U.S. GDP Growth Is Reduced by Inventory Decumulation
The economy grew 1.5% (AR) last quarter following a 3.9% Q2 increase. The shedding of inventories sapped 1.4 percentage points from growth, reversing modest accumulation during the prior six months. Inventory decumulation came as final demand growth eased to 3.0% from a 3.9% advance in Q2. A 1.7% rise in GDP had been expected in the Action Economics Forecast Survey. Lack of pricing power provided incentive to limit inventory accumulation. The GDP chain price index rose 1.2%, down from 2.1% in Q2.
| Chained 2009 $ (%, AR) | Q3'15 (Advance Estimate) | Q2'15 | Q1'15 | Q3 Y/Y | 2014 | 2013 | 2012 |
|---|---|---|---|---|---|---|---|
| Gross Domestic Product | 1.5 | 3.9 | 0.6 | 2.0 | 2.4 | 1.5 | 2.2 |
| Inventory Effect | -1.4 | 0.0 | 0.9 | 0.2 | 0.0 | 0.1 | 0.1 |
| Final Sales | 3.0 | 3.9 | -0.2 | 2.2 | 2.4 | 1.4 | 2.1 |
| Foreign Trade Effect | -0.0 | 0.2 | -1.9 | -0.6 | -0.1 | 0.2 | 0.2 |
| Domestic Final Sales | 2.9 | 3.7 | 1.7 | 2.8 | 2.5 | 1.2 | 1.9 |
| Demand Components | |||||||
| Personal Consumption Expenditures | 3.2 | 3.6 | 1.7 | 3.2 | 2.7 | 1.7 | 1.5 |
| Business Fixed Investment | 2.1 | 4.1 | 1.6 | 2.1 | 6.2 | 3.0 | 9.0 |
| Residential Investment | 6.1 | 9.4 | 10.1 | 8.9 | 1.8 | 9.5 | 13.5 |
| Government Spending | 1.7 | 2.6 | -0.1 | 0.7 | -0.6 | -2.9 | -1.9 |
| Chain-Type Price Index | |||||||
| GDP | 1.2 | 2.1 | 0.1 | 0.9 | 1.6 | 1.6 | 1.8 |
| Personal Consumption Expenditures | 1.2 | 2.2 | -1.9 | 0.3 | 1.4 | 1.4 | 1.8 |
| Less Food/Energy | 1.3 | 1.9 | 1.0 | 1.3 | 1.5 | 1.5 | 1.9 |
2. Manufacturing / Production
Chicago Business Barometer Nears This Year's High
The Chicago Business Barometer rebounded to 56.2 in October following its sharp September decline to 48.7. This is the highest reading since January. Expectations had been for 49.7 in the Action Economics Forecast Survey.
| Chicago Purchasing Managers Index (SA) | Oct | Sep | Aug | Oct '14 | 2014 | 2013 | 2012 |
|---|---|---|---|---|---|---|---|
| ISM-Adjusted General Business Barometer | 56.9 | 50.1 | 55.7 | 63.3 | 59.4 | 54.3 | 54.8 |
| General Business Barometer | 56.2 | 48.7 | 54.4 | 64.5 | 60.7 | 56.1 | 54.6 |
| Production | 63.4 | 43.6 | 59.0 | 67.8 | 64.5 | 58.3 | 57.6 |
| New Orders | 59.4 | 49.5 | 56.7 | 69.2 | 63.8 | 59.2 | 55.1 |
| Order Backlogs | 45.5 | 46.5 | 46.2 | 54.3 | 54.2 | 48.9 | 48.0 |
| Inventories | 60.5 | 52.9 | 61.3 | 61.1 | 56.0 | 45.7 | 51.4 |
| Employment | 50.6 | 52.3 | 49.1 | 58.9 | 56.0 | 55.6 | 55.3 |
| Supplier Deliveries | 50.8 | 52.4 | 52.6 | 59.7 | 56.5 | 52.5 | 54.8 |
| Prices Paid | 44.3 | 41.5 | 47.3 | 60.7 | 61.0 | 59.9 | 62.2 |
Texas Factory Sector Activity is Mixed; Production Improves but Demand Weakens
The Federal Reserve Bank of Dallas indicated that production in the Texas Manufacturing Outlook Survey strengthened this month to the firmest point since December. It was up meaningfully following modest firming in September.
3. Consumer Spending
U.S. Durable Goods Orders Decline Is Broad-Based
New orders for durable goods fell 1.2% during September (-3.0% y/y) following a 3.0% August drop, revised from -2.0%. Expectations had been for a 1.0% decline in the Action Economics Forecast Survey. During the last ten years, there has been an 88% correlation between the y/y change in durable goods orders and the change in real GDP. Weakness in durable goods bookings was pervasive during both Q3 and Q2.
| Durable Goods NAICS Classification | Sep | Aug | Jul | Sep Y/Y | 2014 | 2013 | 2012 |
|---|---|---|---|---|---|---|---|
| New Orders (SA, %) | -1.2 | -3.0 | 1.9 | -3.0 | 6.8 | 2.2 | 6.3 |
| Transportation | -2.9 | -6.9 | 4.9 | 2.1 | 6.1 | 6.5 | 16.6 |
| Total Excluding Transportation | -0.4 | -0.9 | 0.4 | -5.3 | 7.2 | 0.1 | 2.0 |
| Nondefense Capital Goods | -7.6 | -4.7 | 0.6 | -13.2 | 6.6 | 2.8 | 10.8 |
| Excluding Aircraft | -0.3 | -1.6 | 1.9 | -7.3 | 6.3 | -1.0 | 7.6 |
| Shipments | 0.2 | -0.5 | 1.0 | 0.7 | 4.8 | 2.0 | 6.3 |
| Inventories | -0.3 | -0.2 | -0.2 | 1.7 | 6.1 | 2.4 | 3.8 |
| Unfilled Orders | -0.6 | -0.3 | 0.2 | -2.2 | 11.4 | 6.4 | 7.5 |
U.S. Personal Spending & Income Inch Higher; Prices Ease
Personal consumption expenditures edged 0.1% higher (3.4% y/y) during September following an unrevised 0.4% August increase. It was the smallest gain since January and missed expectations for a 0.2% rise in the Action Economics Forecast Survey. Adjusted for a dip in prices, spending gained 0.2% (3.2% y/y). Real motor vehicle purchases jumped 1.5% (6.2% y/y), the third consecutive month of strength.
Personal income improved 0.1% (4.1% y/y) on the heels of five consecutive 0.4% increases. A 0.2% rise had been expected. Wage & salary income was little changed (3.7% y/y) after two straight months of 0.5% gain. Rental income rose a moderate 0.4% (7.1% y/y) following a 0.3% rise.
| Personal Income & Outlays (%) | Sep | Aug | Jul | Y/Y | 2014 | 2013 | 2012 |
|---|---|---|---|---|---|---|---|
| Personal Income | 0.1 | 0.4 | 0.4 | 4.1 | 4.4 | 1.1 | 5.0 |
| Wages & Salaries | -0.0 | 0.5 | 0.5 | 3.7 | 5.1 | 2.7 | 4.5 |
| Disposable Personal Income | 0.1 | 0.4 | 0.5 | 3.6 | 4.2 | -0.1 | 5.1 |
| Personal Consumption Expenditures | 0.1 | 0.4 | 0.3 | 3.4 | 4.2 | 3.1 | 3.4 |
| Personal Saving Rate | 4.8 | 4.7 | 4.7 | 4.8 (Sep '14) | 4.8 | 4.8 | 7.6 |
| PCE Chain Price Index | -0.1 | -0.0 | 0.1 | 0.2 | 1.4 | 1.4 | 1.9 |
| Less Food & Energy | 0.1 | 0.1 | 0.1 | 1.3 | 1.5 | 1.5 | 1.9 |
| Real Disposable Income | 0.2 | 0.4 | 0.4 | 3.4 | 2.7 | -1.4 | 3.1 |
| Real Personal Consumption Expenditures | 0.2 | 0.4 | 0.2 | 3.2 | 2.7 | 1.7 | 1.5 |
U.S. Consumer Confidence Retreats to Three-Month Low
The Conference Board's Consumer Confidence Index in October unexpectedly reversed improvement during the prior two months.
... but still high...
4. Housing Market
U.S. New Home Sales Weaken but Prices Rebound
Recent housing market data are throwing off mixed signals. On the heels of Thursday's report that existing home sales in September neared a nine-year high, today's indication that new single-family home sales fell 11.5% last month to 468,000 (AR) left them up 2.0% y/y as the prior two months were revised lower. Sales were at the lowest level since November. Expectations had been for 547,000 sales in the Action Economics Forecast Survey.
U.S. Pending Home Sales Decline
The National Association of Realtors (NAR) reported that pending sales of single-family homes fell 2.3% during September (+2.5% y/y) following an unrevised 1.4% August decline.
5. Labor Market
U.S. Employment Cost Index Bounces Back
The employment cost index for private industry workers improved 0.6% in Q3'15 (1.9% y/y), following an unrevised zero change during Q2.
U.S. Initial Claims for Unemployment Insurance Remain Near 1973 Low
Initial claims for unemployment insurance increased 1,000 during the week ended October 24 to 260,000. The prior week's level was unrevised. The figure remained near the November 1973 low.
6. Others
Senate Passes Budget Deal to Raise Debt Ceiling
It avoids central government shut down in early November.
8 biggest banks need $120 billion more to avoid bailouts, Fed mandates
The Fed sees a mandate for loss-absorbing capacity as a key to enabling that process. It would put long-term debt into a bank's holding company that could be converted to stock as an injection of capital — instead of taxpayer funds. If a bank failed under the regulators' scenario, the holding company would be seized but subsidiaries would be allowed to continue to operate.
Under the new rules, which would come into effect in 2019, the eight banks face a $120 billion shortfall in the kinds of ownership shares and long-term debt they would need, according to a Fed memo.
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