October payroll employment data showed a modest gain of 80,000 jobs for the month. The U.S. unemployment rate ticked down to 9.0 percent. Those two numbers, by themselves, are not particularly impressive. However, we can see more encouraging signs deeper in the employment report. First, we see a significant upward revision to the September payroll survey, previously showing a gain of 103,000 jobs, now revised up to a gain of 158,000 jobs. Also, the separate household survey of employment is running well ahead of the payroll survey. The household survey added a substantial 277,000 jobs in October and has averaged a gain of 335,333 jobs per month over the past three months, which looks very good. The household survey may be picking up growth in self-employment and job growth in small companies that the payroll survey is missing. The U.S economy remains vulnerable to recession through the end of 2012 and into 2013. However, some things have improved over the past two months. We are starting to see modest improvement to labor market conditions. Third quarter real GDP growth registered an acceptable 2.5 percent. Inventory accumulation will likely add to growth in the current fourth quarter. The U.S. stock market had a significant rally through October. Auto sales have climbed to a 13.2 million unit annual rate. The drilling rig count for October was at its pre-recession high. The preponderance of evidence suggests the likelihood that the U.S. economy will fall into recession before the end of 2012 is now lower; down to a still-elevated 40 percent. The Federal Open Market Committee kept Federal Reserve monetary policy unchanged from September 21. The Fed funds rate will remain at its present near-zero rate at least through mid-2013. There will be no additional quantitative easing for the time being. The Fed will continue its “Operation Twist” policy of selling short term Treasury bonds and buying longer term Treasury bonds in order to flatten the yield curve. The Fed will continue its policy of reinvesting principle payments from its holdings of agency debt and mortgage-backed securities back into agency mortgage backed securities, thus keeping some downward pressure on mortgage rates. FOMC members lowered their GDP forecasts for 2012 and 2013. The ISM Manufacturing Index slipped to 50.8 percent in October, remaining above the neutral 50.0 mark, but not by much. The ISM Non-Manufacturing Index for October slipped insignificantly to 52.9 percent, still consistent with ongoing expansion.
Click here for the complete Comerica Economic Weekly for 11/4/2011, with a November economic data calendar: CMAEconWeekly110411