Written By: Richard Koch – Forex Focus
A quick analysis of some of the key US economic data for the month of October 2017.
The US economy continued to expand in September of this year, with some of the key economic data in October pointing to robust economic activity that could well extend into the last three months of 2017. In addition, corporate earnings in the United States for the quarter ending September positively surprised markets, leading to another round of equities buying, thus pushing all the major indices to record highs.
What follows is a quick check on some of the key economic releases in October and their outcomes on the forex (foreign exchange) and equity markets.
Beginning with the ISM Manufacturing PMI (Purchasing Managers Index), the index rose to 60.8 in September from 58.8 in August, the highest since May 2004, as new orders, employment, production, supplier deliveries and prices intensified. Except for furniture and related products, 17 of the 18 manufacturing industries reported growth.
Likewise, the Non-Manufacturing PMI spiked to 59.8 in September from 55.3 in August, the highest reading since May 2005, supported by a rise in new orders, business activity, supplier deliveries, employment and price increases. Compared to the previous month, 15 out of 17 industries in the sector expanded, with two contracting.
Factory orders or new orders for manufactured goods jumped 1.2 percent in August after slumping to -3.3 in July. Orders for transportation equipment rose by 5.1 percent during the month, mostly supported by a 44-percent rise in orders for civilian aircraft, while non-defense capital goods, a measure of business spending, increased by 1.1 percent compared to a growth of 0.9 percent in July. Factory orders excluding transportation rose a modest 0.4 percent from the 0.5-percent gain in July.
The unemployment rate in the US dropped to its lowest level since February 2001, with the September numbers coming in at 4.2 percent from 4.4 percent in August. Long-term unemployed individuals, or those without a job for 27 weeks or more, remained unchanged and accounted for more than 25 percent of the total unemployed workforce. Non-farm payrolls, on the other hand, slumped to its lowest level since September 2010, down 33,000 in September following an upward revision to 169,000 in August. The rise in payrolls in healthcare, transportation and financial services was offset by employment in food and beverage services, largely due to the impacts of hurricanes Irma and Harvey, which hit US coasts in late August to early September.
Coming to inflation numbers, the Producer Price Index (PPI) increased to 0.4 percent in September, doubling the 0.2-percent rise in August, as input costs amplified at the fastest pace since January on the back of a rise in energy prices. Year-over-year, the PPI increased to 2.6 percent from 2.4 in August, with core prices up 2.2 percent from 2.0 percent during a similar period. The Consumer Price Index (CPI) also picked up steam in September, rising 0.5 percent month-on-month compared to a 0.4-percent increase in August. Core inflation, however, moderated to 0.1 percent from 0.2 in August. For the year, CPI figures rose to 2.2 percent from 1.9 a year earlier due to production disruptions in the oil refineries along the Gulf Coast as the twin hurricanes targeted them. Core inflation, however, remained unchanged at 1.7 percent in September.
Retail sales soared to 1.6 percent in September, the highest since March 2015, following a revised 0.1-percent rise in August. Excluding motor vehicles and gasoline, sales rose by 1.0 percent from 0.5 in August, the largest increase this year.
Durable-goods orders continued to grow with new orders for September rising 2.2 percent month-on-month, led by a 31.5-percent jump in non-defense aircraft orders. However, orders for capital goods excluding aircraft rose 1.3 percent for the month, unchanged from August.
Seasonally adjusted monthly figures for new home sales spiked 18.9 percent in September, after falling 3.6 percent in August, recording the largest percentage gain since January 1992 and the highest in value terms since October 2007. Likewise, pending home sales remained flat in September, after sliding 2.8 percent. Compared to a year earlier, home sales dropped by 3.5 percent, registering the third successive fall in the year-over-year numbers.
The US economy expanded at an annualized 3.0 percent in the third quarter of 2017, slightly lower than the 3.1-percent growth reported in the second quarter, according to advance estimates. The growth figures were supported by personal consumption expenditure, government spending, international trade, private inventories and fixed investments in non-residential structures.
The US economy recorded one of the best months in terms of economic activity for a very long time. The Fed Beige Book, released on October 18, indicated modest to moderate economic activity in September to early October as employment, wages and price pressures headed north. Likewise, corporate profits, too, grew as seen from the third-quarter numbers, with most companies reporting results either in line with or beating estimates, thereby leading all the major US indices to new peaks in record time. The greenback also reversed most of the previous month’s losses versus the majors. The US dollar rose close to 2 percent against the single European currency and more than 2 percent versus the pound sterling.
Most of the macro-economic indicators have suggested strong growth, with projections for the rest of the year looking healthy as the Federal Reserve met at the beginning of November to announce its decision regarding another interest-rate hike.