Income/Spending Tepid in November, Commercial Aircraft Lifts Manufacturing
- U.S. Personal Income increased by 0.1 percent in November as wage income slipped by 0.1 percent.
- After inflation and taxes, Real Disposable Income was unchanged in November… bah humbug.
- Personal Consumption Expenditures ticked up by just 0.1 percent, held down by falling energy prices.
- The PCE Price Index was unchanged for the month. The core PCE Price index gained 0.1 percent.
- New Orders for Durable Goods surged by 3.8 percent in November, as aircraft orders soared.
- New Home Sales for November increased by 1.6 percent to a 315,000 unit annual rate.
November personal income and consumer spending numbers were softer than expected as income increased by only 0.1 percent for the month. Wage and salary income actually declined by 0.1 percent despite evidence of a gradual improvement in labor market conditions. Rental income posted a solid 2.1 percent increase, and dividend income gained 0.5 percent, barely enough to compensate for shrinking paychecks. Inflation took the month off as the PCE price index was unchanged. Lower energy prices helped there. The core PCE price index (less food and energy) added a meager 0.1 percent. Estimated tax payments increased by 0.9 percent. After adjusting for nonexistent inflation and very existent taxes, real disposable income was unchanged in November. Consumer spending was similarly somnambulistic, increasing by just 0.1 percent as energy prices fell. Despite a 2.9 percent increase in unit auto sales for the month, up to a 13.6 million unit rate, personal consumption expenditures for durable goods gained just 1.1 percent. Falling energy prices contributed to a 0.1 percent decline in spending on nondurable goods. After adjusting for inflation, real consumer spending increased by 0.2 percent. The personal saving rate dipped back to 3.5 percent. It looks like real consumer spending for the fourth quarter will do a little better than the revised 1.7 percent annualized increase in the third quarter, coming in around 2.5 percent. Fourth quarter real GDP looks like it will have a 3-handle, in the neighborhood of 3.1 percent. The two-month extension to the payroll tax cut means no step down for spending in January and February.
New orders for durable goods bounced back after a weak couple of months, gaining 3.8 percent in November. Commercial aircraft orders surged by 73.3 percent. Aircraft orders are always volatile and lumpy so “core” measures of manufacturing activity are useful. New orders for nondefense capital goods excluding aircraft dipped by 1.2 percent. This is not alarming but it does represent the second consecutive monthly decline in that core measure. It also suggests that business investment in equipment and software in the fourth quarter GDP data will be soft. Sales of new homes increased marginally to a 315,000 unit annual rate in November, the most since last April.
Market Reaction: U.S. equities markets opened with gains. U.S. Treasury yields are up at both ends of the yield curve. Oil is up to $99.84/barrel. The dollar is up against the euro and down versus the yen.