Implications: If the only way to measure the economy was with the ISM indices, it would look the Plow Horse economy is starting to trot. Earlier this week, the ISM manufacturing index came in at a better than expected, and very robust, 58.7 for November. This morning we got the news that the ISM services index jumped to 59.3 in November, beating the forecast from all 78 economic groups that made a prediction and coming in at the second highest reading in over nine years. The index has now been above 50 for 58 consecutive months (levels above 50 signal expansion; levels below 50 signal contraction.) The business activity index– which has a stronger correlation with economic growth than the overall index – rose 4.4 points in November to a hearty 64.4. The new orders index also ticked higher in November, suggesting production will continue to expand in the months ahead. The only downer was the employment index, which declined to 56.7 from 59.6 in October, but last month's reading was the highest level seen since the start of the recovery and employment has shown steady growth over the past nine months. On the inflation front, the prices paid index rose to 54.4 in November from 52.1 in October – a surprise given the drop in oil prices. Perhaps this is a sign of more deeply rooted price pressures. In other news from yesterday, shoppers were crammed into car dealerships in late November. Auto sales soared last month, coming in at a 17.2 million annual rate, up 4.5% from October and 5.6% from a year ago. Plugging these figures into our models, it now looks like real consumer spending (goods and services combined) will be up at a 2.5% annual rate in Q4, which is consistent with our forecast of 2.5% real GDP growth for the current quarter. In other recent news, construction increased 1.1% in October (2.1% including revisions to prior months) and is up 3.3% from a year ago. The gain in October was led by government construction projects while single-family home building also rose. Commercial construction was roughly unchanged. As a result of the revisions to August and September, it now looks like real GDP grew at a 4.1% annual rate in Q3 versus the 3.9% rate the government reported a week ago.
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Posted on Wednesday, December 3, 2014 @ 11:17 AM
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