There were several important reports on the U.S. economy released this morning. First, data from ADP showed that business hiring rebounded in America this month, with 216K private-sector payrolls being added to the economy. That was much better than the +160K gain economists had expected and the largest monthly increase since May. The October rise, though, was revised much lower, which left the less volatile 3-month average for ADP’s hiring estimate little-changed at +177K, albeit a still healthy overall pace of job creation. Essentially all of the private-sector payrolls added in November were in the services sector (+228K), including large gains in the "professional & business" and “trade, transportation & utilities” arenas, while payrolls in the goods-producing sector experienced a net decline of 11K jobs. Mark Zandi, chief economist of Moody’s Analytics, added that “because of the tightening labor market, retailers may be accelerating seasonal hiring to secure an adequate workforce to meet holiday demand, although total expected seasonal hiring may be no higher than last year’s.” Elsewhere in the report, small business hiring increased to +37K payrolls in November, the first month-over-month improvement since June but still the 3rd-slowest pace of growth seen in the past two years. Smaller firms earlier this year were the main driver of private-sector job growth in America but hiring among these companies slowed considerably ahead of election, a trend that will hopefully reverse now that the results are in.
Next, a report from the Department of Commerce showed that personal income for Americans rose by 0.6 percent ($98.6 billion) in October, better than anticipated and the largest monthly gain since April. Total personal consumption expenditures (PCE), i.e. consumer spending, which accounts for almost 70 percent of the U.S. economy (GDP), rose by 0.3 percent ($38.1 billion) last month, below expectations but the September gain was revised much higher. Altogether, personal saving as a percentage of disposable personal income (the personal saving rate) rose to 6.0 percent in October, which means that consumers should be well positioned to boost their spending during the holiday shopping season. On a year-over-year basis, growth in Americans’ personal earnings and outlays climbed to some of the best levels of 2016 last month as momentum continues to shift upward. However, higher prices for certain goods and services may be contributing to the uptick in annual consumption, e.g. spending on rent as a percentage of disposable income is closing in on a record high. Moreover, the PCE price indices, the Federal Reserve’s preferred measures of consumer inflation, have risen a lot recently. Although these metrics remain below officials' 2.0 percent “target,” the clear trend higher in price pressures should still help justify a rate hike at next month’s Federal Open Market Committee (FOMC) meeting.
Elsewhere, the pending home sales index from the National Association of Realtors (NAR) rose by 0.1 percent to 110.0 in October. That was worse than the 0.8 percent increase economists had anticipated and the September gain was revised slightly lower. On a year-over-year basis, though, pending home sales are still up 1.8 percent. Regionally, sales rose in the Midwest (+1.6 percent), the West (+0.7 percent), and the Northeast (+0.4 percent) in October but fell in the South (-1.3 percent). There is a seasonal pattern where sales typically fade after the summer uptick but NAR chief economist Lawrence Yun said that “despite limited listings and steadfast price growth that's now carried into the fall, buyer demand has remained strong because of the consistently reliable job creation in a majority of metro areas.” However, this report was for the month of October, and therefore has yet to reflect the post-election spike in mortgage rates. Yun added that “Many of the successful shoppers in October likely had to move fast and outbid others for the few listings available in the affordable price range. Those obtaining a mortgage last month were likely the last group of buyers to lock in a rate near historically low levels.”
Finally, the Chicago purchasing managers’ index (PMI) from Market News International (MNI), a measure of regional business activity that is often viewed as an indicator for the overall U.S. economy, surged to 57.6 in November. That was significantly better than economists had expected, the highest headline reading since January 2015, and generally bodes well for tomorrow’s ISM manufacturing report. Under the hood, measures of new orders, production, inventories, order backlogs, and supplier deliveries all rebounded in November, while total employment fell back into contraction territory. Shaily Mittal, a senior economist at MNI, added that “respondents to our survey also remain optimistic about business activity in 2017, although the new government’s policies and the Fed’s approach towards monetary tightening would impact the course of business activity over the next year.”
Sources: Econoday, Bloomberg, Twitter, ZH, ADP, U.S. DoC, MNI, NAR, FRBSLPost author: Charles Couch