in a year, Bloomberg reported.
The Chicago Purchasing Manager Index for November fell to 65.2 versus estimates of 62.0 and a 16-year high reading of 68.5 in October. The employment component of the index soared to a 16-year high, suggesting the manufacturing recovery is secure and will help drive economic growth, Bloomberg reported. An index of new orders fell to 70.0 from a 20-year high of 79.4 in October. The general index "is still quite elevated, as are the new orders and production sub-indices," said Joshua Shapiro, chief U.S. economist at MFR Inc.
Consumer Confidence for November fell to 90.5 versus estimates of 96.0 and a reading of 92.9 in October. Confidence fell among those who earn less than $35,000/year as higher gas prices took their toll on sentiment. However, confidence rose for those making $35,000 or more, Bloomberg reported. Moreover, the group's overall gauge of optimism about consumer's present situation rose to 95.2 from 94 in October.
Personal Income for October rose .6% versus estimates of a .5% increase and a .2% rise in September. Personal Spending for October rose .7% versus estimates of a .4% increase and a rise of .6% in September. The Core PCE Deflator, Greenspan's favorite inflation measure, rose 1.5% at an annualized rate versus estimates of a 1.4% increase and a 1.5% gain in September. "We are starting off the fourth quarter on better footing than we expected," said Stephen Stanly, chief economist at RBS Greenwich Capital. The Fed said in its Beige Book summary "Labor markets continued to improve over the past few weeks, with numerous reports of hiring." "We are ending the year very, very strong," said Norbert Ore, chairman of the group's manufacturing committee. Finally, the Business Roundtable's outlook index signaled that businesses plan to increase capital spending over the next six months at the highest rate since the survey began in 2002, Bloomberg reported.
Construction Spending for October was unch. versus estimates of a .7% rise and a .1% gain in September. U.S. construction spending held steady in October at its highest level ever, as a decline in homebuilding was offset by increased government spending on streets and highways, Bloomberg said. Overall construction spending rose 7.1% over the same month a year earlier, Bloomberg reported. People have started to get the hurricane checks from their insurance settlements, which should benefit construction spending in the near-term, Bloomberg said.
ISM Manufacturing for November rose to 57.8 versus estimates of 57.0 and a reading of 56.8 in October. ISM Prices Paid for November fell to 74.0 versus estimates of 75.3 and a reading of 78.5 in October. U.S. manufacturing strengthened in November, with growth accelerating for the first time in four months, as orders and employment picked up. The new orders component of the index rose to 61.5 from 58.3 in October and the employment component rose to 57.6 from 54.8. Moreover, the prices paid index fell to the lowest level since December 2003. "The manufacturing sector is still growing at a healthy pace, and that's consistent with the decent growth in the overall economy," said Ethan Harris, chief U.S. economist at Lehman Brothers. Morgan Stanley economists increased their estimate for fourth-quarter US economic growth to 4.7% from 4.5%, Bloomberg reported. "A broad-based manufacturing expansion is under way," said Daniel Meckstroth, chief economist at Manufacturers Alliance.
Total Vehicle Sales for November fell to 16.4M versus estimates of 16.5M and 17.0M in October. Domestic Vehicle Sales in November fell to 12.9M versus estimates of 13.1M and 13.2M in October. U.S. automakers' market share hit a record low after declines at General Motors and Ford, Bloomberg said. DaimlerChrysler AG and Asian carmakers' share, led by Nissan's 26% gain, rose. "The domestics can't compete on just price," Argus Research analyst Kevin Tynan said. "Chrysler has done a good job of maintaining momentum with new models and Asian automakers attract buyers because customers are seeking the best value and quality for your dollar."
Factory Orders for October rose .5% versus estimates of a .2% gain and unch. in September. "The economy is on a relatively robust path" said Glenn Hubbard, dean of the Columbia Business School. Deere & Co., the world's largest maker of farm equipment, reported a pick up in new orders last quarter to the best pace since 1996. The Factory inventory-to-shipments ratio held at 1.24 months, near the record low 1.22 months reached in March, Bloomberg said.
The Unemployment Rate for November fell to 5.4% versus estimates of 5.4% and 5.5% in October. Average Hourly Earnings for November rose .1% versus estimates of a .3% rise and a .3% increase in October. The Change in Non-farm Payrolls for November was 112K versus estimates of 200K and a downwardly revised 303K in October. The Monster Employment Index, which measures demand for employees based on online recruiting, rose in November to the highest level since its inception last year. Postings for healthcare workers, business and finance professional showed the biggest increases, Bloomberg reported. The Fed should continue to raise interest rates "at a measured pace" next year as the economy expands close to a 4% rate, creating "solid but moderate gains in employment," said Philly Fed President Santomero. Job growth has averaged 185,450/month this year, the best since 1999, Bloomberg said. As well, current job growth compares favorably to the entire 1990s in which payrolls increased an average of 180,350/month. Finally, a recent survey by the Business Roundtable found that 80% of CEOs expect hiring to increase or remain the same over the next six months, Bloomberg said. Crude oil prices have declined 14% this week, the biggest weekly decline since the start of the U.S.-led liberation of Iraq, Bloomberg reported. Moreover, oil has plunged 23.1% from its high set 5 weeks ago. "As energy prices come down, there should be a reversal, and companies will hire more," said John Silvia, chief economist at Wachovia.
ISM Non-Manufacturing for November rose to 61.3 versus estimates of 58.5 and a reading of 59.8 in October. "Demand for services from consumers is quite strong," said Christopher Rupey, senior financial economist at Bank of Tokyo-Mitsubishi. The index of order backlogs rose to 54.0 from 52.5. Prices paid, a measure of costs for purchased materials and services, fell to 71.0 from 74.1, Bloomberg said.
Bottom Line: Overall, last week's economic data were positive. U.S. GDP growth has averaged a very strong 4.6% over the last 6 quarters and is projected by many economists to approach 4% in 2005. 3Q Personal Consumption was very strong and contradicts bears' claims that the consumer is "spent-up." While recent measures of consumer sentiment have dipped, last week's plunge in energy prices, continuing improvements in the job market, rising incomes and the upcoming free-elections in Iraq should boost confidence. A number of gauges of inflation showed deceleration, which is a pleasant surprise considering commodity prices were at all-time highs when these measures were taken. Measures of manufacturing continue to accelerate from the mid-year pause and should remain strong into the first quarter. Construction will likely continue to boost the economy on hurricane rebuilding, relatively low interest rates and lower commodity prices. The unemployment rate is low by historic standards and many measures show the outlook for labor is good. However, for interest rates to remain low, payroll growth needs to stay at moderate levels and not accelerate substantially. Over 70% of inflation is comprised of unit labor costs. Sustained, elevated hiring would result in an acceleration of inflation from current average rates, thus leading to a quickening of interest rate hikes by the Fed.
