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US Economy Continues to Expand in November

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Written By: Richard Koch – Forex Focus

A peek at the US dollar against the backdrop of key economic indicators.

The economy of the United States continued its growth trajectory heading into the last month of this year. While most of the economic announcements in November revealed robust growth, inflation continued to remain stubbornly below the central bank’s target of 2 percent, mostly reflecting weaker crude-oil prices in international markets.

Following is a summary of the major economic events in the country and the performance of the US dollar:

Beginning with the PMI (Purchasing Managers’ Index) data, the Institute for Supply Management’s monthly PMI for the manufacturing sector fell to a four-month low of 58.2 in October from 58.7 in September. The index registered its second consecutive monthly decline after climbing to a 13-year high of 60.8 in August on the back of a decline in supplier deliveries and new export orders.

Non-manufacturing PMI, meanwhile, moved up to its highest level since August 2005, jumping to 60.1 in October from 59.8 the previous month. Business activity, employment and new export orders saw significant increases as the backlog in orders declined, and inventories scaled up a bit.

Out of the 18 industries that make up the manufacturing sector, 14 reported growth, while two contracted. Among the non-manufacturing industries, 16 reported growth, with two sectors contracting.

The ADP national employment report revealed that the non-farm private sector added 235,000 workers in October, beating market expectations of a 200,000 increase and higher than the downwardly revised figures of 110,000 in September. The employment figures, the highest since March of this year, was led by the service sector, which contributed about 150,000 jobs, while the manufacturing sector added 85,000 employees to its payroll.

The trade deficit in the US widened to $43.5 billion in September from $42.8 billion in August, led by a faster pace in imports, which rose by 1.2 percent, offsetting a 1.1-percent increase in exports. The manufacturing industry led export shipments with a $1.8 billion increase, while exports of services rose $0.3 billion during the month. Likewise, imports of goods surged by $2.4 billion compared to a $0.4 billion rise in services during a similar period.

Non-farm payrolls increased by 261,000 in October, a sharp rise from the upwardly revised 18,000 of the previous month and the highest since July 2016. Employment in food and recreational services rebounded after declining in September, largely due to the impact of hurricanes Irma and Harvey. The number of persons finding employment in government jobs rose by 9,000, while private-sector payrolls increased by 252,000.

Factory orders, or new orders for manufactured goods, rose 1.4 percent in September, a three-month high following 1.2-percent growth in August. The gains were led by transportation, which surged 4.7 percent on the back of a more than 30-percent increase in civilian aircraft orders and a 33.2-percent increase in marine transport including boats and ships. Orders for durable goods rose 2 percent, while non-durables were up 0.8 percent. Excluding transportation, factory orders were up 0.7 percent from 0.6 percent the previous month. 

Consumer credit spiked by $20.83 billion in September following a downwardly revised $13.1 billion figure in August. The credit numbers are the highest since November last year, with non-revolving credit rising by $14.4 billion and revolving credit by $6.3 billion.

Wholesale inventories slipped 0.4 percent month-on-month in October after rising for five successive months. The decline was led by a 1.4-percent fall in inventories of non-durable goods, which more than compensated for the 0.2-percent rise in inventories of durables.

Producer prices in October remained flat at 0.4 percent month-on-month on the back of a 2.1-percent increase in pharmaceutical preparations. While the cost of services rose by 0.5 percent compared to a 0.4-percent increase in September, the cost of goods dropped from 0.7 to 0.3 percent. For the year, the index was up 2.8 percent from 2.6 percent in September, the highest since February 2012. The core index, which excludes food and energy prices, remained unchanged at 0.4 percent for the month, with a modest increase in the year-on-year figures, up from 2.2 to 2.4 percent.

Meanwhile, consumer prices registered only a modest 0.1-percent rise in October, slipping from 0.5 percent the previous month. While consumer inflation for medical care, motor insurance, education and personal care increased, it was offset by declining gasoline, new-vehicle and apparel prices. The lower costs associated with gasoline also led to a decline in the year-on-year consumer-inflation numbers, which came in at 2.0 percent compared to 2.2 percent in September. Core inflation for the month, however, edged up to 0.2 percent in October from 0.1 in September, with the annual core-inflation figures rising to a six-month high of 1.8 percent from 1.7 percent the previous month.

Retail sales slipped to 0.2 percent in October following a sharp rise of 1.9 percent in September, as consumers replaced vehicles and goods ruined by hurricanes in August and September. For the year, retail sales expanded by 4.6 percent compared to 4.8 the month earlier. Sales at automobile dealers continued to grow at a modest 0.7 percent in October compared to the 4.6-percent surge the previous month. However, a sharp decline in gasoline receipts and purchases of building materials led the broader retail-sales figures lower. Excluding automobiles and gasoline, retail purchases rose 0.3 percent in October compared to a 0.6-percent gain in September.

Long-term Treasury international capital (TIC) flows into the US were at four-month highs in September, with close to $81 billion in investments in long-term US government and corporate securities. This follows the $73 billion in investments the previous month. Overseas investors, however, sold $51.3 billion in assets, including short-term treasury instruments, after buying around $130 billion the previous month.

Industrial production surged to its highest level since April, with a 0.9-percent increase in October from 0.4 percent in September. The rise was led by growth in manufacturing and utilities, while mining activities temporarily came to a standstill due to the onset of hurricanes. Year-on-year, industrial production amplified to 2.9 percent from 2.1 percent in September, the biggest rise since January 2015. Capacity utilization was at 76.4, two percentage points below the long-run average.

Housing starts spiked 13.7 percent in October after a 3.2-percent decline the previous month, growing at an annualized rate of 1.29 million units, the highest in a year. While the starts for single-family homes registered a 5.3-percent increase, those for the multi-family segment jumped 37.4 percent. Building permits, meanwhile, surged to a seasonally adjusted figure of 7.4 percent in October from preliminary estimates of 5.9 percent. Permits for single-family homes rose by 1.9 percent compared to a 13.4-percent gain in multi-family homes.

Existing home sales spiked 2 percent month-on-month in October compared to a 0.4-percent rise in September. The sales figures were led by a 2.1-percent increase in single-family homes and a 1.7-percent uptick in condos. Comparatively, new home sales jumped 6.2 percent on the back of 18.9 percent growth in the seasonally adjusted sales of single-family homes.

The PCE price index edged up 0.1 percent in October, after rising 0.4 percent the previous month. The core index, which excludes food and energy prices, rose 0.2 percent, unchanged from September. For the year, PCE rose 1.6 percent from 1.7 percent, while core prices remained flat at 1.4 percent. 

The greenback broadly remained weak against most of the majors in November, with the exception of the Australian and Canadian dollars. The biggest gains were seen in the euro, with the single currency advancing more than 2 percent during the month, and the pound sterling, up about 1.9 percent. The Swiss franc and the yen also joined the party with gains of 1.4 and 1.0 percent respectively. The Australian dollar was the only weak link, falling 1.16 percent, with the Canadian currency mostly unchanged from the previous month.

 

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