October 2011 Personal Income and Outlays, Retail Sales and Consumer Debt

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Bureau of Economic Analysis data showed that personal income increased $48.1 billion (0.4 percent) and disposable personal income (DPI) increased $30.2 billion (0.3 percent) in October. Personal consumption expenditures (PCE) increased $8.2 billion (0.1 percent). Real (inflation-adjusted) DPI increased 0.3 percent while real PCE rose by 0.1 percent.
 

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With DPI increasing faster than PCE, the personal saving rate rose to 3.5 percent, well off the recent peak of 5.0 percent seen in June. Despite the October increase, the three-month average saving rate pictured above dropped to 3.6 percent.
 

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Consumers ramped up spending on retail goods in October, by 0.5 percent. The “other” category saw the biggest jump ($1.7 billion or 0.6 percent), driven largely – according to Goldman Sachs – by the introduction of Apple’s latest iPhone.
 

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Total consumer debt outstanding increased in October, rising by a seasonally adjusted and annualized rate of 3.7 percent. The increase was broad-based; only commercial banks and finance companies saw a decline.

October 2011 Manufacturers’ Shipments, Inventories and New Orders

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According to the U.S. Census Bureau, the value of shipments and inventories were mostly higher in October for the sectors and industries we track, while new orders fell.
 

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Shipments increased for a fifth month, by $2.6 billion (0.6 percent) to $455.4 billion. Durable goods shipments increased $3.2 billion (1.6 percent) to $203.9 billion, led by transportation equipment. Shipments of nondurable goods decreased $0.7 billion (0.3 percent) to $251.5 billion following four consecutive monthly increases. Petroleum and coal products led the decrease. Wood and Paper shipments both rose -- by 1.6 and 0.4 percent, respectively.
 

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Data from the Association of American Railroads (AAR) and the Ceridian-UCLA Pulse of Commerce Index (PCI) help round out the picture on goods shipments. AAR reported a 1.7 percent increase in not-seasonally adjusted rail shipments in October (relative to September), and a comparable rise from a year earlier. Seasonal adjustments trimmed the 1.7 percent September-to-October increase to a 0.5 percent gain, however. Interestingly, rail shipments of forest products fell in October.

The PCI, which tracks diesel use for over-the-highway trucking, rose 1.1 percent on a seasonally and workday adjusted basis in October after three consecutive months of negative numbers. Ed Leamer, PCI chief economist said, “The October data offer some welcome relief from the double-dip fears that were rampant a month ago, but one month does not mean a new trend. Until we get a series of positive months, it remains a she-loves-me, she-loves-me-not economy with bad news followed by good followed by bad.”
 

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Inventories, up 24 of the last 25 months, increased $5.6 billion (0.9 percent) to $607.1 billion -- once again the highest level since the series was first published on a NAICS basis in 1992. The inventories-to-shipments ratio was 1.33, unchanged from September.

Durable goods inventories increased $1.6 billion (0.4 percent) to $366.9 billion, led by transportation equipment. Inventories of nondurable goods increased $3.9 billion (1.7 percent) to $240.2 billion; petroleum and coal products led the increase. Forest products inventories also rose, by 0.7 percent (Wood) and 0.1 percent (Paper).
 

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New orders, down two consecutive months, decreased $1.6 billion (0.4 percent) to $450.0 billion in October. Excluding transportation, new orders increased 0.2 percent.

Durable goods orders decreased $0.9 billion (0.5 percent) to $198.5 billion, led by transportation equipment; new orders for nondurable goods decreased $0.7 billion (0.3 percent) to $251.5 billion.

November 2011 ISM Reports

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The pace of growth in manufacturing picked up slightly in November, with the Institute for Supply Management’s (ISM) PMI rising to 52.7 percent, from 50.8 in October (50 percent is the breakpoint between contraction and expansion). After reciting some report details, Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, wrapped up his comments by saying, “Respondents cite continuing concerns about the general economic environment, government regulations and European financial conditions, but are cautiously more optimistic about the next few months based on lower raw materials pricing and favorable levels of new orders."
 

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The non-manufacturing sector grew at a marginally slower pace in November, reflected by a 0.9 percentage point drop (to 52.0 percent) in the non-manufacturing index (now known simply as the “NMI”). This is the lowest reading since January 2010, when the index registered 50.7 percent. "Respondents' comments for the most part project continued slow, incremental growth. There still remains a strong concern about lagging employment,” concluded Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee.
 

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Expanding new orders and employment, and higher production helped lift overall activity for Wood Products in November. Paper Products also expanded, the main foreward-looking “negatives” being declines in orders and a rise in inventories.

Construction and Ag & Forestry both reported contraction in overall activity, while Real Estate expanded.

As the bar chart and table above indicate, input price behavior was mixed during November: prices fell more slowly for manufacturing but rose more quickly for the service sector.

Paper and paper products were the only relevant commodities up in price during November; cardboard products were down in price. Some respondents reported paying more for fuel while others paid less. No relevant commodity was described as being in short supply.

October 2011 U.S. Construction

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Overall construction spending in the United States increased by 0.8 percent during October, to a seasonally adjusted and annualized rate (SAAR) of $798.5 billion. All categories except public construction posted increases; the private residential category exhibited the largest advance in both absolute and percentage terms.
 

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Total housing starts fell by 0.3 percent in October, to 628,000 units (SAAR), but were up 16.5 percent over year-earlier levels. Single-family starts rose by 3.9 percent, to 430,000 units in October; interestingly, single-family starts are 0.9 percent lower than a year ago.
 

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New-home sales also advanced in October, by 1.3 percent to 307,000 (SAAR). The median price of new homes sold dropped by 0.5 percent, however, to $212,300. Although single-unit starts rose more quickly than sales (respectively, 16,000 versus 4,000), the three-month average starts-to-sales ratio ticked down to 1.4.
 

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Single-unit completions jumped by 7.1 percent, but the inventory of new single-family homes remained unchanged in absolute terms while months of inventory shrank by 0.1 month. Inventory stood at 162,000 units and 6.1 months. Once again, the number of new homes for sale was its lowest since such records began in January 1963.
 

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Existing home sales fared a little better than their new-home counterparts in October, rising by 70,000 units (SAAR) or 1.4 percent. The share of total sales comprised of new homes remained stable at 5.8 percent.
 

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With the median price of existing homes sold falling by $3,800 (2.3 percent), to $161,600, housing affordability jumped to a new record high in October. This followed on the heels of slight decreases in the not seasonally adjusted 10- and 20-city S&P/Case-Shiller home price indices during September (both roughly -0.5 percent).

“Home prices drifted lower in September and the third quarter,” said David Blitzer, chair of the Index Committee at S&P Indices. “The National Index was down 3.9 percent versus the third quarter of 2010 and up only 0.1 percent from the previous quarter. Three cities posted new index lows in September 2011: Atlanta, Las Vegas and Phoenix. Seventeen of the 20 cities and both Composites were down for the month. Over the last year home prices in most cities drifted lower. The plunging collapse of prices seen in 2007-2009 seems to be behind us. Any chance for a sustained recovery will probably need a stronger economy.
 

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“Detroit and Washington DC posted positive annual rates of change and also saw an improvement in these rates compared to August. Only New York, Portland and Washington DC posted positive monthly returns versus August. It is a bit disturbing that we saw three cities post new crisis lows. For the prior three or four months, only Las Vegas was weakening each month. Now Atlanta and Phoenix have fallen to new lows too. On a monthly basis, Atlanta actually posted a record low rate of -5.9 percent in September over August. The markets are fairly thin, and the relative lack of closed transactions might be exacerbating the downside. The relative good news is that 14 cities saw improvements in their annual rates of change, versus the six that weakened.”
 

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November 2011 Employment Report

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According to the Bureau of Labor Statistics (BLS) non-farm payroll employment rose by 120,000 in November, and the unemployment rate dropped to 8.6 percent; the drop in the unemployment rate resulted primarily from 315,000 people giving up looking for work, however. Employment in the private sector was stronger (+140,000), especially in retail trade, leisure and hospitality, professional and business services, and health care. Government employment continued to trend down (-20,000), especially at the local level. The change in total non-farm payroll employment for September was revised from +158,000 to +210,000, and the change for October was revised from +80,000 to +100,000.
 

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There were several less-encouraging aspects to the report besides the number of people who had given up looking for work. For one, as we have been pointing out for quite some time, employment is converging with the previous peak at a slower pace than any prior recession going back to 1973.
 

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Also, the number of persons not in the labor force reached a new high of nearly 87 million. In addition, the ratio of employed persons relative to the total population (EPR) has barely budged off its February 2010 low; the EPR is at levels comparable to those seen in the late 1980s.
 

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The civilian labor force participation rate fell back to 64.0 percent, while the annual percentage increase in average hourly earnings of production and non-supervisory employees ticked higher to nearly 1.6 percent, barely above the historical low set back in February 2004. With the consumer price index for urban consumers rising at a 3.9 percent annual pace, wages are falling in real terms (i.e., wage increases are not keeping up with price inflation).
 

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On a somewhat brighter note, part-time employment fell by 378,000 jobs while full-time employment increased by a somewhat comparable 323,000. The trend for part-time employment appears to be stable to declining slightly; the full-time trend is solidly, although modestly, higher if viewed from January 2010.

In summary, then, although this employment report was not awful, neither does it portend strong economic growth.

November 2011 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil jumped higher in November, advancing by $10.80 (12.5 percent) to $97.21 per barrel. That rise occurred despite continued strengthening of the dollar, and the lagged impacts of a decrease in consumption of 358,000 barrels per day (BPD) -- to 18.8 million BPD -- during September, but coincided with a downward trend in crude stocks during November. Although Brent crude (the predominant grade used in Europe) appeared to be cheaper than WTI in October (November data was not yet available at the time of this writing), the dollar-euro exchange rate at the time meant it was in fact over $23 per barrel more expensive than WTI on a U.S.-dollar basis ($109.55 versus $86.41, respectively).
 

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November 2011 Currency Exchange Rates

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The U.S. dollar gained ground “across the board” in November. Although the greenback gained ground against the yen it remains only barely above the levels of the previous three months, which were its weakest since June 1995. On a trade-weighted index basis, the dollar gained 0.6 percent against a basket of 26 currencies.
 

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