From NASF's Dr. Ken Mayland, a person who has spent more than 35 years studying the business cycle, is a business economist:
1. The numbers, part 1. The Institute for Supply Management (ISM) reported that its summary Purchasing Manages' Index (PMI) edged 0.2 points higher, to 51.7. According to the ISM, a reading above 50 would typically be associated with an expansion of the manufacturing sector. Furthermore, based on the ISM's estimates, if the current reading of 51.7 were sustained, it would tend to be consistent with 3.1% real GDP growth (annualized).
2. Something for the future? Production (52.4, up 2.9 points) apparently increased in October, a reversal of the September situation. That's water under the bridge. Orders represents fuel for production for the future. The orders component of the survey (54.2, up 1.9 points) showed an increase AND a pick-up of growth. These are not "strong" readings, but nevertheless, it looks like manufacturing output will tend to grind higher over the rest of the year (outside of any disruptive effects of Hurricane Sandy).
3. Global cooling? Yes, at least with respect to the global economy. Exports: 48.0, down 0.5 points. Imports: 47.5, down 2.0 points.
4. Problem with prices? Yes: they are going UP! Prices Index = 55.0, down 3.0 points. While the extent of prices pressures have eased back, in line with "global cooling," the bias is still "higher." This is the third month above "50."
5. The numbers, part 2: A lesson here? Nonfarm business productivity grew at a 1.9% annualized pace, Q2 to Q3, and 1.5% y/y. From Q2 to Q3, this productivity held unit labor costs in check (-0.1%); y/y = +1.1%. Productivity growth tends to be positively correlated with business growth. For Q3, the annualized pace of nonfarm business output was a relatively healthy 3.2%.
In contrast, manufacturing output for the quarter was -0.6%, and productivity in the factory sector was -0.4% (AR). Hourly compensation for Q3 was 1.8% for all nonfarm businesses and 1.2% for manufacturing (annualized). But after adjusting for inflation, these real rates of hourly compensation were negative: -0.4% and -1.1%, respectively. No wonder consumer spending is so soft!
These productivity figures for Q3 are "pretty decent." Yet we know that economic growth was both tepid and disappointing. That's the lesson! Business WILL figure a way to survive, even if it does not produce the macroeconomic results that we would like to see (such as job growth).
6. The numbers, part 3. Construction spending for September gained 0.6% (y/y = +7.8%). ALL the strength was concentrated in private residential expenditures: +2.8% (y/y = +20.9%). Private nonresidential spending on structures was nearly flat: -0.1% (y/y = +8.8%).
Total public construction spending contracted 0.8% (y/y = -4.2%). This data was NOT available, and therefore not incorporated, in the first estimate of Q3 GDP. My sense is that the residential investment GDP estimate will be revised somewhat higher, but the government purchases component will be nicked a bit. In total, however, it could be close to a wash.
7. Bonus. The weekly initial claims for unemployment compensation for the week ending 10/27 fell 9k, to 363k. The 4-week moving average edged 1.5k lower, to 367k. In recent weeks there has been substantial volatility in the weekly numbers, but the important result is that there has been no sustained breakout to the downside (below 350k, which would be good sign of improving economic growth), or a continuous rise above 400k (which would be a disturbing indication of a possible return to recession).
Furthermore, over the next few upcoming weeks, expect considerable volatility due to the disruptions associated with Hurricane Sandy. I'm thinking that the numbers might initially plunge (because people can't get to the filing offices, or are otherwise occupied with damage recovery), and then soar (with the accumulated catch-up, once conditions begin to return to normal).
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