Spending Gains, Sentiment Wobbles: November 23 – 27

Personal spending strengthened while income fell. Here are the five things we learned from U.S. economic data released during the week ending November 27.

1. Personal spending rose in October even as economic stimulus payments waned. The Bureau of Economic Analysis reports real Personal Consumption Expenditures (PCE) grew 0.5 percent, its sixth consecutive monthly rise. Real spending on goods inched up 0.2 percent, which included a 0.8 percent bump for durable goods. Services expenditures increased by 0.6 percent. The spending increase occurred despite declines in both nominal personal income (-0.7 percent) and disposable income (both nominal and real down 0.8 percent). The income drop reflected a decrease in the economic stimulus supplemental unemployment benefits that increased wage income had only partially counterbalanced. As a result, the savings rate fell by a full percentage point to a still-high +13.6 percent.

2. Economic activity accelerated in October. The Chicago Fed National Activity Index (CFNAI) added 51-basis points during the month to a reading of +0.83. The CFNAI, a weighted index of 85 economic indicators, has been positive for six consecutive months. Sixty-one of the indicators—including three of four major component categories (employment, production, and sales/orders/inventories)—made positive contributions to the CFNAI. Indicators linked to consumption/housing made a small negative contribution. The three-month moving average for the CFNAI fell by 62-basis to a reading of +0.75, indicative of an expanding U.S. economy.

3. A revised GDP estimate continued to indicate a strong (but far from complete) rebound during the summer. The Bureau of Economic Analysis reports that Gross Domestic Product (GDP) grew 33.1 percent on a seasonally adjusted annualized rate during the third quarter of 2020 (not annualized, GDP swelled 7.4 percent during the quarter). This estimate, which matches the one reported a month ago, followed Q2’s historic 31.4 percent annualized contraction. GDP remained 3.5 percent below levels from the end of last year. Most, but not all, GDP components positively contributed to Q3’s surge, led by personal consumption expenditures, the change in private inventories, exports nonresidential fixed investment, and residential fixed investment. Drags on Q3 growth were imports, state/local government spending, and federal government spending. The same BEA report presents the first estimate of Q3 corporate profits, which ballooned an annualized 27.1 percent following two quarters of double-digit percentage declines.

4. Consumer sentiment weakened in November. The Conference Board’s Consumer Confidence Index shed 5.3 points during the month to a seasonally adjusted 96.1 (1985=100). The index was well below its November 2019 reading of 126.8. The current conditions index slipped by 3/10ths of a point to 105.9 while the expectations measure plummeted by 11.3 points to 89.5. A third of survey respondents viewed current economic conditions as “bad” versus 17.6 percent that saw them as “good.” 26.7 percent of consumers reported jobs as being “plentiful,” while 19.5 percent saw them as hard to get. Per the press release, consumers “noted a moderation in business conditions, suggesting [economic] growth has slowed in Q4.”

The Index of Consumer Sentiment by the University of Michigan shed 4.9 points in November month to a reading of 76.9. The same measure was at 96.8 one year ago. While the expectations index lost 8.7 points to 70.5 (November 2019 87.3), the present conditions index improved by 1.1 points to 87.0 (November 2019: 111.6). The press release noted the dropped in expectations reflected both the rise in COVID infections and deaths “as well as partisan shifts due to the outcome of the presidential election.” Further, self-identified Democrats were more optimistic about future conditions than were Republicans for the first time in four years.

5. Durable goods orders rose in October. The Census Bureau estimate new orders for manufactured grew 1.3 percent during the month to a seasonally adjusted $240.8 billion. Transportation goods orders jumped by 1.2 percent, boosted by gains for civilian (+38.8 percent) and defense (+79.1 percent) aircraft even as motor vehicles’ orders dropped 3.2 percent. Net of transportation goods, core durable goods orders advanced 1.3 percent. Rising were orders for computers/electronics (+3.1 percent), fabricated metal products (+2.3 percent), electrical equipment/appliances (+1.0 percent), and primary metals (+0.4 percent). Orders for civilian non-aircraft capital goods—a proxy for business investment—increased 0.7 percent.

Other U.S. economic data released over the past week:

  • Jobless Claims (Week ending November 21, First-Time Claims, seasonally adjusted): 778,000 (+30,000 vs. the previous week, +567,000 vs. the same week a year earlier). 4-week moving average: 748,500 (+244.9% vs. the same week a year earlier).
  • New Home Sales (October 2020, New Home Sales, seasonally adjusted annualized rate): 999,000 (-0.3% vs. September 2020, +41.5% vs. October 2019).
  • FHFA House Price Index (September 2020, Purchase-Only Index, seasonally adjusted): +1.7% vs. August 2020, +9.1% vs. September 2019.
  • Case-Shiller Home Price Index (September 2020, 20-City Index, seasonally adjusted): +1.3% vs. August 2020, +6.6% vs. September 2019.
  • FOMC Minutes

The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.

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