Thursday, October 31, 2019

Consumer spending and wages softening, and Midwest manufacturing worse

A couple more reports from today showed that the economy continues to sputter as 2019 winds down. The first indication came from the income and spending report from the Department of Commerce.
Personal income increased $50.2 billion (0.3 percent) in September according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $55.7 billion (0.3 percent) and personal consumption expenditures (PCE) increased $24.3 billion (0.2 percent).

Real DPI increased 0.3 percent in September and Real PCE increased 0.2 percent. The PCE price index decreased less than 0.1 percent. Excluding food and energy, the PCE price index increased less than 0.1 percent….

Personal outlays increased $23.0 billion in September (table 3). Personal saving was $1.38 trillion in September and the personal saving rate, personal saving as a percentage of disposable personal income, was 8.3 percent (table 1).
That’s a whole lot of “meh” on the income side, but a weak reading on spending. It’s the smallest increase in 7 months (+0.15%), and follows a similarly soft $30.8 billion increase in August. With the consumer being one of the few things keeping the expansion afloat as it hits year 11, that is not a good sign going forward.

Even worse was that the income growth was skewed higher by a one-time assist in the form of federal subsidies.
Farm proprietors’ income increased $23.3 billion in August and $12.1 billion in September; payments associated with the Department of Agriculture’s Market Facilitation Program were substantial contributors to both increases.
Add in the declining price of goods and wages and salaries only accounting for $3 billion of that $50 billion increase in incomes, and that doesn't seem like an economy where there are a lot of sources of organic growth.

Later Thursday morning, we found out that Midwestern manufacturing was getting even worse than the recessionary state it was already in.
The Chicago Purchasing Management Index sank to 43.2 in October from 47.1 in the prior month. This is the lowest level since December 2015. Economists has expected a reading of 48.3, according to Econoday.

Any reading below 50 indicates deteriorating conditions.

What happened: New orders declined to 37, the lowest level since March 2009. Order backlogs saw the largest monthly decline.
New orders sliding hard and fewer backlogs to make up the difference are awful harbingers for the future. It's especially bad news for manufacturing-heavy Wisconsin, which already was in bad shape, according to the Federal Reserve Bank of Philadelphia.

With GDP growth in Q3 slipping below 2% and several other reports this week indicating an economy that might be slowing even more than that, it sure makes tomorrow's jobs report for October into a big deal. In 2019, job growth has slowed, but we haven't seen jobs being lost or unemployment go up. If that starts to happen, or even if job growth falls below 100,000, the spiral may become very hard to stop.

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