What I Saw Last Week
Construction Spending increased by 1.4% – marginally above my call for a 1.3% jump. As expected, following the strong new housing starts report, the bulk of the increase in spending came from private residential construction growth. Residential construction increased 3.0% after increasing 1.1% in October. Spending on new structures rose 4.0% in October while home improvement project spending increased 1.9%.
Initial Unemployment Claims showed further “post-Sandy” improvement with a drop to 370,000, which was better than my call for a drop to 382,000. The continuing claims level fell from 3.305M for the week ending November 17 to 3.205M for the week ending November 24.
The initial claims level suffered through a few weeks of severe volatility as Hurricane Sandy adversely affected job levels. As expected, the effects only lasted a couple of weeks and claims have returned to the 350,000 – 400,000 range where they had been for many months prior to the hurricane.
On the face of it, Non-Farm Payrolls data for November was FAR better than anyone, including me, had expected. I was looking for a figure closer to 90,000 new jobs created in November, but the report showed that the U.S. added 146,000. In addition to this, the Unemployment Rate dropped from 7.9% to 7.7% – and didn’t increase to 8.0% as I had anticipated.
So! What’s going on here? We had anticipated that “Superstorm Sandy” would have hit the November number but that clearly didn’t happen. As curious as I tend to be when figures are suspect, I dug through the data and there were some very peculiar entries that may help to explain why the announced number is far higher than it really is.
Firstly, there were HUGE revisions in recent months’ data. (October was initially reported as an increase of 171,000 but now reported as 138,000. September was revised down from 148,000 to 132,000.) Secondly, the labor force participation rate – already at a 30-year low – fell even further to 63.6%. That means 350,000 fewer workers. When you add up all the figures, the real change in November is that there were a net 122,000 fewer people with jobs.
I will be VERY interested to see what the BLS come out with for the December figures.
I had called for Consumer Sentiment for early December to drop and it certainly did with the number plunging to 74.5 – a far greater contraction than my forecast of a drop to 82.4. It seems that consumers finally understanding the possible implications of the upcoming fiscal cliff.
While economists and business analysts alike have been discussing the potential effects of the fiscal cliff for months, the popular news media has only more recently gone into overdrive reporting on the massively negative implications if things aren’t addressed in Washington. As a result, consumers have been inundated with reports that the economy will likely enter a recession next year unless the effects of the cliff can be mitigated.
That led to an immediate pullback in the Future Expectations Index, which fell sharply from 77.6 in November to 64.6 in the preliminary December reading. That is the lowest reading since December 2011.
Consumer Credit grew by $14.2B which was much stronger than my forecast for an increase of $9.9B. The expansion was led by automobile loans with sales at a 15.5 million annual rate in November – the most in almost five years and up from a 14.2 million pace the prior month. This was followed by lending by the federal government, which is mainly for educational loans, which increased by $6.9 billion in October.
Revolving debt, which includes credit cards, rose by $3.38 billion in October after a $2.19 billion decrease the prior month. Revolving credit has declined in three of the five months through October.
What to Watch for This Week
Pretty skinny week for big data sets.
Initial Unemployment Claims will rise very modestly to 375,000. Post Sandy volatility is now behind us.
Data on Retail Sales will show expansion and not be negatively affected by “Superstorm Sandy”. Look for total sales to grow by 0.4% but, ex-auto, they will remain flat.
Inflation – as measured by the Consumer Price Index – will drop by 0.2%, but the core rate that excludes food and energy should increase by a modest 0.1%. Inflation will remain tame until we start to see tangible income growth.
The Windermere Economist 