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Weekly Economic Commentary

 
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U.S. Factory Sector – Bright Spot in the World

December 1, 2011

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The Purchasing Managers’ Indexes (PMI) of several major economies of the world – Euro zone, China, South Korea, Brazil, Japan, Taiwan, and United Kingdom – posted declines in factory activity during November (see Chart 1). Factory sectors in Canada and Turkey showed an improvement in activity during November but at a slower pace compared with October. The U.S. factory sector posted the best performance, with the PMI moving up to 52.7 in November vs. 50.8 in the prior month. Readings above 50.0 denote an expansion in factory activity, while those below 50.0 signify a contraction.


Table 1a - 12 01 2011Source: Wall Street Journal



The details of the U.S. ISM manufacturing report show that new orders (56.7 vs. 52.4 in October) and production (56.6 vs. 50.1 in October) both rose in November. The indexes tracking employment dropped slightly (51.8 vs. 53.5 in October) implying that firms were increasing payrolls but at a slower pace than October. The index measuring exports rose in November (52.0 vs. 50.0). The October-November data suggest that the U.S. factory sector’s momentum in the fourth quarter was stronger than most other parts of the world. The report underscores that the U.S. economy is possibly moving on a stronger economic trajectory than previously estimated. The November employment report scheduled for publication tomorrow should help to sort this out.


Chart 1 - 12 01 2011

 

Home Construction Data Point to Likely Positive Contribution to Q4 GDP

Overall construction spending increased 0.8% in October, inclusive of a 2.3% jump in private sector spending and a 1.8% drop in public sector spending. The strength in non-residential expenditures points to the possibility of the business structures component of GDP showing gains in the fourth quarter after a 12.6% surge in the third quarter. The 3.4% increase in residential construction outlays is largely from improvements (+6.7%) rather than new housing (+0.4%). Nevertheless, it adds to the residential investment expenditure component of GDP in the fourth quarter. Residential investment expenditures grew at an annual rate of 1.6% in the third quarter. The October reading of residential investment expenditures bodes positively for fourth quarter real GDP and bolsters the case for an upside risk for our current forecast.

Chart 2 - 12 01 2011

 

Table 2 - 12 01 2011




Auto Sales Moved Up in November, Big Plus for Q4 Consumer Spending and GDP


Auto sales rose to annual rate of 13.63 million units in November vs. 13.25 million units in the prior month, putting the October-November average of auto sales above the 12.48 million unit average seen in the third quarter. These readings give a lift to overall consumer spending and GDP in the fourth quarter. Consumer spending grew at an annual rate of 2.3% in the third quarter.


Chart 3 - 12 01 2011

 

 

 

 

 

 

 

 

 

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The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.
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