Fed Statement Evolves but Policy Unchanged

The Federal Open Market Committee (FOMC) erred on the side of caution by keeping the phrase “considerable time” in the statement, but not using it to describe policy moves going forward. Instead, members said they would be “patient” in raising rates. The change in verbiage is a bit of a bait-and-switch as the FOMC preps financial markets for an eventual liftoff in rates. Read More »


CPI Slips on Falling Oil Prices

The Consumer Price Index (CPI) fell 0.3% in November, pushed down by the largest drop in prices at the pump since the height of the financial crisis in December of 2008. The CPI rose a negligible 1.3% from a year ago, once again driven down by low gas prices. Food prices rose 0.2% during the month Read More »


Housing Starts Data Better than Headline

Headline housing starts fell 17,000 in November from an upwardly revised figure in October. October’s revision of +36,000 was large enough to eclipse November’s decline; Read More »


Industrial Production Rebounds

Industrial production rebounded 1.3% in the month of November and was revised up for the month of October, when weakness in the mining and utilities sector took a toll on overall gains. Upward revisions were made back to June, which helps explain some of the buildup in inventories that we saw in the third quarter. In fact, in October and November, the Federal Reserve estimates “factory output to have been above its late-2007 pre-recession peak.” Read More »


Santa Wore Deep Pockets in November

Retail sales surged 0.7% in November and were revised up for the month of October, which has become an important indicator for the holiday shopping season. Read More »


November Surge In Employment

Payroll employment jumped 321,000 in November and was revised up by 44,000 for the previous two months, bringing the last three-month average up to 278,000. Gains were broad-based, with particularly good gains in the business services sector (outside of temporary hires) where full-time, high paying jobs reside. This sector was among those hardest hit by the recession and is now coming back and providing jobs again.

We also saw a surge in hiring related to the holiday season and, to a lesser extent, hedging against costs associated with the Affordable Care Act. Retailers added a whopping 50,000 jobs during the month to increase the number of workers on the retail floors and hold the hours of individual workers below the 30-hour threshold associated with the ACA. Big box department stores were the exception with a drop of more than 4,000 jobs. Moreover, more than 20% of the pick-up in retail hiring occurred in the auto sector on showroom floors; selling vehicles is good for the economy, but not holiday spending.

The large number of new retail jobs is in addition to hiring in warehouses, stock rooms and transportation that shippers have engaged in to increase their delivery times and service for online shoppers. Many retailers and shippers were caught short of workers last year when unusually harsh winter weather and a commensurate surge in spending online delayed shipments during the holiday season. I was one of the unfortunate masses to have gifts “promised” to arrive by Christmas Day show up two days later. In the financial sector, insurance companies are hiring back after cutting earlier in the cycle, while manufacturing and construction employment edged higher but off of a low base.

More importantly, average hourly earnings picked up but remained just 2.1% higher than a year ago, which is a still tepid rate. Indeed, we need to see wages accelerate at a 3% pace for an sustained period to move core inflation measures (which the Federal Reserve watches most closely) back above the 2% target. Fed officials welcome the reduction in oil prices because it will stimulate spending, particularly during this holiday season. They remain somewhat concerned, however, that inflation expectations are falling, which given the risks of deflation abroad, could cause problems for spending in 2015.

The unemployment rate remained unchanged at 5.8%, while participation in the labor market also remained unchanged, This speaks to the issue of slack in the labor force, which is still significant but narrowing. The number of people unemployed for more than 27 weeks, or who were forced to accept part-time instead of full-time employment, continued to edge slightly lower.

Bottom Line: An upside surprise in jobs with more upward revisions is welcome news, especially as we near the end of 2014. The gains we are seeing have yet to deliver much in terms of wage gains, however, or reengage those who were sidelined by the recession. That is of particular concern to the Federal Reserve because the quality of jobs that we are generating matters as much for inflation as the quantity of jobs. Today’s data will reassure the Fed that it will be able to achieve liftoff and raise interest rates, finally, in 2015; there is nothing in the data yet, however, to suggest that the Fed should raise rates sooner or more aggressively than we expect. Our forecast for a third quarter increase in rates holds while the Fed treads as if on thin ice, even as the ground beneath firms in 2015.


Construction Spending Rebounds

Construction spending surged 1.1% in October, more than twice the consensus, while losses for September came in much smaller than initially reported. The largest increase was in the public sector, which had weighed down construction figures earlier in the year. In that sector, the largest gains were in health care and public safety. Highway construction also picked up slightly but is still lagging Read More »


A Primer on November Employment

We expect payroll employment to rise by 205,000 in November, slightly less than the 222,000 average monthly gain for the 12 months leading up to October. Private payroll employment is expected to drop below the 200,000 threshold to 195,000 for the month. Read More »


Manufacturing Data Mixed

The Purchasing Managers Index (PMI) flash manufacturing index slowed in November with a worrisome shortfall in both new orders and actual manufacturing activity. The Institute for Supply Management (ISM) index for manufacturing activity, however, held up somewhat better with gains in new orders and production offsetting some moderation in hiring. Read More »


Consumers Better but Durable Goods not So Good

Durable goods orders finally bounced back in October and rose 0.4% from September after two months of declines. Moreover, September losses are now smaller than initially reported. Gains were concentrated in defense aircraft and parts, reflecting the need to ramp up to deal with escalating tensions in the Middle East including the bombing of ISIS. We also saw gains in the motor vehicle industry Read More »