Economic Outlook - October 2018
- Boston Federal Reserve’s President said he backs the U.S. central bank’s strategy of hiking Fed Funds rates gradually to head off a problem later on, excess inflation. In a recent speech in Boston, Eric Rosengren said that he expects the nation’s low unemployment rate to fall even further, creating the “risk of rising inflation or increasing financial stability concerns – or both.” Raising rates gradually is likely “to be appropriate and beneficial over the long term” and reduce the likelihood of the U.S. entering a recession soon, he said. The Fed last week raised the Fed Funds Rate a quarter-point and it is expected to do so once more before the end of 2018. We see no near-term risk of recession with expected growth this quarter near 4%.
- President Trump said he plans to sign the newly struck U.S., Canada and Mexico trade deal by the end of November, and then submit it to Congress. In a Rose Garden ceremony, Trump said the deal to replace the North American Free Trade Agreement will support “hundreds of thousands” of American jobs and he thanked Canada’s Prime Minister Justin Trudeau and outgoing Mexican President Enrique Pena Nieto, as well as President-elect Andres Manuel Lopez Obrador.
- Construction spending was a thin 0.1% higher in August than in July, led by public-sector expenditure, according to the Commerce Department. The public sector carried all the weight in August as spending was 2% higher than in July, while private-sector spending fell 0.5%. New-home sales ran at a seasonally adjusted annual 629,000 rate in August. Sales of newly-constructed homes rose 3.5% compared to July, and narrowly beat the economist consensus. The rate of sales in August was 12.7% higher than a year ago, but meaningful revisions to prior months were all downward, a reminder that the housing recovery remains painfully slow.
- The Institute for Supply Management said Monday that its manufacturing index fell to a reading of 59.8% in September from 61.3%. Economists expected a reading of 60.7%. Any reading above 50% indicates improving conditions. Separately, IHS Markit reported that its manufacturing Purchasing Manager’s Index reached a four-month high of 55.6 in September. As much as the industry is concerned about tariffs and rising prices, it appears output has been robust, as businesses spent more on machinery. Strong U.S. demand, boosted by rising wages, healthy employment and lower taxes, seems to have buoyed the sector. ISM said the past relationship between the headline index and the overall economy corresponds to a 5.1% annualized increase in GDP.
- The September jobs report was notable for what seemed to be evidence that, finally, America’s workers are seeing accelerating pay. That report showed average hourly earnings rising 2.9% in the 12 months ending August, as well as a healthy 201,000 gain in nonfarm jobs. The unemployment rate may fall a notch to 3.8% from 3.9% in August. The one wrinkle to the jobs report is the impact from Hurricane Florence. By keeping people out of work, the hurricane hit to the Carolinas may cause a lift in hourly pay, since it is often low-income workers who are unable to get to their jobs in inclement weather. Salaried workers are generally paid whether they show up or not.
Sources: Bloomberg LLC, FactSet, U.S. Department of Labor, Dow Jones MarketWatch
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