There were two important reports on the U.S. economy released this morning. First, manufacturing activity in the Mid-Atlantic region of the country expanded at a slower rate in November, according to new data from the Federal Reserve Bank of Philadelphia. Specifically, the general business conditions index fell from 22.2 to 12.9 this month, significantly worse than anticipated and the 2nd-weakest headline reading of the past two years. Measures of new orders, shipments, profit margins, employment, and hours worked all deteriorated in November, but forward-looking (6-months ahead) gauges generally improved. In the special questions section of this month’s survey, managers were asked about their outlook for inflation in 2019. On average, respondents expect selling prices to rise by 3.0 percent next year, not surprising since managers also see employee compensation (wages and benefits) increasing by this same amount in 2019.
Elsewhere, advance estimates of retail and food services sales in October totaled $511.5 billion, according to a new report from the U.S. Census Bureau. That was a 0.8 percent increase from September’s downward-revised print and better than the 0.5 percent gain economists anticipated. The apparent uptick in sales, though, will likely be short-lived since most of the increase was simply due to spending returning to “normal” after hurricane Florence and other adverse weather depressed store traffic. Further, oil prices were rallying at the start of October but have since crashed by more than 20 percent, meaning that the higher gasoline prices (spending at gas stations) that contributed to the headline gain in retail sales will probably see a sharp reversal in November. Moreover, the retail “control group,” a less-volatile sales gauge that excludes spending at gas stations, car dealerships, building materials suppliers, and restaurants, increased by just 4.5 percent in October on a year-over-year basis. That was the slowest pace of annual growth recorded since April and supports the argument that the recent weakness in Americans’ revolving credit and personal saving will make it challenging for consumer spending to stay elevated unless wage growth accelerates.
Sources: Econoday, FRBP, U.S. Census, Bloomberg, ZH, FRBSL
Post author: Charles Couch