Gotta like the headlines. The growth rate remains below where it was during the beginning of the last recession… That is, we could already be well into recession:

Adjusted for inflation, also below prior recession levels:

And it doesn’t seem like building $600 billion of reserves, buying US stocks, and a negative rate policy have done much for the Swiss consumer:

Not even a hint of improvement here:

As previously discussed, manufacturing seems to be leveling off at reduced and modest levels:

Highlights

ISM’s manufacturing sample reported no better than moderate conditions in October with the composite index at 51.9 which however is still 3 tenths better than Econoday’s consensus. But new orders are a disappointment, still showing monthly growth but, at 52.1 vs September’s 55.1, at a much slower rate. Backlog orders, at 45.5, are even softer, holding below 50 for a 4th month in a row to indicate contraction. A positive for orders is a steady though moderate rate of growth for new export orders, at 52.5 for a 1/2 point gain.

Production did pick up speed in the month, up 1.6 points to 54.6, while employment moved from 49.7 and back over 50 for the first time since June, to 52.9. Input costs also point to steady demand, rising 1.5 points to 54.5.

Yet this report tells a very different story from the manufacturing PMI released earlier this morning where readings, especially new orders, are accelerating sharply. Combining the two probably offers the most reliable indication on the factory sector, that is moderate and respectable growth going into year end.

Construction continues to head south with no relief in sight.
And watch for downward revisions to q3 and q4 GDP growth estimates:

Highlights

Construction spending remains weak but indications on housing do show limited improvement. Total construction spending fell 0.4 percent in September for a year-on-year decline of 0.2 percent. But residential spending rose 0.5 percent in the month with this year-on-year rate at plus 0.9 percent. The breakdown here though is mixed as the key single-family category could muster only a monthly rise of 0.1 percent. Multi-family construction is once again the strength, rising 2.0 percent in the month to extend an upward trend that reflects gains in current rental rates.

The real weak area is in the non-residential side of the report where spending on private construction fell 1.0 percent in the month and with public construction down 1.1 percent for its poorest showing since March 2014. Nearly all components on the nonresidential side show monthly declines with commercial, down 2.4 percent, and Federal spending, down 1.9 percent, showing the most weakness.

The construction sector, despite unusually low mortgage rates, has been struggling this year with the softness in single-family housing posing continued challenges for what is otherwise a strong new home market.

All numbers as expected. Notice the use of the word ‘solid’ for all the reports? And no one talking about year over year, which eliminates much of the seasonal factors and month to month volatility. Nor do they mention that these numbers are not adjusted for inflation, which pushes the year over year numbers down to stall speed. See charts below:

Highlights

Retail sales proved solid in September hitting the Econoday consensus across the board: total up 0.6 percent, ex-auto up 0.5 percent, ex-auto ex-gas up 0.3 percent. Auto sales as expected are the highlight of the report, up 1.1 percent to reverse the prior month’s 0.3 percent decline. Auto sales, a discretionary category, have been solid this year though down from last year’s peak. Restaurants, another discretionary category, are also strong, up 0.8 percent to add to August’s 0.7 percent gain.

Other positives include two related to housing, furniture which rose 1.0 percent and building materials & garden equipment, up 1.4 percent. This latter reading will give a boost to the residential investment component of the third-quarter GDP report.

This whole report in fact will give a lift to GDP, providing a quarter-end pop to consumer spending which was soft in the quarter’s first two months. Strength in retail sales ultimately reflects strength in the labor market and today’s report will further build expectations for an FOMC rate hike at the December meeting.

How ‘solid’ do these look?

Inflation adjusted:

Not adjusted for inflation doesn’t look good either:

The Atlanta Fed lowered their q3 estimates further on today’s news:

Looks like last month’s move higher that lifted hopes has more than reversed to instead follow the down trend of the last several months:

Inventories remain elevated and are keeping a lid on output:

Highlights

Inventories continue to edge incrementally higher, up 0.2 percent in August and in line with a 0.2 percent rise in sales to keep the inventory-to-sales ratio unchanged for a third month at a lean 1.39. Inventories at wholesalers fell 0.2 percent in August while inventories at manufacturers rose 0.2 percent. Inventories at retailers, boosted by swelling at auto dealers, rose a sharp 0.6 percent in a build, however, that looks manageable given this morning’s solid retail sales report for September, one that is headed by strength in vehicle sales.

An inventory correction to the 1.30 level isn’t out of the question:

Wondering when they begin to suspect this is more about being made a lot harder to get, and less about labor market conditions:

Highlights

Unemployment claims remain at or near historic lows, indicating a lack of layoffs and quick turnaround for those who do lose their jobs. Initial claims came in near the low end of expectations in the October 8 week, at 246,000 with the 4-week average at 249,250. Both of these averages are down roughly 10,000 from a month-ago, comparisons that offer early indications of strength for the October employment report. Continuing claims are trending roughly 100,000 below a month ago, at 2.046 million and a 16,000 decline in the latest data which are for the October 1 week. Hurricane Matthew had only limited impact on initial claims with only one state in the affected area, Virginia, having to be estimated. Louisiana was also estimated in this report. Records of note in this report is a 43-year low for the weekly level of initial claims and an 8th straight decline for the 4-week average which is also at a 43-year low.

Looks like the move up was only a blip, but too soon to tell:

Less than expected, July/August total revised down, earnings gain less than expected. Yes, unemployment was up because the labor force increased, but arguably it was functionally that large in the months before, etc, which means, functionally, unemployment had been that much higher all along, etc. etc. and all to my suspicions that the drop in the participation rate might be close to entirely cyclical, meaning the ‘slack’ might be equiv. to a headline unemployment rate well north of 7%, and the U6 rate well north of 12%. Also recall that the birth/death’ model that estimates jobs from new business formations tends to overstate employment growth when employment growth is declining, so don’t be surprised by more downward revisions:

Highlights

The September employment report is not that strong and the sigh of relief you hear is coming from the Fed which won’t be faced with a pre-election rate hike. Non-farm payrolls rose 156,000, which is at the low end of expectations, while average hourly earnings don’t look that inflationary, at least not on a monthly basis which is up only 0.2 percent and again at the low end of expectations.

But there are definitely positives including a rise in the labor participation rate, up 1 tenth to 62.9 percent, which gave a deceptive lift to the unemployment rate that is 1 tenth higher at 5.0 percent. The increasing inclusion of discouraged workers is one of the Fed’s policy objectives and the participation rate points to improvement. Another positive is a rise in the workweek, up to 34.4 hours from 34.3 hours with the manufacturing week also slightly higher in what is a positive indication for September industrial production.

Manufacturing employment, however, is one of the weak spots in the report, down 13,000 following August’s 16,000 decline. Government payrolls are also a negative, down 11,000 but following a long string of gains. Otherwise the industry breakdown offers mostly good news including a gain for construction, up 23,000 following prior weakness, a 22,000 gain for retail which extends a run of similar gains, and especially a 67,000 rise in professional & business services that includes an outsized gain of 23,000 in temporary help services. This last detail confirms other evidence that employers are having a hard time filling positions.

And there is another positive, and that is movement higher in the year-on-year rate for average hourly earnings, up 2 tenths to 2.6 percent which is still, however, 1 tenth under where it was in July. And with an election coming around, the positives are tame enough. November may be out for a rate hike but today’s report will build expectations, at least for now, for a rate hike at the December FOMC.

Employment growth not much ahead of population growth, with a long way to go to catch up to prior levels if in fact the drop was largely cyclical:

Down again:

So it looks like August sales were up a bit but July sales were revised down. And inventories continued to decline, contrary to mainstream forecasts, as the inventory to sales ratio came down .1 but remained elevated:

MONTHLY WHOLESALE TRADE: SALES AND INVENTORIES August 2016

Sales.

The U.S. Census Bureau announced today that August 2016 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $444.3 billion, up 0.7 percent (+/-0.5%) from the revised July level and were up 0.6 percent (+/-1.2%)* from the August 2015 level.

The June 2016 to July 2016 percent change was revised from the preliminary estimate of down 0.4 percent (+/-0.4%)* to down 0.6 percent (+/-0.4%).

August sales of durable goods were down 0.5 percent (+/-0.7%)* from last month, but were up 0.7 percent (+/-1.8%)* from a year ago.

Sales of machinery, equipment, and supplies were down 2.7 percent from July.

Sales of nondurable goods were up 2.0 percent (+/-0.7%) from July and were up 0.5 percent (+/-1.8%)* from last August.

Sales of farm product raw materials were up 6.7 percent from last month and sales of beer, wine, and distilled alcoholic beverages were up 2.2 percent.

Inventories.

Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $589.1 billion at the end of August, down 0.2 percent (+/-0.4%)* from the revised July level.

Total inventories are down 0.1 percent (+/-1.8%)* from the revised August 2015 level.

The July 2016 to August 2016 percent change was revised from the advance estimate of down 0.1 percent (+/-0.4%)* to down 0.2 percent (+/-0.4%)*.

August inventories of durable goods were up 0.2 percent (+/-0.4%)* from last month, but were down 1.9 percent (+/-1.8%) from a year ago. Inventories of computer and computer peripheral equipment and software were up 1.9 percent from last month. Inventories of nondurable goods were down 0.7 percent (+/-0.5%) from July, but were up 2.8 percent (+/-3.0%)* from last August. Inventories of farm product raw materials were down 7.8 percent from last month and inventories of apparel, piece goods, and notions were down 2.1 percent.

Inventories/Sales Ratio. The August inventories/sales ratio for merchant wholesalers, except manufacturers’ sales branches and offices, based on seasonally adjusted data, was 1.33. The August 2015 ratio was 1.34.

Sales down about 11.5% in July then up about 8.5 in August, so the ‘average’ for the last two months in this volatile series is looking lower vs last year:

This is just sales, not adjusted for inflation:

Auto related inventories are no longer adding to GDP growth:

This too has followed the shale boom/bust cycle and is headed lower:

No recovery here:

This looks back over the last three months and seems to be decelerating from already modest levels:

Up a bit but still low:

The flash Markit US Services PMI came in at 51.9 in September of 2016 from 51 in August, reaching the highest figure in five months and above market expectations of 51.1. Activity picked up for the first time in three months due to ongoing new business growth while new orders, employment and inflationary pressures eased.

Still contracting:

Here some good news! But as per the chart something changed after the collapse in oil capex? Maybe because confidence is one man, one vote, not one dollar, one vote?