U.S. economic data released in the first week of November was generally positive and consistent with an ongoing GDP expansion. Payroll employment for October increased by 214,000, a little below expectations of about 230,000, but still a good number. August and September jobs numbers were revised up. The unemployment rate dropped a tenth to 5.8 percent with a very large 683,000 job increase in household employment. In October, the average workweek increased by a tenth to 34.6 hours. Average hourly earnings increased by 0.1 percent.
Saudi Arabia cut its crude export price to U.S. customers, pushing the price for West Texas Intermediate lower, down to $76.30 per barrel on Tuesday. It is unclear at this time how long the Saudis can sustain lower prices without straining their fiscal position. By Friday morning prices were firmer, near $79. The inflation picture is complicated by falling energy prices and by a stronger dollar. At the same time that we have increasing potential for higher wages due to tightening labor markets, we have decreasing inflation from lower energy prices and from falling import prices due to a strengthening dollar. The Federal Reserve will be looking at inflation indicators very carefully in the months ahead as it contemplates the next step in normalizing monetary policy, interest rate lift-off.
Lower oil prices, in the $80-$70 per barrel range for WTI, will keep production strong in the U.S. However, we will see more reports of expensive new exploration projects being reduced or curtailed. Lower oil prices are positive for energy consuming industries and regions, adding to corporate profit margins and supporting non-energy consumer spending. This will shift economic growth marginally toward energy consuming regions (the East and West Coasts), putting more downward pressure on unemployment rates there.
The ISM Manufacturing Index for October recaptured the robust reading of 59.0 that it had in August, tying the highest reading since March 2011. The ISM Non-Manufacturing Index for October eased to 57.1 from September’s 58.6. This is still a strong reading for the index. Anecdotal comments in the ISM Non-MF survey were mixed, ranging from positive to uncertain. This is not surprising given that the survey was in the field in early October at the time of the stock market sell off.
Total construction spending in the U.S. decreased by 0.4 percent in September, weighed down by declining spending on publically funded projects.
The U.S. international trade gap widened by $3 billion to $43.0 billion in September. This, along with weaker-than-expected construction spending in September implies a negative revision to Q3 real GDP growth, which was announced last week at a 3.5 percent annual rate. We expect to see a revision to about 3.0 percent real GDP growth for Q3.
Auto sales were little changed in October, ticking up to a 16.5 million unit pace. Lower gasoline prices will help sales of SUVs and trucks this winter. It looks like we are at an interesting inflection point for auto sales. Solid job growth, increasing consumer confidence and lower oil prices all point to ongoing gains. However, if we remove the August surge to a 17.5 million unit sales rate, auto sales look range bound since last May. We expect auto sales to improve in November.
Third quarter productivity increased at a 2.0 percent annual rate. Unit labor costs remained well contained, increasing at just a 0.3 percent annual rate.
Initial claims for unemployment insurance decreased by 10,000 for the week ending November 1, to hit 278,000, a very low number. Continuing claims for the week ending October 25 fell by 39,000 to hit 2,348,000, also a very low number.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 11-07-14.