Economic Snapshot: The United States

Hello, forex friends! For better or worse (hopefully for the better), the Donald is now going to be the 45th president (and perhaps the 1st emperor) of the United States of America. But before the Donald can implement his policies, I thought that now would be a good time to give y’all an overview on how the U.S. economy is faring.

El Presidente Trump

Note: As with all Economic Snapshots, there are nifty tables and a summary at the bottom, so you can skip to those if you’re a forex trader who’s in a hurry. However, the bullet points provided highlight the underlying details and trends that give the numbers their proper

Growth

  • The advanced estimate for Q3 GDP saw a 2.9% annualized quarter-on-quarter rate of expansion.
  • This is faster than Q3’s upwardly revised +1.4% pace (revised higher from 1.1%).
  • Not only that, Q3’s reading is the fastest quarterly growth rate in eight quarters.
  • Moreover, quarter-on-quarter GDP growth has been picking up the pace for two straight quarters.
  • Year-on-year, Q3 GDP grew by 1.5%, which is faster than Q2’s 1.5% rate of increase.
  • The faster pace of growth is great news after Q2 printed the weakest annual growth rate since Q2 2013.
  • This also effectively ends five consecutive quarter of slowing annual GDP growth after peaking at +3.3% back in Q1 2015.
  • Consumer spending, otherwise known as personal consumption expenditure, is still the backbone of the U.S. economy.
  • Consumer spending expanded by 2.1% (+4.3% previous), adding 1.47% to annualized quarter-on-quarter GDP growth (+2.88% previous).
  • Trade was also helped to drive growth, adding 0.83% to annualized quarter-on-quarter growth (+0.18% previous), thanks mainly to the 10.0% surge in exports (+1.8% previous).
  • Business investment also finally contributed to growth, growing by 3.1% and adding 0.52% to total annualized quarter-on-quarter growth.
  • Business investment has been a drag during the three previous quarters.

Employment

  • The U.S. economy only generated 161K non-farm jobs in October, missing expectations for a 176K increase.
  • The readings for non-farm employment have been missing expectations for three months in a row.
  • At least the reading is still above the 100K floor, which is the number of jobs needed per month in order to keep up with working-age population growth.
  • On a more upbeat note, the reading for September was upgraded from 156K to 191K.
  • Even better, the reading for August was upgraded as well, from 167K to 176K.
  • That’s an extra 44K jobs from all those revision.
  • The service sector continued to provide most of the jobs, 143.4K jobs in October.
  • This is a smaller increase compared to September’s +172.0K, though.
  • The higher-paying manufacturing industry continues to shed jobs, losing 9.1K jobs in October.
  • As for the jobless rate, it ticked lower from 5.0% to 4.9%.
  • The lower jobless rate is not really all that good, though, since the labor force participation rate also fell, which is not a good sign for the U.S. economy.
  • Speaking of the labor force participation rate, it ticked lower from 62.9% to 62.8%, thanks to the exodus of a whopping 425K working-age Americans from the labor force.
  • The total number of working-age Americans who are not in the labor force now stand at 94,609K, which is a high not seen since May of this year.
  • On a happier note, average hourly earnings increased by 0.4% month-on-month, which is faster than the expected 0.3% increase as well the previous month’s 0.2% increase.
  • Year-on-year, average hourly earnings grew by 2.8%, which is the fastest increase in almost seven-and-a-half years.

Inflation

  • Headline month-on-month CPI increased by 0.3% in September.
  • This is a faster than September’s 0.2% increase and a five-month high to boot.
  • The headline year-on-year reading, meanwhile, advanced by 1.5% (+1.1% previous).
  • This is the best reading since October 2014, which is really great.
  • As for the core reading, it increased by 2.2% year-on-year, a downtick from the previous month’s +2.3%.
  • One of the main drivers for the faster month-on-month increase were the 0.4% increase in the cost of shelter (+0.3% previous).
  • The uptick may be small, but shelter accounts for around 33% of CPI.
  • Another major driver for the faster month-on-month increase is the 2.9% jump in the cost of energy (+0.0 previous).
  • Energy accounts for around 7% of CPI.
  • The jump in energy costs was due primarily to the 5.7% surge in the price of motor fuel (-0.9% previous).
  • Energy is still a major drag year-on-year, but the smaller drag in October is actually one of the major reasons why the year-on-year reading improved (-2.9% in September vs. -9.2% in August).

Business Conditions & Sentiment

  • Total industrial output fell by 1.0% year-on-year in September, which is a slightly softer drop compared to the previous month’s 1.3% tumble.
  • Annual industrial output has also been in negative territory for 12 consecutive months running, though.
  • Month-on-month, total industrial output barely edged out a 0.1% increase after a 0.5% slide previously.
  • Only utilities reported a decline while mining and manufacturing reported gains.
  • Manufacturing, in particular, grew by 0.2% month-on-month.
  • Year-on-year, however, manufacturing output was stagnant, but it’s better than the 0.5% drop reported previously.
  • Looking forward to October, ISM’s manufacturing PMI reading for October came in at 51.9, which is an improvement over the September’s 51.5.
  • ISM’s manufacturing PMI has reading has been improving for the second month running after it plunged to a six-year low of 49.4 back in August.
  • ISM’s non-manufacturing PMI didn’t too well, though, since it slumped hard from 57.1 to 54.8.
  • At least it’s still better than August’s 51.4 reading, which is the weakest reading since March 2014, and it’s still above the 50.0 stagnation level to boot.
  • Markit’s manufacturing PMI reading also printed a higher reading, coming in at 53.4, which is the best reading in over a year.
  • As for Markit’s services PMI, it improved from 52.3 to 54.8, which is the best reading in 11 months.

Consumer Spending

  • Personal income from all sources increased by 0.3% month-on-month in September, which is a tick faster than August’s 0.2%.
  • But if inflation is taken in account, real personal income only barely increased by 0.1%.
  • It’s still better than September’s reading, though, since real personal income didn’t see any growth in September.
  • Despite the weak increase in real personal income, total spending on goods and services increased by 0.5% in September after falling by 0.1% back in August.
  • Looking specifically at retail sales, the total value of retail trade increased by 0.6% month-on-month in September.
  • This is refreshing news after the 0.2% fall reported during the previous month.
  • This is the best reading in three months, and breaks two straight months of deteriorating readings to boot.
  • However, the reading still pales in comparison to the readings for most of the Q2 months, which is likely why consumer spending had a lower positive contribution to Q3 GDP.
  • The core reading, meanwhile, managed to grow by 0.5% month-on-month.
  • This is the first positive reading after two consecutive months of negative readings.
  • On an annual basis, headline retail sales grew by 2.7%, which is also a three-month high.
  • The most recent annual reading puts an end to two straight months of worsening annual readings.
  • Looking at the details of the report, the improvement was broad-based, since 10 of the remaining 14 retail store types reported higher sales on both a monthly and yearly basis.

Trade

  • The U.S. trade deficit narrowed from $44.46 billion to $36.44 billion in September.
  • This is the tightest trade gap since February of last year.
  • The narrower deficit was thanks primarily to imports dropping by 1.31% to $225.64B.
  • This is the lowest import value since May of this year.
  • The 0.55% increase in exports also helped a bit.
  • The total value of exports rose to $189.20B, which is the highest since July of last year.

U.S. Economy: Growth

U.S. Economy: Employment

U.S. Economy: Inflation

U.S. Economy: Business Sentiment & Conditions

U.S. Economy: Consumer Spending

U.S. Economy: Trade

Putting it all together

The rebound in Q3 GDP growth is really good, although consumer spending did weaken a bit. The reading is the advanced estimate, though, so some revisions are to be expected. Other than GDP growth, the most recent inflation readings are also rather impressive. And while non-farm employment has been missing expectations for three months running, they’re all still above the 100K floor that many Fed officials are keeping an eye on. They’re therefore still relatively good.

Overall, the U.S. economy appears to be in good shape, it’s therefore understandable why the Fed said that “the case for an increase in the federal funds rate has continued to strengthen” during the November FOMC statement.

The Fed didn’t single out the U.S. presidential elections (and a Trump victory in particular) as a risk factor during the November FOMC statement, but now that Trump has won the presidency, do you think the Fed is still on track for a highly-awaited rate hike? Share your thoughts by voting in the poll below!

 


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