A cornucopia of pre-Thanksgiving econ data

With a shorter work week combining with the end of the month, it meant there was a lot of economic data that came out today, and I wanted to go over some of it.

Let's start with the new Personal Income and Spending report from the Bureau of Economic Analysis. Its results were somewhere between “meh” and “ugh.”

Personal income increased $3.3 billion (less than 0.1 percent) in October according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) decreased $12.6 billion (-0.1 percent) and personal consumption expenditures (PCE) increased $39.7 billion (0.3 percent).

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

That 0.1% number for real consumption expenditures is the smallest in 9 months, and continues a trend of slower spending growth as 2019 has progressed.

In addition, the drop in real income is the first since April. Those two stats can’t make retailers feel very comfortable heading into the Holiday shopping season.

We also saw more evidence today that the recession in Midwestern manufacturing was continuing. It’s still not a good sign when the news tries to spin “but we did decline less than the previous month.”

The Chicago Purchasing Management Index registered at 46.3 in November from an unrevised 43.2 in October. The October reading was the lowest level since December 2015. Economists had expected a November reading of 46.5, according to the StreetAccount consensus on FactSet. Some surveys had average expectations as high as 47.

Any reading below 50 indicates deteriorating conditions.

What happened: Production slipped to 42.3 in November after October’s uptick. However, demand improved, indicated by the New Orders subcomponent. It rose by 12.5 points to 49.4, drawing closer to the crucial 50 mark. There was, though, anecdotal evidence of firms being concerned about the outlook due to wider economic issues, the trade group reported.

New orders in manufacturing did seem to bounce back in another report that hit on Wednesday …on the topline totals anyway.

New orders for manufactured durable goods in October increased $1.5 billion or 0.6 percent to $248.7 billion, the U.S. Census Bureau announced today. This increase, up four of the last five months, followed a 1.4 percent September decrease. Excluding transportation, new orders increased 0.6 percent. Excluding defense, new orders increased 0.1 percent. Fabricated metal products, up two of the last three months, led the increase, $0.6 billion or 1.8 percent to $34.1 billion.

But as you can see, it’s national defense spending that is most of that October increase, while the other 92% of orders basically flatlined. And even that militarily-inflated amount of orders doesn’t make up for what we lost in September, or for the year (-0.8% year-to-date vs 2018).

It’s also defense spending that is a significant part of the country’s continued economic growth as a whole, as reiterated in the revision to 3rd Quarter GDP that hit on Wednesday. Defense spending was up 3.4% on an annual basis for Q3 2019, and up 4.6% in the last 12 months ($33.8 billion) – more than double the 12-month overall US growth rate of 2.1%.

And even with the added military spending pumping up GDP, our 12-month growth rate is back to where it was when Trump took office at the start of 2017 – the same growth rate that Trump promised to double during his time in office.

Another way the country continues to struggle is in foreign trade. Even something that seems like good news – a narrowing of the US trade deficit in goods for October – turned out to be for a bad reason.

The international trade deficit was $66.5 billion in October, down $4.0 billion from $70.5 billion in September. Exports of goods for October were $135.3 billion, $0.9 billion less than September exports. Imports of goods for October were $201.8 billion, $5.0 billion less than September imports.

That’s the kind of report you’d see during a global recession, not a time of strong economic growth. Ironically, this decline in the trade deficit due to lower level of business accounted for nearly 40% of the upward projection of the Atlanta Fed's GDP now report (up to 1.7% for Q4 from a 0.4% reading last week).

Yet on Wall Street, “trade optimism” is a big reason the market continues to Bubble higher, onto another new record yesterday.

Stocks edged up for a fourth straight day to close at new records Wednesday, supported by rosier U.S. economic data and ongoing hopes for a U.S. - China trade deal, but Wall Street trading volumes were thinner than usual ahead of the Thanksgiving Day holiday Thursday.

“We can be thankful that the economy is still in a good place with economic growth a little better, a rebound in business durable equipment expenditures, and a sharp decline in joblessness which together tell the story that recession is nowhere to be seen and should not be on anyone’s radar in 2020,” MUFG chief economist Chris Rupkey said.

“Political uncertainty, impeachment, trade war with China and the world, none of these headlines as yet show an economy that is about to go down,” he added.

I suppose you'd say that, if you choose to ignore what the actual data says. Even the drop in jobless claims that Rupkey references seems to be more related to an interesting “seasonal adjustment” that didn’t apply in 2018 in the week before Thanksgiving than an actual decline in claims.

Unemployment claims, week before Thanksgiving, US
Total, unadjusted
2018 226,576
2019 252,397 (+25,821)

Seasonally adjusted
2018 224,000
2019 213,000 (-11,000)

Yeah, that doesn’t make a lot of sense to me. Much like a lot of things don’t make sense these days between Wall Street and the real-world economy. That's something to chew on over the Thanksgiving table, and as you decide whether to make that Black Friday purchase.