November's Grim Economic Reports

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Shipments in October remained depressed by both the Boeing strike and plummeting prices, with a large 2.4 percent October drop that was also signaled by the 1.8 percent drop in the durable manufacturing component of industrial production and the 1.0 percent drop in October factory hours worked.

The 3.2 percent October decline in capital goods shipments, and 2.2 percent drop excluding aircraft, tracked the 2.2 percent decline in the business equipment component of industrial production. These equipment figures are in line with our assumption of a big 16 percent real rate of decline in the equipment and software components of the fourth-quarter GDP report, following a 5.6 percent rate of decline in the third quarter.

Chicago purchasing managers' index

The Chicago PMI decline, to 33.8 in November, followed a 19-point plunge to 37.8 in October. The decline was bigger than the November downticks in the Philadelphia Fed headline index, to -39.3 from -37.5, and the Empire State headline index, to -25.43 from -24.62. Both households and businesses are deleveraging rapidly, just as banks have done over the past year, and the pullback is sharply affecting spending and output as gauged by the November sentiment indicators.

U.S. new-home sales

The 5.3 percent U.S. new-home sales drop, to a 0.433 million unit annual rate in October following a downwardly revised 0.457 million (was 0.464 million) rate in September, outpaced the 3.1 percent drop, to a 4.980 million rate, reported on Nov. 24 for October existing-home sales. New-home sales continue to underperform existing-home sales and should keep doing so through early 2009. The decline in these two October sales measures follows a 4.6 percent drop in September pending-home sales, although this measure rose 7.4 percent in August and has been trending higher from its March trough.

The median new-home price fell 1.7 percent, to $218,000, in October to leave a 7.0 percent year-over-year drop that fell short of the 7.7 percent decline in September, with a rate that is still above the -12.7 percent cycle low in March. Prices are following their usual seasonal path downward to a trough at the start of the New Year, before the usual Spring bounce. We may still take a run at the record decline of last March.

High inventories relative to sales for the new-home builders remains a problem, and the months' supply figure rose to 11.1 in October from a recent-high of 10.9 in September, but it still sits below the peak of 11.4 in August. The ratio is elevated by both high inventories and low sales, however, and the outright level of inventories is continuing to fall at a rapid clip.

University of Michigan consumer sentiment index

The Michigan sentiment index was lowered in the final November report, to a new cycle low of 55.3, from the 57.9 preliminary figure, leaving the index below the 57.6 October reading. The downward bump in the current conditions index, to 57.5, from the 61.4 preliminary reading, left a new cycle low as well, and a drop from the 58.4 October figure. The future expectations index was lowered to 53.9 from 55.7, leaving this figure below the 57.0 October reading but still above the 49.2 June cyclical low.

The downward revision in the Michigan index for November follows an upside surprise for the Conference Board's consumer confidence index for the month, released Nov. 25, which bounced to 44.9 following an all-time low of 38.8 in October.

U.S. initial jobless claims

U.S. initial jobless claims dropped 14,000, to 529,000, in the fourth week of November, following the bigger 28,000 surge, to 543,000 (from 542,000), in the third week of the month, which included the Veteran's Day holiday. Despite the drop, we still have a rapid underlying uptrend in the series.

Our November nonfarm payrolls estimate will remain at -350,000, which is notably worse than both the 240,000 October decline and the cycle's 285,000 record drop in September. This recent rate of decline sharply exceeds the 82,000 average payroll drop through the first eight months of the year. We also still expect a surge in the jobless rate, to 6.8 percent in November from 6.5%. This rate should reach 7% by December and 8% by mid-2009.

We also predict a flat November average workweek, at 33.6 hours, and a 0.2 percent gain in average hourly earnings that should leave the year-over-year rate at 3.5 percent.

Business Exchange related topics:
U.S. Financial Crisis
Housing Market
Unemployment
Inflation
Transportation Industry

Englund is chief economist, and MacDonald global director of investment analysis and research, for Action Economics .