Better-than-expected economic data is causing financial market jitters as investors ponder the increasing likelihood of a QE taper within the next few months. Payroll jobs increased by 203,000 in November, following a 200,000 job gain in October. The unemployment rate dropped in November to 7.0 percent, after ticking up in October to 7.3 percent. The moderately strong job report, that confirms a labor market rebound from the October government shutdown, will bring the Federal Reserve one step closer to dialing down (tapering) quantitative easing.
The last, and still absent, green light for QE tapering is a federal budget deal that extends the debt ceiling and removes the threat of a rating downgrade. That green light may not come before the next meeting of the Federal Open Market Committee (December 17/18). However, there are reports of a deal in progress. If we do get an early budget deal, then Chairman Bernanke could still make good on his intention to begin tapering this year and to complete it before the end of next year.
Third quarter real GDP growth was revised up to a surprising 3.6 percent annual rate due to an unsustainable surge in inventory accumulation. We will see the downside of that by early next year as inventories rebalance.
Real disposable personal income fell by 0.2 percent in October, influenced by gyrations in government employment. Not only were some government workers unpaid in early October, but also some came off of furloughs in August and July due to the budget sequester. So we can say that it is not a clean read. Real consumer spending increased by 0.3 percent for the month.
The ISM Manufacturing PMI increased from 56.4 to 57.3 in November, a good-looking number. The employment sub-index was well into positive territory, indicating payroll expansion for the month. The ISM Non-Manufacturing PMI decreased to a still-positive 53.9 in November, down from October’s 55.4. The employment sub-index also declined, but to a still-expansive 52.5.
The University of Michigan’s Consumer Sentiment Survey showed a strong uptick into early December to 82.5. Auto sales rebounded from soft September and October results to a 16.4 million unit pace in November as truck sales re-engaged (which in itself is a positive sign for small business job growth).
October new home sales were a pleasant surprise, increasing by a strong 25.4 percent to hit a 444,000 unit annual pace. If this pace is maintained over the next couple of months, that would show a complete recovery from the summer slump.
The U.S. international trade gap narrowed in October to -$40.6 billion. Exports were strong for the month, increasing by $3.4 billion, while imports gained $1.0 billion. The October real balance of trade in goods was -$48.3 billion ($2009), suggesting that trade may be a small positive for Q4 GDP.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly120613.