- US durable goods orders for November headed for a retreat
- Modest rebound set for US macro trend via the Chicago Fed National Activity Index
- US personal spending growth on track to hold steady in November
A busy day for US data awaits, including the monthly update on US durable goods orders for November. We’ll also see new US reports for the Chicago Fed National Activity Index and consumer spending and income in November.
US: Durable Goods Orders (1330 GMT): Manufacturing has been showing encouraging signs of a rebound in the second half of the year, but last week’s hard data on industrial production was an exception.
Economists were looking for a mild 0.1% slide in output, but the decrease was considerably steeper at 0.4%. The good news: most of the setback was due to falling utility output; manufacturing, by contrast, fell a relatively mild 0.1% last month vs. October’s level.
Survey data, on the other hand, paints a brighter profile for the manufacturing sector. Markit’s PMI ticked up to a 21-month high in this month’s flash estimate. “US manufacturing is enjoying a strong end to 2016, showing further signs of pulling out of the soft-patch seen earlier in the year and putting the sector on the starting blocks ready for a further upturn as we move into 2017,” IHS Markit’s chief business economist said last week.
Today’s question: Will the hard data on durable-goods orders fall in line with that rosy outlook? The crowd thinks not, according to Econoday.com’s consensus forecast. Analysts are looking for a sharp 4.0% slide in new orders in November – the first monthly setback since June.
The one-year change looks headed for a reversal of fortunes too. Based on the monthly forecast, the implied annual comparison is set to sink 1.4% in November vs. the year-earlier level. If accurate, the annual trend for orders will go negative for the first time in three months.
None of this means that manufacturing won't continue to recover. But if today's estimates are right, the sector's rebound may be softer than previously expected.
US: Chicago Fed National Activity Index (1330 GMT): The three-month average of this business-cycle benchmark fell deeper into negative territory in October, but a reprieve is expected in today’s report for November.
TradingEconomics.com’s econometric estimate calls for rebound to 0.14 in the month reading of the Chicago Fed National Activity Index, which implies that the three-month average (CFNAI-MA3) will rise to minus 0.06, the highest level in a year-and-a-half.
Even better, the projected CFNAI-MA3 reading for November translates to a wider margin of safety over the tipping point that marks the start of new recessions: minus 0.70.
The risk of a new contraction is expected to remain low, but don’t confuse that with a forecast for stronger growth … at least not yet. Economists are expecting that pace of fourth-quarter GDP will remain subdued at 2.3%, according to the average forecast via this month’s survey data published by The Wall Street Journal – well below Q3’s 3.2% increase. Comparable growth rates in the low-to-mid-2% range are also expected for 2017, according to estimates collected by FocusEconomics.
The bulls argue that Donald Trump’s economic plans will boost economic activity once the President-elect’s policies are implemented. Maybe, but for the moment the crowd’s still anticipating that growth will stay modest. There's no recession in site, but the economic boom that was promised in the campaign remains wishful thinking at the moment.
US: Personal Income and Spending (1500 GMT): Consumer spending has been a bright spot in the US economy this year and that’s not expected to change in today’s update.
Although the monthly pace of personal income for November is expected to slow to a 0.3% gain – half the rate in October – the year-on-year trend is on track to tick up to a 4.0% increase. That's a 14-month high, according to Econoday.com’s consensus forecast. Consumer spending, meanwhile, is projected to hold steady at a monthly 0.3% rate and 4.2% in annual terms.
The upbeat mood on Main Street betrays fewer worries these days. The University of Michigan’s Index of Consumer Sentiment in December touched its highest level in nearly two years, albeit “largely due to consumers’ initial reactions to Trump’s surprise victory”, said the chief economist for the survey earlier this month.
Gallup’s data agrees. The polling group’s US Economic Confidence Index climbed to a new nine-year high for the week through December 18, a rise that “reflects a stark change in Americans’ confidence in the US economy from the negative views they expressed in most weeks over the past nine years.”
Given this backdrop, it’s likely that the consumer sector will remain a positive, stabilising force for the economy in the near term and today’s report will probably reaffirm that view.
Disclosure: Originally published at Saxo Bank TradingFloor.com