NAM: Monday Economic Report

  • The U.S. economy grew 1.9% at the annual rate in the third quarter. The consumer continued to help prop up economic growth, with personal consumption expenditures up a modest 2.9% at the annual rate for the quarter. Residential fixed investment rose a solid 5.1% in the third quarter, the first positive reading for the housing market since the fourth quarter of 2017.
  • Business spending served as a drag on economic growth for the second consecutive quarter, with businesses pulling back on investments in equipment and structures in light of global headwinds and ongoing trade uncertainties. Nonresidential fixed investment declined 1.0% and 3.0% in each of the past two reports, respectively.
  • For the year, I continue to estimate 2.3% growth for 2019, slowing to 1.8% growth in 2020. There are obviously strong cases to be made for both upside and downside risks in that outlook, at least for now.
  • The Institute for Supply Management® reported that manufacturing activity contracted for the third straight month, stabilizing somewhat on slower declines in new orders and employment. Exports rebounded in October, but production declined to the worst reading since April 2009.
  • In addition, manufacturing employment fell by 36,000 workers in October, extending the loss of 5,000 workers in September and the largest monthly decline in the sector in 10 years. Yet, the decrease stemmed largely from the effects of the GM strike, which has now been settled. Motor vehicles and parts employment plummeted by 41,600 in October, and a rebound in the November data would be expected.
  • In the larger economy, nonfarm payrolls increased by 128,000 in October, beating the consensus expectation of around 85,000. The unemployment rate inched up from 3.5%, the lowest since December 1969, to 3.6%. Still, the labor market remains quite tight, and manufacturers and other businesses continue to cite an inability to find talent as a top concern.
  • Personal income and spending rose 0.3% and 0.2% in September, respectively. Personal consumption expenditures have been one of the stronger elements in the economy (see above), rising 3.9% year-over-year. Meanwhile, manufacturing wages and salaries were $920.7 billion in September, up by a healthy 3.8% since September 2018.
  • As expected, the Federal Open Market Committee voted to reduce short-term interest rates by 25 basis points after its Oct. 29–30 meeting—its third cut in rates this year. The Federal Reserve is committed to taking steps to help prolong the economic recovery. With that said, future moves are contingent on incoming data, and the expectation is that the FOMC will hit the pause button for now. Indeed, I do not anticipate another cut in the target federal funds rate in 2020 at this point, unless economic conditions weaken further