There were a few important reports on the U.S. economy released this morning. First, data from the Department of Commerce showed that personal income for Americans rose by 0.3 percent ($46.7 billion) in September, an improvement from August but below economists’ expectations. Personal consumption expenditures (PCE), i.e. consumer spending, which accounts for almost 70 percent of the U.S. economy (GDP), rose by 0.5 percent ($61.0 billion) last month, better than anticipated but the August figure was revised lower. Altogether, personal saving as a percentage of disposable personal income (the personal saving rate) slid to 5.7 percent last month. On a year-over-year basis, income and spending growth remain relatively weak but the sharp decline that started two years ago seems to have ended. 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 in America. 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 uptick in price pressures should still help justify a rate hike sometime later this year.
Next, 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, fell to 50.6 in October. That was much worse than economists had expected and the weakest headline reading in five months. Under the hood, measures of new orders, production, inventories, and supplier deliveries all deteriorated in October, while employment rose slightly. Order backlogs also improved this month but remained in contraction territory. Surveyed managers reported elevated inflation pressures and Lorena Castellanos, a senior economist at MNI, warned that “Economic growth ahead looks very disappointing. Hopefully, it doesn’t mark the start of a downward trend.”
Elsewhere, a report from the Federal Reserve Bank of Dallas showed that business activity in the southern region of the country rebounded this month, as the general activity index lifted from -3.7 to -1.5. Although a welcome improvement from September, this was still the 22nd negative (contractionary) print in a row, and the production index, a key measure of state manufacturing conditions, plunged from +16.7 to +6.7 this month. Under the hood, capital expenditures, prices received, and the growth rate of orders all increased in October but current measures of capacity utilization, shipments, employment, hours worked, and wages/benefits deteriorated. Gauges of future activity (six months ahead) generally firmed in October and comments from surveyed managers continued to signal tightening labor markets:
- Strong housing construction in Dallas–Fort Worth has put pressure on wages and availability of labor in that labor segment.
- The underlying issue in the business today still is finding people with basic skills and retaining them. Overall wages have increased by nearly 30 percent in the past two years.
Sources: Econoday, Twitter, Bloomberg, ZH, U.S. DoC, MNI, FRBD, FRBSLPost author: Charles Couch