Last Week's Economic News in Review

November 19, 2013

Last week saw mixed economic results, with improving employment, but an unexpectedly widening trade gap with dropping import and export prices, signaling that the economy will continue its recovery in fits and starts. Employment First-time claims for unemployment benefits fell for the fifth straight week during the week ending Nov. 9, according to last week’s report from the Employment and Training Administration. That said, the total was slightly higher than projections. Claims filed for the week ticked down to 339,000, a slight decrease of 2,000 claims from the previous week’s revised figure of 341,000. The total number of unemployed Americans covered by unemployment insurance during the week ending Nov. 2 was 2,874,000, the Administration also reported. This was unchanged from the previous week's revised level of 2,874,000, and the four-week moving average was 2,866,250, which was down 2,000 from the prior week's average 2,868,250, a small, but welcome sign. Many labor market experts had expected this measured employment performance, and cited fears over political and economic uncertainties as its main cause. Trade Balance In the meantime, the trade deficit widened unexpectedly to its biggest gap in four months, with September totaling $188.9 billion and imports ringing in at $230.7 billion, according to last week’s report from the Census Bureau and the Bureau of Economic Analysis. This resulted in a goods and services deficit of $41.8 billion, up from $38.7 billion in August. Expectations were for a gap of roughly $39 billion. Some analysts chalked up the nearly $3 billion difference to underperforming exports in September, which were $0.4 billion less than August exports of $189.3 billion. September imports were $2.7 billion more than August imports of $228.0 billion, marking their highest point since November 2012. It’s also worth noting that petroleum played a big role in September’s overall trade activity. Petroleum imports pushed the petroleum deficit from $18.6 billion to $19.8 billion in September, which was nearly half of the month’s total deficit. Import and Export Prices In related news, lower fuel prices led import prices to notch down 0.7 percent in October, the Bureau of Labor Statistics reported last week. This followed small advances of between 0.1 percent and 0.2 percent over the last three months. It’s worth noting that import prices decreased 2 percent for the year ended in October, which was the largest 12-month decline since a 2.7 percent drop between April 2012 and April 2013. Export prices fell 0.5 percent in October, after a 0.4 percent increase in September. Prior to September, export prices had been on a downward trend. The last time export prices advanced was in February with a 0.7 percent gain. In addition to dropping fuel prices impacting both import and export prices, the downward trend in import prices also highlights the fact that consumers abroad, particularly those in Europe, were having enough trouble that U.S. importers couldn’t justify price increases. Altogether, these factors point to continued middling trade performance worldwide. This week, we can expect to see: Wednesday — October retail sales and September Business Inventories from the Census Bureau; October consumer price index from the Bureau of Labor Statistics; October existing home sales from the National Association of Realtors. Thursday — Initial jobless claims for last week from the Employment and Training Administration; October producer price index from the Bureau of Labor Statistics; October Leading Economic Indications index from The Conference Board.

Reported by:  DEIRDREMARTIN GIESE +John Barker +Joe McCoy +Vincent Aguirre +Anca Brudan

Key Economic Headlines.

Key economic headlines for last week included a drop in retail sales, as well as the lingering impact of the federal shutdown, which took their toll on consumer confidence. Where retail sales were concerned, food services sales for September ticked down 0.1 percent from August to $425.9 billion, according to last week’s report from the Census Bureau. While down from the preceding month, September’s performance was still 3.2 percent higher than September 2012’s receipts. Car and truck sales were the primary influence on September’s retail performance. Auto sales dropped 2.2 percent in September, due to the fact that carmakers agreed to count their Labor Day weekend sales toward August, with car and car parts sales omitted from September’s retail tally, sales actually increased 0.4 percent for the month. Whiles sales ticked down, prices notched up. The Consumer Price Index for All Urban Consumers (CPI-U) grew by 0.2 percent in September, the Bureau of Labor Statistics reported last week. The energy index was a key mover, posting a 0.8 percent gain in September, while the food index was flat for the month. Just the same, September’s index for all items less food and energy only rose 0.1 percent for the month. Meanwhile, the Producer Price Index for finished goods skirted won 0.1 percent in September, the Bureau also reported last week. By contrast, the indexes for finished energy goods and for finished goods less foods and energy grew by 0.5 percent and 0.1 percent, respectively. That poor retail performance helped push down consumer’s assessment of the economy, with The Conference Board’s Consumer Confidence Index posting a sharp drop to 71.2 in September, decreased sharply in October, down from 80.2 in September. (A baseline of 100 was set in 1995.) The Present Situation Index, which describes how consumers assess the current economic situation, dropped to 70.7 from 73.5. The Expectations Index, which describes how consumers expect the economy to fare in the near feature, plunged to 71.5 from 84.7 last month. Looking at the job market, consumers saying jobs were “plentiful” was virtually unchanged at 11.3 percent in October from 11.4 percent in September, while those saying jobs are “hard to get” grew to 35.8 percent from 33.6 percent. The Conference Board noted that the government shutdown and debt-ceiling crisis put a large dent in consumers’ expectations. It added that comparable drops in confidence took place during the payroll tax hike earlier this year, the fiscal cliff discussions in late 2012, and the 1995 federal shutdown. In employment news, first-time claims for unemployment insurance filed during the week ending Oct. 26 dropped to 340,000, a decline of 10,000 claims from the preceding week’s total of 350,000, the Employment and Training Administration reported last week. The four-week moving average was 356,250, a gain of 8,000 people from the prior week's average of 348,250. The total number of unemployed Americans covered by insurance during the week ending Oct. 19 grew to 2,881,000, an increase of 31,000 from the previous week's revised level of 2,850,000, the Administration also reported. The four-week moving average declined to 2,878,750, a drop of 10,000 from the preceding week's revised average of 2,888,750. This week, we the federal reporting agencies will continue to play catch-up in their post-shutdown release of economic releases: Monday — August and September factory orders from the Census Bureau. Wednesday — September leading economic indicators from The Conference Board. Thursday — Initial jobless claims for the week ending Nov. 2 from the Employment and Training Administration; Advanced third quarter GDP from the Bureau of Economic Analysis; Sept. consumer credit from the Federal Reserve. Friday — October payrolls, unemployment, hourly earnings and workweek from the Bureau of Labor Statistics; September personal income and spending from the Bureau of Economic Analysis.

The big news last week was employment, which appears to be on track with past trends, and consumer credit, which saw a big bump in non-credit card borrowing. October Unemployment October’s unemployment performance beat forecasts despite possible skewing due to the Federal shutdown. The economy added 204,000 non-farm jobs in October, putting the unemployment rate at 7.3 percent for the month, and the total number of jobless Americans at 11.3 percent, according to last week’s report from the Bureau of Labor Statistics. This was slightly up from September’s 7.2 rate, but better than the forecast of 7.4 percent. That said, the civilian labor force dropped by 720,000 in October, and the labor force participation rate, which describes how many people are actively looking for work, fell by 0.4 percent to 62.8 percent over the month. The big question is why? For now, experts are chalking up the labor force shrinkage and declining participation to the Federal shutdown, because furloughed employees were counted as jobless, and not a narrowing job market. We’ll know better with the November report whether we’re looking at a trend, or simply more data skewed by the shutdown. Consumer Credit Consumer credit grew by 5.4 percent in September to hit a sizable total of $3.05 trillion, according to last week’s report from the Federal Reserve. Once again, the upswing was not felt by credit cards, which actually were down. Non-revolving debt, such as student loans and car loans, saw a solid surge of 8.7 percent to hit $2.2 trillion, while revolving debt, such as credit cards, dropped by 2.9 percent to $846.9 billion. That’s the fourth-straight month of diminishing credit card spending. Multiple experts chalked up the gains in non-revolving debt to gains in household wealth resulting in a willingness to buy big-ticket items, while keeping the plastic in their wallets. The question is, does that speak to consumer concerns about the current economy, or about credit card use in general? “It’s the pattern we’ve seen all year and even most of last year — consumers not really willing to build up credit-card balances,” said Paul Edelstein, director of financial economics at IHS Global Insight. “We can’t preclude the possibility that there’s just been a preference shift in household attitudes toward debt.” Incomes and Spending September’s personal income and spending scores from the Bureau of Economic Analysis might speak to Edelstein’s concerns. Incomes grew by a 0.5 percent increase, or $67.4 billion, while personal consumption expenditures grew by 0.2 percent, or $24.7 billion, according to last week’s report. Growth is a good thing, but while September’s income growth was in line with August’s 0.5 percent gains, the pace of September’s spending was a bit down from August’s 0.3 percent growth. That drop helped keep inflation in check, but September’s personal savings rate rose to 4.9 percent in September from 4.7 percent in August, marking a nine-month high. That could speak to a reticence on the part of consumers to buy, which hurts growth, given that consumer spending comprises a large portion of the economy. But it could also be attributed to consumer fears exacerbated by the shutdown. The bureau’s release of October scores next month will help shed some light on the situation. This week, we can expect to see: Wednesday — October import and export prices from the Census Bureau; the October Treasury budget from the Treasury Department. Thursday — Initial jobless claims for last week from the Employment and Training Administration; the September balance of trade from the Census Bureau and Bureau of Economic Analysis; preliminary Third Quarter productivity scores from the Bureau of Labor Statistics. Friday — Industrial production and capacity utilization for October from the Federal Reserve; September wholesale inventories from the Census Bureau.