A Sigh of Relief from Third-Quarter Real GDP
- Most market watchers and analysts have their eyes firmly fixed on next week’s outcome for the FOMC meeting and midterm elections. Markets have already priced in a second round of quantitative easing to the tune of a $500 billion purchase of long-term Treasuries over the next six months.
- Real GDP came in at a 2.0 percent annual pace, which is still not enough to bring down the unemployment rate. Much of the rise in GDP was due to an increase in consumer spending and inventory accumulation.
ISM Index • Monday
In April, the ISM manufacturing index briefly rose above 60, a level that rivaled the highest levels reached in the past 20 years. The enthusiasm on the part of purchasing managers captured in those months was likely a reflection of the bullwhip effect on the manufacturing supply chain as businesses first started rebuilding inventories in the wake of the recession. Now, as that stockpile rebuilding has run its course, the euphoria has faded. Still, the ISM index remains above the 50 line that separates expansion from contraction. While we forecast an acceleration in the index for October, we would not be surprised to see the index trend closer to 50 over the coming months. Such a move would be consistent with our forecast for a slower pace of growth in the factory sector than we saw in the first half of this year.
Previous: 54.4 Wells Fargo: 55.5
Consensus: 54.0
Factory Orders • Wednesday
Speaking of the factory sector, September orders data for U.S. factories are to be released on Wednesday. The factory orders report supplements the September data we already received for durable goods orders. The durables report showed that orders jumped 3.3 percent on the month, fueled by a huge increase in aircraft orders. Stripping away aircraft and autos orders, the non-transportation measure of durable goods orders actually fell 0.8 percent on the month.
The key yardstick of business spending, nondefense capital goods orders ex-aircraft, seemed to lose some momentum in September as well. We will be watching to see if we get an upward revision to the 0.6 percent decline first reported in the durables report.
Previous: -0.5% Wells Fargo: 1.6%
Consensus: 1.2%
Employment Report • Friday
While nonfarm payrolls have been negative for four straight months, private payrolls have been on the rise. Government employment has been the drag on job growth, and there are two factors that explain why. The first is that people hired temporarily for census jobs are now rolling off the government payroll. The second is that as state and local governments try to come to grips with budget shortfalls caused by smaller tax receipts, these government employers are letting people go to cut costs. It was this second dynamic with state and local government in September that caused the actual number to come in far below consensus estimates.
Although the drag from state and local layoffs will weigh on total nonfarm payrolls, we still expect to see an increase in jobs for October when that number is reported on Friday.
Previous: -95k Wells Fargo: 29k
Consensus: 60k
https://www.wellsfargo.com/
Full report: US Review: Weekly Economic & Financial Commentary
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