Comerica Economic Weekly

At first glance, the economic data from this week has been better than expected. However, the devil is in the details, and the details do not look as good as what the headlines suggest.

Total nonfarm employment increased by 204,000 jobs in October. September and August payrolls were revised up. Almost half of this month’s job gains were in the retail trades and leisure and hospitality sectors. So far, so good. However, the unemployment rate ticked back up to 7.3 percent in October after reaching an almost five year low of 7.2 percent in September. What allowed the unemployment rate to tick up was a massive 735,000 job decline in the household series of employment. The government shutdown may be showing up more in that series than in the payroll series. Initial claims for unemployment insurance fell by 9,000 to reach 336,000 for the week ending November 2.

The first estimate of real GDP growth for the third quarter of 2013 was stronger than expected at 2.8 percent. Inventory accumulation was robust during the quarter, growing by $86 billion ($2009). This is good news if inventories are accumulating in anticipation of future demand, as long as the demand does in fact increase. It is not good news if inventories are accumulating as a result of weak sales. Both mechanisms were likely active in Q3. This sets the stage for an inventory correction in Q4  or 2014Q1. Business investment continues to be weak, growing at just a 1.6 percent annual rate.

The non-manufacturing sector expanded in October, according to the ISM Non-Manufacturing Index. Nine of ten sub-indexes showed improvements. New orders, prices paid for purchase materials and new export orders grew slower in October compared to November, while supplier deliveries became faster. The one caveat to the otherwise positive report is that the inventory sentiment index indicated that suppliers felt that their inventories were too high.

Personal income increased 0.5 percent in September, driven by rental and proprietor income. Personal disposable income has shown five consecutive months of solid gains while personal consumption spending has moderately increased during the same time period. After peaking at a 16.1 million annual unit rate in August, auto sales relaxed in September and came in below consensus at a 15.2 million annual unit rate in October.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly110813.

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