Fed Hints at December Rate Hike
- The ISM Non-Manufacturing Index for October eased to a still-positive 54.8.
- The ISM Manufacturing Index for October increased to 51.9, showing more momentum.
- According to ADP, 147,000 private sector jobs were added in October.
- Initial Claims for Unemployment Insurance increased by 7,000, to 265,000 for the week ending Oct. 29.
- The Fed did as expected and kept the fed funds rate unchanged at the recent FOMC meeting.
The ISM Non-Manufacturing Index eased from a solid 57.1 in September, to a still-positive 54.8 for October. Thirteen out of 18 industries reported growth in October, including transportation and warehousing, construction, management, information and professional, scientific and technical services. Five industries reported contraction, including education, mining and agriculture. Anecdotal comments were generally positive; however, some industries reported stalling or cooling demand. The ISM Manufacturing Index increased from a modestly positive 51.5 in September to an even better 51.9 in October. New orders, production and employment were all positive factors. Ten out of 18 reporting industries said they grew in October, including textiles, food and beverage, nonmetallic mineral products, computers and electronics and petroleum and coal products. Eight industries reported contraction in October, including wood products, apparel and primary metals. Anecdotal comments were generally steady to positive. However, primary metals reported a “considerable slowdown” for October and November. The series has bounced back from the contractionary numbers of last October through February. Since this past spring, the series has been mostly positive, but without a clear trend. Taken together the two ISM reports for October are consistent with ongoing moderate economic growth through the fourth quarter.
The ADP Employment Report for October showed that 147,000 net private sector jobs were added in October, a little below expectations. If we add about 10,000 government jobs, that puts our estimate of tomorrow’s official job growth count for October at about 157,000 net new jobs. That is about where we were in August and September. However, with two weaker-than-expected months, the official data could bounce back in October. We will find out tomorrow at 7:30 a.m. CT. In other labor news, initial claims for unemployment edged up at the end of October, increasing by 7,000 to hit 265,000. There is a mild up trend visible in initial claims through October, but this is coming off of exceptionally low levels at the end of September. Continuing claims for unemployment insurance fell by 14,000, to hit 2,026,000 for the week ending October 22, a very low number.
The Federal Reserve issued a monetary policy announcement yesterday that lived up to expectations. First, they left the fed funds rate range unchanged at 0.25 to 0.50 percent. Second, they hinted that a December rate hike is on the table. There were two dissenting votes, from Esther George of Kansas City and Loretta Mester of Cleveland. The Bank of England yesterday hinted that they are changing course on monetary policy by dropping forward guidance of further easing. Similarly, The Bank of Japan did not ease further in their policy announcement of November 1. It looks like some other central banks are starting to line up behind the Fed in preparation for a gradual increase in global interest rates.
Market Reaction: U.S. equity markets are cautious ahead of the election. The yield on 10-Year Treasury bonds is up to 1.81 percent. NYMEX crude oil is down to $45.07/barrel. Natural gas futures are down to $2.98/mmbtu.
For a PDF version of this Comerica Economic Alert click here: ISM-MF 11-03-16.