This week’s relatively light schedule of economic reports exposed more weakness in the underlying economy.
– The release of retail sales data showed a decrease of 2.8% in overall retail trade sales in October, recording the steepest decline in more than two decades. Evidently, macro headwinds and the risk aversion hysteria absorbing the US is affecting consumers and their spending habits. Decreases in spending were observed in most sectors, however, the most notable was motor vehicles/parts which tumbled 5.5%. With most major retailers reducing their expectations for the holiday shopping season – we expect real consumer spending to plunge more than 2.9% in the fourth quarter.
– The employment report also suggested further economic weakness as actual layoff announcements continue to increase. Nonfarm payroll employment fell by 240,000 in October, pushing the unemployment rate from 6.1 to 6.5%. Employment declines continued for the manufacturing sector which shed 90,000 jobs over the month. Construction employment fell by 49,000, followed by the services industry that lost 51,000. The Retail trade sector lost 38,000 jobs while Financial activities lost 24,000. The only sector that experienced expansion in October was the Health Care sector. It added 26,000 jobs.
Employment has fallen by 1.2 million in the first 10 months of fiscal ’08, with over half of the decrease occurring in the past 3 months alone. Weekly unemployment claims increased by 32.000 to 516,000 in early November.
– The latest trade figures was another report that contained disappointing news. According to data released from the U.S. Bureau of Labor Statistics on Friday, October import prices declined 4.7% due to a substantial decrease in the prices of petroleum imports. Total imports of goods and services plunged $12.5 billion in Sept., marking the largest decline since the monthly data started in 1988. Further, the result in headline import prices was below the consensus for a 4.4% month-over-month decline. Export prices also went down, registering a 1.9% decline, after falling 0.8 percent in Sept., although the decline may have been exaggerated by the Boeing strike which reduced output.
It appears that the fourth quarter of current fiscal year has gotten off to a very weak start. The small improvements we have seen recently in Libor and the money markets, have so far only minimally offset the financial restraint that accrued in the liquidity squeeze of the past several months.