Real consumer spending rose 0.3% in October, following a 0.2% gain in the prior month. A large part of the increase was from purchases of cars and other recreational vehicles. Outlays on services held steady during October after a 0.1% increase in September. The October consumer spending data combined with conservative projections in the last two months of year points to moderate growth during the fourth quarter. However, if the October pace of consumer spending prevails in the next two months, our current forecast of real GDP growth for the fourth quarter would have to be raised. Consumer spending during the last six months has posted the longest stretch of gains in the current recovery.
Personal income moved up 0.5% in October after an unchanged reading in the prior month. The 0.6% jump in wages and salaries during October is impressive. Personal saving as a percent of disposable income inched up to 5.7% in October from 5.6% in the previous month. The personal saving trajectory of the U.S. economy has moved to a higher level from a historical low of 1.4% in 2005 (see Chart 2).
New Home Sales Continue to Linger Around Historical Low
Sales of new single-family homes fell 8.1% to an annual rate of 283,000 in October after an upwardly revised gain of 12.0% in September (previously estimated as a 6.6% increase). Sales of new single-family homes have hovered around the historical low of 275,000, recorded in August, for the last six months.
Although the Housing Affordability Index is at a historically high level, sales of homes are being held back by soft employment conditions (see Chart 4). Housing market woes will continue to influence the course of monetary policy actions in the near term.
The current inventory-sales ratio of unsold homes moved up to 8.6 months from 7.9 months in October. However, the number homes for sale is close to historical lows and bodes positively for home building activity when demand for homes gathers momentum.
Initial Jobless Claims - Noteworthy Decline
Initial jobless claims fell 34,000 to 407,000 during the week ended November 20. This is the lowest count of initial jobless claims since July 19, 2008. The four-week moving average, at 436,000, is noticeably below 450,000, which has been the level around which initial jobless claims have been holding since April. Continuing claims, which lag initial claims by one week, fell 142,000 to 4.182 million. Unemployment insurance claims under special programs also dropped 262,000 for the week ended November 6 (see Chart 7). The decline in initial jobless claims suggests that labor market conditions are improving.
Durable Goods Orders - Discouraging Report
Orders of durable goods fell 3.3% in October vs. a 5.0% increase in September. Orders of non-defense capital goods excluding aircraft dropped 4.5% in October following a 1.9% gain in September. The 112.6% jump in orders of aircraft lifted bookings of durable goods in September. A partial reversal of these orders and widespread declines in orders of all other major components of durable goods led to the overall weakness of the October report. Shipments of durable goods fell 0.9%, after a nearly steady reading in the prior month.
The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.
