Business Roundtable, Mtg apps, ADP, Productivity, 1 year charts

More evidence the capital spending contraction is not over:

CEO Confidence Goes From Bad to Worse

Dec 1 (Fox Business) — CEO confidence in the U.S. economy is dwindling. The Business Roundtable CEO Economic Outlook Index for the 4Q, which looks out six months, fell to the lowest level in three years

For third consecutive quarter, U.S. CEOs cautious on economy

Dec 1 (Reuters) — The Business Roundtable CEO Economic Outlook Index fell 6.6 points to 67.5 in the fourth quarter. The long-term average for the index is 80.1 points. Of the 140 CEOs surveyed, 60 percent said they expected sales to increase over the next six months, down from 63 percent during the previous quarter. The proportion of CEOs who said they expected their capital spending to decrease over the next six months rose to 27 percent from 20 percent in the third quarter. CEOs said that regulation was the top cost pressure facing their business, followed by labor and health care costs.

For the first six months of 2016, CEO expectations for sales decreased by 3.2 points and their plans for capital expenditures decreased by 16.7 points. Hiring plans were essentially unchanged from last quarter when they declined by nearly 8 points.

Nice to see purchase apps up but the 4 week moving average remains depressed:

MBA Mortgage Applications
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Highlights
Purchase applications are moving sharply higher, up 8.0 percent in the November 27 week that, after a pause in the November 20 week, follows a 12.0 percent surge in the November 13 week. Year-on-year, purchase applications are up an eye-popping 30 percent in strength that points to much needed acceleration for underlying home sales. The rise in mortgage rates has triggered the move, encouraging buyers to step up and lock in rates before they move even higher. In contrast, demand for refinancing is easing, down 6.0 percent in the latest week. Rates edged lower in the week with the average for 30-year fixed mortgages ($417,000 or less) down 2 basis points to 4.12 percent.

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The ADP number is a forecast for Friday’s Non Farm Payroll numbers, based partially on their own payroll data. We’ll see Friday how accurate it is this time:

ADP Employment Report
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Highlights
ADP is calling for strength in Friday’s employment report, at a higher-than-expected gain of 217,000 for government payrolls in November. Month-to-month, this report is not always an accurate indicator for the government’s data, forecasting a much lower reading than what turned out for October and a much higher reading than what turned out for September. But ADP’s trend has been accurate, that is steady payroll growth near 200,000 — and today’s report points to strength that would be slightly above trend.

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And seems to me what’s keeping unit labor costs up is low capacity utilization, as previously reported, and not wage increases. At some point business adjust with either fewer employees or higher output:
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Note that this also peaked when oil related capital expenditures collapsed a year ago:

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In fact it was about a year ago when oil prices fell below costs of production, triggering cuts in capital expenditures. At the time the oil price drop was universally deemed an ‘unambiguous positive’ for the US economy. I wrote that it looked to me like an unambiguous negative, listing my reasons why it would not support consumption or investment, but would instead induce a general economic deceleration with a high probability of negative growth, particularly after subsequent revisions of data.

So let’s look at a few 1 year charts to isolate what’s happened:

The Fed was looking for 3%+ as ‘monetary policy kicked in’ and oil prices helped consumption.

And Q4 is now looking even worse:
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Consumption has decelerated:
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Industrial production not so good:
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Nor investment:
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Or manufacturing:
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How about employment?
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Housing starts are back to where they started from, with a mini surge related to the NY tax bread the expired in June:
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Non manufacturing slower to react, but sagging as well:
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And credit aggregate growth has slowed as well:
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Autos have been the ‘bright spot’ but turns out the growth has been from imports:
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Chicago PMI, Pending home sales, Dallas Fed

Another bad one, reversing last month’s suspect move up:

Chicago PMI
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Highlights
Volatility is what to expect from the Chicago PMI which, at 48.7, is back in contraction in November after surging into strong expansion at 56.2 in October. Up and down and up and down is the pattern with prior readings at 48.7 in September (the same as November) and 54.4 in August.

New orders are down sharply and are back in contraction while backlog orders are in a 10th month of contraction. Production soared nearly 20 points in October but reversed most of the gain in November. Despite November’s weakness, employment are up slightly. Prices paid is in contraction for a fourth straight month.

Though this report points to November weakness for the whole of the Chicago economy, the volatility of the report should limit its impact on the month’s outlook.

Along with the ISM, it’s decelerated with the collapse in oil related capital expenditures, and nothing yet has come along to fill that spending gap (apart from building unsold inventory):
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More bad, and it’s not like mortgage rates aren’t low:

Pending Home Sales Index
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Highlights
Sales of existing homes have been soft and are not likely to pick up in the next few months based on October’s pending sales index which is up only 0.2 percent. Year-on-year, the index is up 3.9 percent which matches the rate of gain for final sales during October. Flatness, unfortunately, is the theme.

The Northeast did the best in October, up 4.5 percent for a year-on-year plus 6.8 percent. The West is next with pending sales up 1.7 percent for a year-on-year gain of 10.4 percent. Bringing up the rear are the Midwest, down 1.0 percent on the month for a year-on-year plus 3.3 percent, and the largest region which is the South, down 1.7 percent in October for the only negative year-on-year reading of minus 0.3 percent.

The National Association of Realtors cites low supply of available homes as a negative for sales and warns that prices in some markets are rising too fast, especially for first-time buyers. The association cites strength in the Northeast as an example, a region where price appreciation is lower and supply greater.

The new home market isn’t doing that much better than existing homes, with sales up 4.9 percent year-on-year in the latest available data. Watch for construction spending on tomorrow’s calendar, one aspect of the housing market that has been showing solid strength.
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And in sync with last week’s existing home sales report also showing flatness at low levels:
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Not as bad as expected but still in contraction mode:

Dallas Fed Mfg Survey
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Highlights
The Dallas Fed’s general activity index is in contraction for an 11th consecutive month, at minus 4.9 for November which is, however, improved from October’s minus 12.7. The Econoday consensus was calling for an 11.0 point decline.

Order readings are also negative, at minus 1.6 for new orders, which is a 6 point improvement, but at minus 7.3 for the growth rate of new orders which is little changed from October and in the negative column for the 13th month in a row.

On the plus side is a second straight increase for production, up 4 tenths to 5.2. And readings on the business outlook are steady to higher.

But price data in the report are pushing further into negative ground with finished goods prices at minus 12.1 for an 11th straight negative reading, underscoring the deflationary effects of low energy prices on the Texas economy.

This report rounds out what is a flat to negative run of regional indications for the nation’s manufacturing sector during November, a sector that continues to be hurt by weak export demand and low prices.
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Atlanta Fed, Investor poll, Fed surveys

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The crowd is not always wrong, but it’s not always right, either:

Fund managers polled at the start of November have significantly hiked their allocation to equities and cut cash holdings to levels not seen since July, according to research from Bank of America Merrill Lynch.

Of the 200 investors managing $576 billion of assets that were quizzed by the bank for its monthly fund manager survey, four-fifths now expect the U.S. Federal Reserve to raise rates this quarter.

Some 43 percent of managers are now “overweight” stocks, up 17 percentage points from the previous month.

Long dollar is the most crowded trade according to the survey, with 32 percent of the investors polled anticipating further strength in the greenback.

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Consumer Credit, Credit Check, Rail Traffic, Employment Charts

Consumer Credit

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Highlights
In a record report, consumer credit data are strongly confirming the strength of the consumer. Credit outstanding surged $28.9 billion in September for the largest gain in the history of the series which goes back to 1941. Nonrevolving credit, in part reflecting vehicle financing and also student loans, rose $22.2 billion. Revolving credit, reflecting a rise in credit-card debt, jumped $6.7 billion to extend an emerging run of strength that suggests consumers are now less reluctant to run up their credit cards which, for retailers certainly, is a good omen for the holidays.

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Hard to detect anything happening here except some volatility and maybe consumers borrowing more in response to low personal income growth?
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Fed rate hikes are meant to slow credit growth.

I don’t see any credit growth they’d want to be slowing?
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This has recently flattened at grow rates associated with the last recession:
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Rail Week Ending 31 October 2015: Monthly Data Now Contracting 4.3% Year-over-Year

Week 43 of 2015 shows same week total rail traffic (from same week one year ago) and monthly total rail traffic (from same month one year ago) declined according to the Association of American Railroads (AAR) traffic data. Intermodal traffic contracted year-over-year, which accounts for approximately half of movements. and weekly railcar counts continued in contraction. October 2015 is down 4.3% over October 2014.

Yes, this earnings measure did pop up some, but way behind prior cycles and just a one month move at this point. The 2014 move they were worried about reversed itself before it got anywhere near ‘danger’ levels, whatever that actually means:
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Again, a one month move that could just as easily reverse next month, and in any case far from posing any kind of problem to ‘inflation’ or employment (the Fed’s mandates):
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And this is from the GDP report:
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This was just starting to begin to recover when the oil price collapse bent the curve downward:
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No ‘demographic’ effect here, just weakness:
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This also began decelerating when oil capex collapsed:
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Job Cuts, Yellen Comment, Saudi Pricing, German Factory Orders, Maersk Job Cuts, China Trade Show

Down a bit but still trending higher since the oil price collapse:
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Seems she still doesn’t realize negative rates are just another tax:

FED’S YELLEN: IF ECONOMY SIGNIFICANTLY DETERIORATED, NEGATIVE RATES AND OTHER TOOLS WOULD BE ON THE TABLE

This implies the rest of Saudi pricing remains the same from November, when discounts to benchmarks were substantially increased.

In general, discounts have been increased over the last few months:

Saudi Arabia, the world’s largest oil exporter, raised pricing for December sales of all its crude grades to Asia as profit for refiners improved in the country’s largest market. OPEC’s biggest producer cut its monthly pricing for all blends for buyers in the U.S.

State-owned Saudi Arabian Oil Co. increased its official selling price for Arab Light grade crude by 30 cents to a discount of $1.30 below the regional benchmark, the company said in an e-mailed statement. That beat expectations for a 25-cent increase, according to the median estimate of of six refiners and traders surveyed by Bloomberg this week.

The chart shows that discounts were set at the wides back in Feb, then relaxed some, and are now generally back towards the wides, indicating the desire to keep prices down:
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German Factory Orders Unexpectedly Decline for Third Month

Nov 5 (Bloomberg) — German factory orders, adjusted for seasonal swings and inflation, fell 1.7 percent in September from August, when they dropped 1.8 percent. Orders declined 1 percent from a year earlier. Factory orders dropped 2.8 percent in the third quarter from the previous one. Demand from within the country increased 0.3 percent and was up 0.9 percent for the euro area. Non-euro-area orders fell 8.6 percent in the July-to-September period. In September, orders for investment goods from the euro area fell 12.8 percent, reflecting a drop in demand for big-ticket items. Excluding bulk orders, demand fell 0.4 percent.

Maersk Line to Cut 4,000 Jobs as Market Deteriorates

Nov 4 (WSJ) — Danish conglomerate A.P. Møller-Maersk A/S saidWednesday its Maersk Line container-shipping unit would cut 4,000 jobs from its land-based staff of 23,000. It is also canceling options to buy six Triple-E vessels. Maersk said it would also push back plans to purchase eight slightly smaller vessels. The conglomerate said it would cut its annual administration costs by $250 million over the next two years and would cancel 35 scheduled voyages in the fourth quarter. That is on top of four regularly scheduled sailings it canceled earlier in the year.

Sliding Canton Fair orders signal poor outlook for producers

Nov 5 (Nikkei) — Foreign orders at China’s leading trade show slipped 7.4%. Chinese producers and overseas buyers at this year’s autumn session of the China Import and Export Fair, better known as the Canton Fair, signed contracts for $27 billion in goods, down from $29.1 billion last fall. Traffic from Europe shrank more than 10% from last fall amid the continent’s hazy economic outlook. The total value of contracts inked at the fair declined from the year-earlier figure for the eighth straight session, drawing alarmingly close to the $26.2 billion total from spring 2009.

US Trade

This is just for ‘goods’ but seems to be counter to all other releases reporting weak exports, but it has been zig zagging it’s way lower and August was particularly weak. And note the weakness in car imports:

International trade in goods
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Highlights
September reversed August’s outsized goods trade gap, coming in at $58.6 billion vs $67.2 billion. Exports jumped 3.1 percent following August’s 3.2 percent decline with wide gains in consumer goods, autos, industrial supplies and capital goods. Imports fell 2.5 percent following the prior month’s 2.2 percent gain. Decreases are wide including industrial supplies, capital goods, autos and consumer goods. The results do point to slowing demand but, because imports are counted as a subtraction in the national accounts, they should nevertheless give a boost to third-quarter GDP estimates.

And this typical commentary from today on why the Fed isn’t hiking:

The decision comes amid multiple data points that show a weakening in the economy, particularly in job gains and exports. Inflation measures the Fed follows also reflect little in the way of wage and price pressures, while economists are anticipating a muted holiday shopping season.

Confidence, Richmond, PMI Services

A lot less than expected based on jobs assessment, and note the drop in car buying plans:

United States : Consumer Confidence
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Highlights
A decline in the assessment of the current jobs market pulled down the consumer confidence index to a lower-than-expected 97.6 in October. This is about 2.4 points below Econoday’s low-end forecast and 5.0 points below a revised September.

Consumers are saying there are fewer jobs available then there were in September and more say jobs are hard to get. But the latter reading, at 25.8 percent, is still low and consistent with low rates of unemployment. Still, these readings are weaker than September and helped pull down the present situation component by a sizable 8.2 points to 112.1.

The six-month outlook shows much less monthly weakness compared to September with the component down 2.8 points to 88.0. Buying plans are mixed with cars down but both houses and appliances up. Inflation expectations are steady at 5.1 percent which is moderate for this reading.

Jobs are at the heart of consumer confidence and today’s report will limit expectations for strength in the October employment report. This report may also limit expectations for retail sales in October including, based on buying plans, sales of vehicles.
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United States : Richmond Fed Manufacturing Index
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Highlights
The Richmond Fed makes it five for five, that is five regional Fed reports all showing negative headlines for October. The Richmond Fed index did improve, however, to minus 1 from September’s minus 5. New orders came in at zero following the prior month’s steep contraction of minus 12. But backlog orders, at minus 7, are down for a third month which is not a plus for future shipments or employment. Shipments in October fell to minus 4 from minus 3 which is also a third month of contraction. Hiring is still positive, unchanged at plus 3, but continued growth here is uncertain. Price data are mute with prices received showing slight contraction as they are in other reports. This morning’s report on durable goods orders showed another month of broad weakness in September and this report, together with the other regional reports, point to another weak month for the factory sector in October.

United States : PMI Services Flash
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Highlights
Growth in the nation’s service sector is solid but a little slower this month than in September. The services PMI flash for October came in at 54.4 for the slowest rate of growth since the severe weather of January. The report cites a third straight slowdown in new business which is also at its weakest point since January. Though the service sector is insulated to a degree from foreign effects, the report does note that less favorable global conditions are making customers less willing to spend.

Backlogs are down for a third month which is the worst run in two years and hiring has slowed to the weakest level since February. The outlook, though still favorable, is near a three-year low. Price data show little change for inputs and only a fractional gain for prices charged. This report fits in with the general soft tone of economic data, softness that will perhaps be a key focus of tomorrow’s FOMC statement.

Existing Home Sales, Chicago Fed, Leading Indicators, KC Fed

Higher than expected, not directly a contributor to GDP or a measure of output.
The change in fed mtg regs that caused the blip and mtgs and subsequent reversal
needs to play out here as well:

Existing Home Sales
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Highlights
Existing home sales bounced back very strongly in September, up 4.7 percent to nearly reverse the prior month’s revised decline of 5.0 percent, a decline that now looks like an outlier on a steadily rising slope. The month’s annual sales rate, at 5.55 million, is just beyond Econoday’s top-end forecast while the year-on-year percentage gain, at plus 8.8 percent, is back where it was during the sales gains of the spring. This report is a big plus for the housing outlook, suggesting that demand for existing homes is nearly as strong as demand for new homes.

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Yet another bad one here:

Chicago Fed National Activity Index
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Highlights
September was a weak month across the economy. The national activity index came in at minus 0.37, a negative score that points to lower-than-average economic growth for the month. Production is the weakest component in the report, down 0.18 and reflecting in part export troubles in manufacturing. Sales/orders/inventories are at zero while the personal consumption & housing component is at minus 0.08. Employment is also in the negative column, at minus 0.11.

Weakness in September followed similar weakness in August where the index is at a revised minus 0.39. The 3-month average is at minus 0.09, down from plus 0.01 in August. This report is a reminder that, as long as economic data are weak, the doves can hold sway in the FOMC.

This hasn’t been useful with rates at 0 as the yield curve is one of its leading components.

But even with the positive yield curve its now gone negative:
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Still negative but not as negative:

Kansas City Fed Manufacturing Index

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Highlights
The Kansas City manufacturing sector came up for badly needed air in October, ending a long run of deep contraction. The composite came in at only minus 1 which is an eighth straight decline but much improved from nearly double digit declines in prior months. The real positive is the new orders index which, at plus 7, ended nine dismal months of straight contraction. But backlogs, at minus 4, are in a 10th month of uninterrupted contraction with employment, at minus 3, in a ninth month of contraction. Orders will have to pick up before employment will turn higher. Other readings include a plus 4 for production, which hints at relative strength for October production and shipment data, and a negative 3 for finished goods prices in yet another negative indication on inflation. This report, coming from one of the weakest energy-hit regions of the economy, is a marginal plus for the manufacturing outlook.

Exports, News Headlines, Atlanta Fed, German Comment

They say its the strong $ that’s hurting exports.

I say it’s the drop in oil related capex after the price collapse:

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This is what news headlines have been looking like (not good):

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From Rüdiger (top German Specialist) research:

German new business orders for August were broadly lower. Compared to July, which was revised downward, they fell a seasonally adjusted 2.1pc. Compared to August 2014 orders rose 3.4pc.

However, there are two critical factors behind this figure. First, there was a huge positive base effect at work. Eliminating this statistical quirk orders would have been down an annual 0.2pc. Second, orders were helped by large scale orders for other vehicles“ (chiefly aircraft). Stripped for these orders the picture is even bleaker. It shows that the firming euro exchange rate has already significantly slowed orders from non-EMU countries.

The bottom line is that today’s order figures support our notion that the German economy is moving closer to recession.

Capex Revision, Gallup Spending Survey, PMI, ISM Non Mfg Index

A gauge of U.S. investment plans slipped more in August than initially estimated, giving a cautionary sign for the economic outlook.

New orders for non-military capital goods outside of aviation fell 0.8 percent in August, the Commerce Department said on Friday.

The government had previously reported that this gauge, which is a leading indicator of business investment, had fallen 0.2 percent during the month.

Shipments of this category of goods also fell, declining a sharper-than-initially reported 0.4 percent and giving a bearish signal for third-quarter economic growth.

New orders for overall U.S. factory goods fell 1.7 percent in August, Friday’s report showed. Analysts had expected new orders for factory goods to fall 1.2 percent.
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Yet another consumer spending chart that shows it’s been going down since the drop in oil prices that most insisted would cause a sharp increase:
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The ‘Markit’ surveys aren’t all that credible but do make news:
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Also lower than expected and more credible, and indicates to me the service sector is now following the manufacturing sector that’s already gone negative. Interesting how the ‘Highlights’ narrative below sees it otherwise:

ISM Non-Mfg Index
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Highlights
Understandable slowing in new orders and business activity, which have been extraordinarily strong in the two prior reports, pulled down ISM’s non-manufacturing index to a still very solid 56.9 in September.

One component, however, that did not slow and which, had it been released last week, would have sent the wrong signal for the employment report is a 2.3 point jump in the employment index to 58.3. This, together with July’s 59.6, are some of the strongest readings in the 18-year history of this series and a puzzle given softness in the government’s payroll data.

Readings throughout this report are very strong including backlogs which have been building for four straight months and new export orders which have been rising for five months (note that foreign demand for U.S. services has proven very resilient at the same time that foreign demand for U.S. goods has been declining sharply.) The price indication in this report shows slight contraction in contrast to other surveys where price contraction is very sharp.

This report, together with the services PMI released earlier this morning, underscore the fundamental domestic-based strength of the U.S. economy.
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And now the Fed’s own labor market indicator is suggesting weakness as well:

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