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  • US Economy
  • Housing
  • Power Tool Industry
  • Distribution
  • Canada
  • Market Trends
  • PDF

US Economy

US Economy November 2022

11/7/2022

 
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Stocks slid at the end of the month but still snapped a two-month losing streak. The Dow turned in its best monthly performance since 1976 and all three indexes recovered nicely from September’s bloodbath and posted positive results. The NASDAQ lagged behind a bit because tech stocks are taking a beating as online sales growth slows.
 
Consumer Spending Rises 0.6%
Consumer spending rose 0.6% in September after rising a downwardly revised 0.3% in August. The increase was about twice as much as economists expected. Core consumer spending rose 0.3% in September after rising 0.1% in August. Wages and salaries climbed 1.3% last quarter after rising 1.4% in the second quarter and were up 5.1% on a year-over-year basis after rising 5.3% in the prior quarter. Private sector wages rose 1.2%, down from a 1.6% jump in the second quarter. That lowered the annual increase in private industry wages to 5.2% from 5.7% in the second quarter. The saving rate fell to 3.1%, a 14-year low, signaling Americans are tapping into their savings rather than accumulating more. The saving rate was as high as 26.3% in March 2021. It is now near levels seen during the 2007-09 Great Recession.
 
Consumer Prices Rise 0.6%
The Consumer Price Index (CPI) rose 0.6% in September after creeping up just 0.1% in August was up 8.2% year over year after being up 8.3% in August. Core inflation, which excludes the volatile food and energy categories, rose 0.6% year over year in September after rising at the same rate in August. Increases in both the CPI and the core index were above expectations. The Fed’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index, rose 0.3% in September and was up 6.2% year to date, in line with the August increase. After stripping out food and fuel, core PCE was up 5.1% over the past year after a 4.9% increase in August.
 
Consumer Confidence Falls to 102.5
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  • The New York-based Conference Board’s Consumer Confidence Index fell to 102.5 in October after rising to 108.0 in September and 103.2 in August*
  • The Present Situation Index dropped sharply to 138.9 in October after rising to an upwardly revised 150.2 in September.
  • The Expectations Index, based on short-term outlooks for income, business and labor market conditions, dropped to 78.1 in September after rising to a downwardly revised 79.5 in September.
  • In May 2020 Consumer Confidence was 120.0 but fell to 86.9 at the onset of the pandemic in March 2020.
*A level of 90 indicates that the economy is on solid footing; a level of 100 or more indicates growth. Analysts caution that the real driver behind consumer spending is income growth and that labor market trends are a more accurate predictor of consumer behavior.

Unemployment Rises to 3.7%
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  • The unemployment rate rose to 3.7% in October after falling to 3.5% in September. Unemployment was 3.5% at the start of the pandemic in March 2020.
  • The economy added 261,000* new jobs, below expectations. Job growth for October was revised up to 315,000 new jobs from the 263,000 first reported.
  • Employers have already replaced all of the 22 million jobs lost during the pandemic and added nearly 3.8 million jobs during the first nine months of the year.
  • A cooling job market could help the Federal Reserve avoid a recession and achieve the elusive soft landing for the economy.
  • The number of job openings across all sectors increased in August, and there are now approximately two jobs for every job seeker, according to the latest Job Openings and Labor Turnover Survey (JOLTS) from the Bureau of Labor Statistics.
*The economy needs to create about 120,000 new jobs each month to keep up with growth in the working-age population.
 
Chicago PMI Falls to 45.2
The Chicago PMI fell slightly to 45.2 in October after dropping sharply to 45.7 in September. Economists had expected the PMI to rise into the 47+ range. A PMI number above 50 signifies expanded activity over the previous month. Looking back to when the series began in 1967, the PMI has ranged from 20.7 in June 1980 to 81.0 in November 1973. 
              
Wholesale Prices Rise 0.4%
The Producer Price index (PPI) rose 0.4% in September after falling 0.1% in August and was up 8.5% year over year, down from 8.7% year over year in August. The increase, which was larger than expected, was pushed up by a big jump in the cost of services. Stripping out the volatile categories of food, energy, and trade services, the PPI increased by 0.3% in September after rising 0.2% in August and was up 7.2% year over year after being up 5.6% year over year in August.
 
Q3 GDP Rises 2.6%
Q3 GDP rose 2.6%, well above expectations, according to the first reading from the Commerce Department. GDP shrank 0.6% in the second quarter. The positive growth snapped two consecutive quarterly declines and raised questions about whether the economy had been in a mild recession. Growth came despite cooling consumer spending and rising interest rates. Inflation is denting some consumers' appetites for big-ticket purchases. Most Americans think it is a bad time to buy a car or large household goods such as furniture, refrigerators or stoves, with a large share attributing their viewpoint to high prices and the need to cut back on discretionary spending, according to a University of Michigan survey. Real personal consumption expenditures (PCE), which accounts for roughly two-thirds of spending, rose an annualized 1.4% in Q3. Spending on durable goods, which tends to be sensitive to higher interest rates, edged down by 0.8%, while spending on non-durable goods slid 1.4%. Spending on services, which is still being boosted significantly by pent-up demand, grew 2.8%. Rapidly rising mortgage rates contributed to residential investment plunging by more than 26% in Q3. Residential investment has declined by more than 15% since peaking in early 2021. Real final sales to domestic purchasers, which is the sum of consumer spending and fixed investment and measures the "core" part of spending in the economy, was essentially flat in Q3 relative to Q2. Analysts continue to predict that further tightening by the Fed will push the economy into recession by the second quarter of next year.
 
Fed Raises Rates 0.75%
The Fed raised interest rates by another three-quarters of a percent in early November to a range between 3.75% and 4.0%. Fed Chair Jerome Powell indicated that rate increases would continue until inflation slows down and the economy cools off, although the pace and amount of increases may slow down. The last time rates were this high was during the first three weeks of 2008 when the economy was sliding into a deep recession. A series of steep rate cuts quickly followed then, but the Fed stated that rates would remain elevated until the economy cooled off enough to tamp down persistently high inflation and wage growth. The job market remains very tight; unemployment will need to tick up before wage growth will slow significantly. Officials forecast that rates would reach 4.4% by the end of this year and 4.6% in 2023, a more aggressive outlook than the previous one which had rates leveling out at 3.5%, which they have already surpassed. The Fed still expects GDP to contract 0.2% this year and inch up to 1.2% growth in 2023, well below the 5.7% in 2021.
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