NAM: Monday Economic Report

  • The personal consumption expenditures deflator rose 0.2% in October. The core PCE deflator, which excludes food and energy prices, inched up 0.1%. Over the past 12 months, the PCE deflator has risen 1.3%, or 1.6% year-over-year for core inflation. For 10 consecutive months, or in every month so far in 2019, the core PCE deflator has remained below the Federal Reserve’s stated goal of 2.0% core inflation. 
  • With core inflation running below the Federal Reserve’s target, FOMC policymakers are more concerned with keeping the economic recovery moving at this point than with inflationary pressures. With that said, the Federal Reserve has communicated its intentions, including in a speech by Federal Reserve Chair Jerome Powell last week, to hit the pause button on future moves until it can assess the impacts of the three rate cuts made at the past three FOMC meetings. Additional decreases in the federal funds rate would likely come only if the economy weakens further.  
  • The U.S. economy grew 2.1% at the annual rate in the third quarter, up from the previous estimate of 1.9%. Consumer spending, government expenditures, the housing market and inventories were bright spots, with drags coming from net exports and nonresidential fixed investment. It was the second consecutive quarter with reduced business spending, with firms anxious about slowing global growth and trade uncertainties.
  • However, consumers have helped to prop up the economy. In the latest data, personal spending increased 0.3% in October, with a solid 3.7% gain year-over-year. Personal incomes were flat for the month, pushing the saving rate down to 7.8%. Nonetheless, Americans have saved more this year than last.
  • Consumer confidence fell to a five-month low in November, according to the Conference Board, but sentiment remains high overall.
  • New durable goods orders rose 0.6% in October, bouncing back somewhat after falling 1.4% in September and pointing to some possible stabilization in the sector. Yet, the sector remains challenged in general, down 0.7% over the past 12 months. Core capital goods—a proxy for capital spending in the U.S. economy—increased 1.2% in October, but on a year-over-year basis, this figure has decreased 0.8%.
  • Manufacturing surveys from the Dallas and Richmond Federal Reserve Banks both reported contracting activity in November, but respondents felt cautiously positive in their outlook for the next six months.
  • New single-family home sales pulled back somewhat, down 0.7% in October, but that was off from an upwardly revised September figure, which was the best since July 2007. The data remain encouraging—a sign that homebuyers have reacted favorably to reduced mortgage rates and a better outlook. Indeed, new single-family home sales have jumped 31.6% over the past 12 months, up from 557,000 units in October 2018.