A barrage of US data confirms a mixed picture for the economy: jobless claims are rising, durable good data improves, while personal consumption is revised lower and trade figures disappoint. The release of 14 data points provided a limited reaction for stocks, dollar, and Treasury yields. Financial markets are quickly entering holiday mode but what appears to be clear is that outlook for the fourth quarter will continue to deteriorate.
The Fed may have just gotten the green light to move at the December 16th policy decision meeting since the current coronavirus wave is weighing on the labor market and trade figures, as factories and production remain strong due to depressed inventory levels. If next week’s nonfarm payroll release prints a negative number, the Fed can justify increasing their purchases and signal they will adopt yield curve control.
Lost in the shuffle of the 8:30 am data dump was China President Xi’s congratulations to US President-elect on his election win, adding he hopes both sides follow the ‘no conflict’ principle. Investors are banking on Biden to mend relations with China, but he might only be able to prevent relations from continuing its deep, downward spiral.
First round of data
Large parts of the economy are being ravaged by the COVID-19 pandemic and expectations will grow for the upcoming non-farm payrolls release to be the catalyst to have Congress break the stimulus impasse. Initial jobless claims rose to a five-week high at 778,000, much higher than the consensus estimate of 730,000. The total number of people claiming benefits in all programs was 20.4 million, an increase of 135,000 from the prior week. The labor market recovery is bracing for a Biden administration that will deliver increased lockdowns as the US aims to get the virus fully under control.
The US October advance goods trade data showed a monthly improvement of 2.8% in October, but a substantial 7.5% decline from a year ago. Imports rose 2.2% on a monthly basis and 1.9% year-over-year. The export data could reduce bets that the fourth quarter will remain in expansion territory.
The highly volatile durable goods readings impressed as defense orders rose sharply. Manufacturing remains unfazed as new orders stretch the increase streak to six consecutive months. Shipments of manufactured durable goods have now risen five of the last six months, with October posting a 1.3% increase.
Round two of data
The 10:00am swath of data pushed equities lower as personal income and spending posted big declines. The worse-than-expected personal income data raises the argument that Congress should act before the end of the year. The October personal income decline of 0.7% was far worse than the expected 0.1% drop, and the prior reading which was revised lower from 0.9% to 0.7%. Personal spending increased 0.5%, slightly better than the economists’ forecast of 0.4%, but was very much lower than the revised prior reading which was revised lower two ticks to 1.2%.
The final Michigan confidence readings for November saw limited revisions, the headline lower by a tick, while current conditions dropped 1.2 points and expectations fell 0.8 points.
New home sales always takes a backseat to existing home sales, but regardless both are providing welcome news to the best part of the economy. The housing market remains strong, but it should be near the end of this current boom. Vaccine optimism should put an end to the mass exodus of metropolitan areas.
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