The markets churned during the month, but shrugged off the jitters and ended September little changed. However, all three indexes turned in positive results for the third quarter. The DOW shed 0.5% for the month but rose 2.1% for the quarter, NASDAQ gained 1.9% for the month and 9.7% for the quarter and the S&P, the index most closely followed by economists, fell 0.1% for the month, but rose 3.3% for the quarter.
CONSUMER CONFIDENCE RISES
The New-York based Conference Board’s Consumer Confidence Index rose to 104.1 in September after rising to an upwardly revised 101.8 in August. It was a post-recession high for the index. The Present Situation Index rose to 128.5 after rising to an upwardly revised 125.3 in August. The Expectations Index improved to 87.8 from a downwardly revised 86.1. The Conference Board said that consumers were generally more upbeat about the short-term outlook but pretty neutral about longer-term prospects for the economy and business conditions. Economists say a level of 90 indicates that the economy is on solid footing and 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.
CONSUMER SPENDING FALLS 0.1%
Consumer spending fell 0.1% in August after rising 0.3% in July, in line with economists’ expectations. It was the first decline in consumer spending in seven months. Disposable income, including wages and salaries, went up 0.1% after rising a downwardly revised 0.3% in July. Income has been rising slowly but steadily over the year. The personal saving rate rose to 5.7% in August from a downwardly revised 5.6% in July. The personal consumption expenditures price index (PCE), the inflation measure preferred by the Federal Reserve, rose 0.1% in August, after rising by the same amount in June and July. The index has risen 1.0% over the past year, but is still well below the Fed's 2% target. Consumer spending is closely watched by economists because it accounts for 70% of U.S. economic activity.
CONSUMER PRICES RISE 0.2%
The Consumer Price Index (CPI) rose 0.2% in August after being unchanged in July and was up 1.1% from August 2015. Core prices, which strip out volatile food and energy costs, rose 0.3% in August after edging up 0.1% in July and were up 2.3% from August 2016. It was the largest increase in core prices since last February. Economists said that the report showed that domestic price pressures were building very gradually. The increases in prices overall were primarily due to a jump in medical care costs, which rose 1%, the biggest one-month increase since 1984.
UNEMPLOYMENT RISES TO 5.0%
The unemployment rate rose to 5.0% in September after remaining at 4.9% for several months and the economy added 156,000 new jobs, in line with economists’ expectations. Job gains for July and August were revised, resulting in a net loss of 7,000 jobs. Retail added 22,000 jobs in September, and the retail sector has added 317,000 new jobs this year. Job gains have averaged 192,000 over the past three months. The average hourly earnings rate rose 0.2%. Wages have risen 2.6% over the past 12 months.
DURABLE GOODS ORDERS FLAT
New orders for durable goods were flat in August after rising a downwardly revised 3.6% in July and were down 0.6% year-to-date compared to the same period last year. Analysts had expected durable goods orders to drop 1.5%. Orders for non-defense capital goods excluding aircraft, a category that serves as a proxy for business investment spending, rose 0.6% in August after rising 1.6% in July. Economists noted that three consecutive months of increases in this category are an encouraging sign that business capital investment activity might be on the verge of a long-awaited rebound. However, core orders ex transportation were down 0.4% in August. Shipments of core capital goods, which factor into GDP calculations for business spending, fell 0.4% in August after being unchanged in July. A 21.9% drop in demand for civilian aircraft helped keep overall orders for durable goods flat in August. The durable goods report is often both volatile and subject to sharp revisions.
CHICAGO PMI RISES
The Chicago PMI rose 2.7 points to 54.2 in September after falling to 51.5 in August. The increase was driven by a sharp gain in Production, which rose 7.3 points to 59.8, the highest reading since January. New Orders and Order Backlogs were little changed, with Backlogs remaining below the breakeven level of 50. Inventories were relatively stable, with the indicator rising just above 50. Prices Paid rose slightly, an indication of early signs of pipeline inflation after four consecutive monthly declines left Prices Paid at a five-month low. Most panelists (79%) said that the November Presidential Election is having little impact on business.
WHOLESALE PRICES UNCHANGED
The Producer Price Index (PPI) was unchanged in August after falling 0.4% in July and was flat compared to August 2015. The core PPI, which excludes food, energy and trade services, rose 0.1% in August after rising 0.3% in July and was up 1.0% in the 12 months through August. Falling food and energy prices helped keep inflation tame. The PPI for inputs to construction dropped 0.2% in August after rising 0.1% in July and was down 1.7% from August 2015.
Q2 GDP UP 1.4%
GDP grew 1.4% in the second quarter according to the third and final reading, which was up from the 1.1% growth reported in the second reading and exceeded analysts’ expectations. The economy grew 0.8% in the first quarter. Consumer spending was revised downward slightly to 4.3% from the 4.4% increase reported in the second reading. Consumer spending accounts for 70% of economic activity. Companies sliced another $50.2 billion off inventories, subtracting 1.2% from GDP on an annualized basis. It was the fifth straight quarter that inventories weighed on output. After tax corporate profits were revised up to show a 0.6% decline rather than the 1.2% drop last estimated.
JOB OPENINGS HIT RECORD HIGH
Job openings jumped 4% to a record high of 5.87 million in July, up from 5.6 million in June, according to the July Job Openings and Labor Turnover Summary (JOLTS) report. Total hiring rose 1% in July to 5.22 million, a good pace but down from 1.4% a year ago. The gap between the 4% jump in open jobs and the 1% increase in hiring could suggest that many employers are having a tough time finding enough qualified workers to fill open positions, which could force employers to increase pay in order to attract more applicants. On a three-month moving average basis, job openings are up 5.3% over the past year compared to a 16% jump over the same time period last year. The retail sector has seen the biggest jump in openings over the past year, and openings among durable goods manufacturers are at a 12-month high. There were 4.8 million hires in the private sector and 4.9 million total separations, including 2.7 million quits. The number of job openings has consistently exceeded the number of hires. Quits are typically voluntary separations, and an increase in quits generally indicates that people are more confident about their ability to find another job. The JOLTS report is one of Fed Chair Janet Yellen’s preferred economic indicators.
FED KEEPS RATES STEADY
The Fed left interest rates unchanged at 0.25% to 0.50% at their meeting in September, but sent a strong signal that rates could rise before the end of the year. Central Bank policyholders have appeared to be increasingly divided over the timing for another rate hike, and the vote of 7 to 3 was unusual. Fed Chairman Janet Yellen indicated that she expects one rate increase this year if the job market continues to improve and there are no new major risks. Fed watchers generally agree that the rate increase will come after the November elections, at the Fed meeting in December. Yellen went on to emphasize that the lack of an increase did not indicate a lack of confidence in the U.S. economy. The Fed also predicted a less aggressive rise in interest rates next year and in 2018, cutting the forecast for long-term rates from 3.0% to 2.9%. In December 2015 the Fed signaled that four rate increases were likely this year.
HOUSEHOLD INCOME RISES
U.S. household income rose 5.2% in 2015, the first increase in household income in eight years. Despite the gain, the median household income of $56,516 was still below the median income of $57,423 in 2007 when the Great Recession began. Median incomes picked up in all regions of the U.S., across all age groups and for most ethnic and racial groups. The proportion of Americans living in poverty fell sharply, from 14.8% in 2014 to 13.5% last year. In the early years of the recovery many job gains were in low-paying sectors, such as fast food and retail. But in 2014 and 2015 the growth of middle-income jobs in sectors such as construction and shipping outpaced gains in both lower-paying and higher-paying categories.
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