Weekly Economic Wrap: Oct 30, 2020

This is a summary of economic reports released during the week ending Oct 30, 2020. These are summarized from the Econoday web site and other various reports, such as Ned Davis Research. 

The stock market overall was down. The DJIA began the week at 28,185 and closed at 26,502 on Friday. This is a daily chart of the SP500. Click to enlarge.  

New Home Sales (Oct 26)

Actual number: 969,000 (annual basis)

New home sales have been soaring, easily beating Econoday's consensus the last five reports. After August's 1.011 million annual rate, Econoday's consensus for September is 1.016 million. New home sales measure the number of newly constructed homes with a committed sale during the month. The level of new home sales indicates housing market trends and, in turn, economic momentum and consumer purchases of furniture and appliances.

Durable Goods Orders (Oct 27)

Consensus: .4% increase. Actual: 1.9% increase

Recovery in durable goods orders is expected to hold steady in September, at a 0.4 percent monthly increase following August's 0.5 percent gain (revised from an initial 0.4 percent). Durable goods orders are new orders placed with domestic manufacturers for factory hard goods. The report also contains information on shipments, unfilled orders and inventories. The advance release provides early estimates and is revised about a week later by the factory orders report. 

Housing Prices (Oct 27)

The Case-Shiller House Price index was up 0.5% over the previous month. Year to year it was up 5.2%. The FHFA House Price index was up 1.5% month to month and 8% year over year. The Case-Shiller is based on actual sales in 20 cities, while the FHFA relies on mortgage data from Freddie Mac and Fannie Mae.

Oil and Gas Inventories (Oct 28/29)

Crude oil inventories were up 4.3 million barrels. Natural Gas stocks were 29 billion cubic feet higher, lower than expected. 

GDP (Oct 29)

GDP for the third quarter was up 33.1%. This is after a decline of 31.4% in the second quarter. Personal consumption expenditures increased 40.7% vs a decline of 33.2% in the prior quarter. 

Jobless Claims (Oct 29)

The actual number was 751,000, below expectations. Initial jobless claims ratcheted lower after California, which had suspended reporting, came back on line. Claims in the October 17 week fell sharply to 787,000 with Econoday's consensus for the October 24 week calling for further improvement to 758,000.

Regional manufacturing activity expands (Oct 30)

The Chicago Business Barometer ticked down 1.3 points in October to 61.1, but that was still its second best reading since February 2019, as regional factory activity grew for the fourth straight month. New orders increased at the quickest rate since November 2018, but production growth moderated and employment was cut. Of the six regional factory activity indexes we follow, four improved this month, and all six were in expansion territory. Coupled with the steady level in the Markit flash U.S. Manufacturing PMI, this suggests that the ISM Manufacturing Index would also show continued expansion in October. 

Consumer sentiment up modestly (Oct 30)

The Reuters/University of Michigan Consumer Sentiment Index edged up 0.6 points from its preliminary October reading to 81.8, above the consensus of 81.2. It was also up 1.4 points from the previous month. Consumers’ expectations improved to their best level since March, but their assessment of current conditions weakened slightly. While sentiment has rebounded since April, it is still 19.2 points below what it was in February. The current level is 14.3% lower than a year ago, historically consistent with a weak economy. Additionally, we find that sentiment tends to increase ahead of presidential elections, but gives up some of the gain post-election. This implies that the recent run-up in sentiment may be tenuous in nature, and supports the outlook for a slow economic recovery. 

Personal income and spending stronger than expected (Oct 30)

Personal income increased 0.9% in September, above the consensus of 0.5%. Disposable personal income (DPI) rose by the same amount. It was led by a 5.1% gain in proprietors’ income, up for the fifth consecutive month, partly due to the impact of the PPP program earlier this year. Worker compensation and rent income also rose. But transfer payments from the government continued to shrink, as some pandemic unemployment assistance expired or its amount was reduced. Returns on assets also fell, as interest income diminished. Personal consumption expenditures (PCE) increased 1.4%, its fifth consecutive gain, and more than the consensus of 1.0%. Real PCE was up 1.2%. Most of the increase was in goods, led by vehicles and apparel. Within services, there was a notable increase in spending on health care and recreation. With spending rising faster than income, the personal saving rate took another notch down to 14.3%. This is still the highest rate since 1975, but less than half of what it was at its peak in April, when it hit 33.6%. Stimulus checks and unemployment benefits that went mostly unspent during the lockdown period, are now supporting consumer spending. The risk, however, is that personal income will weaken from here, as the labor market continues to struggle and fiscal support wanes, which could slow the recovery in consumer spending and the broader economy. Indeed, real DPI shot up in the early months of the pandemic, but the y/y growth rate has rolled over in the past three months. The risk of slower growth ahead both in income and spending is augmented by the surge in new COVID cases nationwide, which could lead to partial lockdowns or some consumer disengagement from the economy, as implied by the flat-lining of the national Mobility and Engagement Index in recent weeks. The PCE Price index and its core each picked up 0.2% for the month. On a y/y basis, PCE prices were up 1.4%, while core prices rose 1.5%. Both remain below 2.0%, ensuring that the Fed will remain accommodative for the foreseeable future.

Employment cost pressures ease (Oct 30)

The Employment Cost Index (ECI) increased 0.5% in Q3, in line with the consensus. Wages and salaries in the private sector rose 0.5%, but those in the government sector were up only 0.1%, matching the smallest gain on record, as the pandemic has weighed on state and local government budgets. On a y/y basis, the ECI has eased to 2.4%, the least since Q2 2017. The rollover implies downward pressure on core consumer price inflation.