October economic data are so far consistent with an ongoing moderate GDP expansion for the U.S. in Q4.
Nonfarm payrolls bounced back by 261,000 in October, showing a clear recovery from the storm-soaked September employment report. The average workweek was unchanged at 34.4 hours in October. Average hourly earnings dipped slightly, by 1 cent. The U.S. unemployment rate dipped to 4.1 percent.
The ISM Manufacturing Index for October ticked down slightly, to a still-strong reading of 58.7, indicating expansive manufacturing conditions. Sixteen out of 18 industries reported growth for the month and the other two reported stable conditions. Manufacturers reported disruptions due to the hurricane that are contributing to price increases. New orders, production and employment remain solidly positive.
The ISM Non-Manufacturing Index for October increased to a strong reading of 60.1 for October. Sixteen out of 18 industries reported growth in October. Only educational services and arts/entertainment/recreation reported contraction. Anecdotal comments were positive. Some discussed the after effects of the hurricanes on construction labor, prices and auto sales.
October auto sales data stayed strong at an 18.1 million unit rate, easing a little from the September spike to an 18.6 million unit rate. We expect to see sales ease further as the hurricane replacement effect dissipates.
The Consumer Confidence Index increased to a strong reading of 125.9 in October, up 5.3 points from September.
Construction spending increased by 0.3 percent in September as public construction spending gained 2.6 percent. Spending for private residential projects was unchanged for the month, likely held down by the hurricanes. Private nonresidential projects eased 0.8 percent.
The U.S. international trade gap widened a bit in September, by $0.7 billion, to hit -$43.5 billion. This will not materially impact Q3 GDP. Exports gained $2.1 billion for the month, while imports gained $2.8 billion.
Congressman Kevin Brady and Speaker Paul Ryan unveiled the House Republican tax plan on Thursday. The bill, entitled the Tax Cuts and Jobs Act of 2018, still needs to work its way through the Senate and be signed by the President. The 429-page bill contains significant changes to the U.S. tax code. On the personal income tax side it: (1) reduces brackets from seven to four, (2) nearly doubles the standard deduction, (3) eliminates the personal exemption, (4) expands credits for families, (5) ends the state/local tax deduction, (6) limits the mortgage deduction, (7) preserves 401k rules, (8) ends the alternative minimum tax, (9) phases out the estate tax. According to Speaker Ryan, the tax plan will save a typical family of four $1,182 dollars from their annual federal tax bill. The provisions for corporate taxes would lower the rate to 20 percent, encourage repatriation of overseas profits and disincentive offshoring.
President Trump appointed Jay Powell to be the next chairman of the Federal Open Market Committee. His first FOMC meeting as chairman will be on March 20/21, 2018. Powell began his career as lawyer, but gained significant experience as an investment banker, eventually founding Severn Capital Partners. He started his tenure on the Board of Governors of the Federal Reserve in May 2012 under then chairman Ben Bernanke.
The Federal Open Market Committee concluded their two-day meeting on Wednesday, leaving interest rates unchanged as widely expected. Conversely the expectations for a 25 basis points increase in the fed funds rate range at the next FOMC meeting over December 12/13 are near universal.
The Bank of England raised its benchmark bank rate by 25 basis points on Thursday, to 0.50 percent.
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