FXStreet (Mumbai) – A slew of economic data was released yesterday before the markets closed for Thanksgiving. A review of the data reveals that a rather small consumer spending combined with the adverse effect of inventory reduction will likely lead to a 2 per cent growth rate in the fourth quarter. The economy which expanded at a 2.1 per cent pace in the third quarter, will however is likely to be supported by increase in business spending.
Consumer Spending
The Commerce Department said consumer spending edged up 0.1 per cent in October matching September’s rise, suggesting a slowdown in spending by consumers from the third quarter’s 3.0 per cent annual pace. In the 12 months through October the price index for consumer spending rose 0.2 per cent. Excluding food and energy, the personal consumption expenditures price index was up 1.3 per cent for the 10th straight month.
Households probably took advantage of increase in income to U.S. to boost savings to their highest level in nearly three years thereby hurting consumer spending slightly. This will likely impact economic growth in the fourth quarter.
This slowdown in consumer spending cannot be expected to have any impact on Fed’s intention to hike rates in December after having kept rates at record low for almost a decade now. Also, host of other data released yesterday showed a rise in business spending plans in October. New applications for unemployment benefits last week also fell pointing towards a robust labour market.
Jobless claims
The Labor Department showed yesterday that initial claims for state unemployment benefits decreased 12,000 to a seasonally adjusted 260,000 for the week ended Nov. 21. Strengthening labor market conditions are helping to lift income. The Commerce Department said personal income increased 0.4 per cent in October. Wages and salaries were also up 0.6 per cent.
Savings increased to $761.9 billion, the highest level since December 2012, from $722.9 billion in September. Higher savings could over time buoy consumer spending.
The number of Americans filing for unemployment benefits fell significantly, drifting back to near 42-year.
The four-week average of continuing claims increased to 8,750 in the October and November survey periods. This data suggests unemployment rate will likely remain at a 7-1/2-year low of 5 per cent in November. In October 271,000 new jobs were added.
Durable goods
New orders for US manufactured durable goods rose markedly to 3 per cent in October of 2015, up from downwardly revised 0.8 per cent fall in September. Boosted by transport orders new orders for durable goods rose for the first time in three months beating market expectations. Excluding transportation, new orders increased 0.5 per cent. The Commerce Department reported non-defense capital goods orders excluding aircraft jumped 1.3 per cent in October.
Significant increase in new orders for durable goods together with a solid increase in manufacturing output in October implies that negative impact of strong currency and deep spending cuts by energy firms is almost over.
Millan Mulraine, deputy chief U.S. economist at TD Securities in New York aptly pointed out, “The surge in core capital goods orders could be a crucial signal that this important sector of the economy may be at a turning point, further bolstering the Fed’s confidence in the sustainability of the economic recovery”
Markit Composite PMI
The Markit US composite PMI for November came in at 56.1 in November, up from a final of 55 in October. It has recorded the highest reading in November since April this year.
The Markit US services PMI came in at 56.5 in November of 2015, up from a final of 54.8 in October, marking the biggest expansion of the service sector since April. a rise in incoming new work as well as solid job creation led to rise in the index.
The Markit Manufacturing PMI released on 23rd November had however not been very encouraging. The manufacturing sentiment in November fell to its lowest level in 25 months, according to the survey. The manufacturing PMI fell to 52.6 from 54.1 in October.
New home sales
The Commerce Department on Wednesday reported new homes sales jumped 10.7 per cent in October to 495,000 units, reducing fears of a slowdown in housing. Sales were up 4.9 per cent in the same period in 2014.The median price of a new home also fell 6.0 per cent from a year ago to $281,500. New home sales account for about 8 per cent of the housing market.
New U.S. single-family home sales increased significantly in October while the inventory of properties for sale was the highest since early 2010. If sales move at a pace registered in October, it would take 5.5 months to clear the supply of houses on the market
The increase in new home sales in October comes as a reassurance. The figures will play a positive role in convincing the markets that despite declines in home re-sales, housing starts and dipping confidence among builders in September, the housing market remains on solid ground.
(Market News Provided by FXstreet)