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Economic Indicators

U.S. consumer confidence rebounds; house price growth likely peaked

By Lucia Mutikani

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U.S. consumer confidence rebounds; house price growth likely peaked
© Reuters. FILE PHOTO: Shoppers browse in a supermarket while wearing masks to help slow the spread of coronavirus disease (COVID-19) in north St. Louis, Missouri, U.S. April 4, 2020. REUTERS/Lawrence Bryant

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer confidence unexpectedly rose in October as concerns about high inflation were offset by improving labor market prospects, suggesting economic growth was picking up after a turbulent third quarter.

The survey from the Conference Board on Tuesday showed consumers eager to buy a home and big-ticket items such as motor vehicles and major household appliances over the next six months. The share of Americans planning to go on vacation was the largest since February 2020, just before the nation was slammed by the first wave of COVID-19 infections.

A resurgence in coronavirus cases over the summer, driven by the Delta variant, and supply-chain constraints related to the pandemic restrained economic activity last quarter.

“Consumers are more upbeat after a rocky third quarter and this argues for a strong finish for the economy in 2021,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “Consumers know the tight labor market has their backs. Those forecasting a recession from the drop in the confidence late in the summer will have to back off that call.”

The consumer confidence index increased to a reading of 113.8 this month from 109.8 in September, ending three straight monthly declines. The measure, which places more emphasis on the labor market, remains below its peak of 128.9 in June. The rise contrasted with the University of Michigan’s survey of consumers, which showed sentiment falling early this month.

The rebound in confidence coincided with an ebb in coronavirus infections. Consumers were upbeat about both current conditions and the short-term outlook. Economists polled by Reuters had forecast that the index would dip to 108.3.

The Conference Board’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, raced to a reading of 45 this month, the highest in 21 years, from 43.5 in September.

This measure closely correlates to the unemployment rate in the Labor Department’s closely watched employment report.

Combined with declining new claims for unemployment benefits, it raises hopes that job gains picked up this month after employers hired the fewest workers in nine months in September. Slower job growth has been blamed on pandemic-related labor shortages. There were 10.4 million job openings at the end of August.

“This is another sign that job growth reaccelerated in October,” said Ryan Sweet, a senior economist at Moody’s (NYSE:) Analytics in West Chester, Pennsylvania. “It points toward a decline in the unemployment rate in October.”

Stocks on Wall Street were trading mostly higher. The dollar rose against a basket of currencies. U.S. Treasury prices were mixed.

HITTING THE ROAD

Consumers’ inflation expectations over the next 12 months jumped to 7.0%, the highest in 13 years, from 6.5% last month.

Despite perceptions of high inflation, consumers planned to step up spending. Buying intentions for motor vehicles rebounded from a nine-month low. More consumers intended to purchase household appliances like washing machines, television sets and refrigerators over the next six months.

Some economists speculated that higher prices were forcing consumers to bring forward purchases to avoid paying even more for goods. The rebound suggested consumer spending would regain steam after an apparent sharp deceleration last quarter.

Economists believe the government’s snapshot of third-quarter gross domestic product growth on Thursday will likely show that consumer spending stalled last quarter after growing at a robust 12% annualized rate in the April-June period.

With spending weak, third-quarter GDP growth estimates are mostly below a 3% rate. The economy grew at a 6.7% pace in the second quarter. The anticipated slowdown would reflect widespread shortages, including for goods such as motor vehicles and some household appliances, as well as the Delta variant’s hit to spending on services like air travel and hotel accommodation.

“Slower growth doesn’t imply a weak economy,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania. “There is nothing soft about it, at least when it comes to demand.” 

Consumer spending this quarter is also likely to be boosted by increased demand for travel. The percentage of consumers saying they plan to take a vacation in the next six months increased to 47.6%. That was the highest figure since the pandemic started and was up from 42.3% in September.

They mostly planned trips in the United States and intended to either drive or fly to their destinations.

There was good news on the housing market. In a separate report on Tuesday, the Commerce Department said sales of new single-family homes surged 14.0% to a seasonally adjusted annual rate of 800,000 units in September.

The Conference Board survey showed consumers more inclined to buying a home over the next six months. The housing market could get a lift from a moderation in house price inflation.

A third report on Tuesday showed the S&P CoreLogic Case-Shiller’s 20 metropolitan area home price index rose 19.7% on a year-on-year basis after a record 20% jump in July.

Signs that house price growth has peaked were evident in a fourth report from the Federal Housing Finance Agency that showed house prices rose 18.5% in the 12 months through August after surging by a record 19.2% in July.

“The slowing acceleration in home prices suggests that buyer fatigue is setting in, particularly among higher-priced homes where the acceleration in price growth from the previous month has been larger compared to low-tier homes,” said Selma Hepp, deputy chief economist at CoreLogic.

Economic Indicators

U.S. manufacturing presses ahead; labor market gaining traction

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U.S. manufacturing presses ahead; labor market gaining traction
© Reuters. FILE PHOTO: A restaurant advertising jobs looks to attract workers in Oceanside, California, U.S., May 10, 2021. REUTERS/Mike Blake/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. manufacturing activity picked up in November amid strong demand for goods, keeping inflation high as factories continued to struggle with pandemic-related shortages of raw materials.

Signs that the economy was gathering momentum halfway through the fourth quarter were underscored by other data on Wednesday showing private employers maintained a strong pace of hiring last month. But there are fears that the Omicron variant of COVID-19 could hurt demand for services as well as keep the unemployed at home, and hold back job growth and the economy.

“Manufacturing should continue to contribute positively to GDP growth over the next year as businesses replenish inventories and supply-chain issues improve,” said Ryan Sweet, a senior economist at Moody’s (NYSE:) Analytics in West Chester, Pennsylvania. “There are risks, including the potential for businesses overbooking orders now and the Omicron variant magnifying price and supply chain issues.”

The Institute for Supply Management (ISM) said its index of national factory activity increased to a reading of 61.1 last month from 60.8 in October.

A reading above 50 indicates expansion in manufacturing, which accounts for 12% of the U.S. economy. Economists polled by Reuters had forecast the index rising to 61.0.

“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment, with some indications of slight labor and supplier delivery improvement,” said Timothy Fiore, ISM chair of the manufacturing business survey committee.

Global economies’ simultaneous recovery from the COVID-19 pandemic, fueled by trillions of dollars in relief money from governments, has strained supply chains, leaving factories waiting longer to receive raw materials.

All of the six largest manufacturing industries, including computer and electronic products as well as transportation equipment, reported moderate to strong growth.

Makers of computer and electronic products said “international component shortages continue to cause delays in completing customer orders.” Transport equipment manufacturers reported “large volume drops due to chip shortage.” Furniture producers said “business is strong but meeting customer demand is difficult due to a shortage of raw materials and labor.”

But there are some glimmers of hope. Prices for steel plate and hot-rolled coil appear to be nearing a plateau, according to manufacturers of fabricated metal products. Supply of plastic resins is improving, accounts from manufacturers of electrical equipment, appliances and components, as well as plastics and rubber products suggested.

The ISM survey’s measure of supplier deliveries slipped to a reading of 72.2 from 75.6 in October. A reading above 50% indicates slower deliveries.

The long delivery times kept inflation at the factory gate bubbling. The survey’s measure of prices paid by manufacturers fell to a still-high 82.4 from a reading of 85.7 in October.

Factories are easily passing the increased production costs to consumers and there are no signs yet of resistance.

Federal Reserve Chair Jerome Powell told lawmakers on Tuesday that “the risk of higher inflation has increased,” adding that the U.S. central bank should consider accelerating the pace of winding down its large-scale bond purchases at its next policy meeting in two weeks.

The Fed’s preferred inflation measure surged by the most in nearly 31 years on an annual basis in October.

Stocks on Wall Street rebounded after Tuesday’s sell-off. The dollar slipped against a basket of currencies. U.S. Treasury prices fell.

Graphic: ISM PMI – https://graphics.reuters.com/USA-STOCKS/akvezozqbpr/ISM.png

STRONG ORDERS

The ISM survey’s forward-looking new orders sub-index climbed to a reading of 61.5 last month from 59.8 in October. Customer inventories remained depressed.

With demand robust, factories hired more workers. A measure of manufacturing employment rose to a seven-month high.

Strengthening labor market conditions were reinforced by the ADP National employment report on Wednesday showing private payrolls increased by 534,000 jobs in November after rising 570,000 in October. Economists had forecast private payrolls rising by 525,000 jobs.

Graphic: ADP – https://graphics.reuters.com/USA-STOCKS/byvrjqjlzve/adp.png

This, combined with consumers’ robust perceptions of the labor market last month suggest job growth accelerated further in November. First-time applications for unemployment benefits declined between mid-October and mid-November.

But a shortage of workers caused by the pandemic is hindering faster job growth. There were 10.4 million job openings at the end of September.

Workers have remained home even as companies have been boosting wages, school reopened for in-person learning and generous federal government-funded benefits ended.

“Overall, the risk remains that renewed health concerns will keep workers, especially those with caregiving responsibilities, from returning to the labor force, preventing a return to pre-pandemic strength,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.

According to a Reuters survey of economists nonfarm payrolls probably increased by 550,000 jobs in November. The economy created 531,000 jobs in October.

The Labor Department is scheduled to publish its closely watched employment report for November on Friday.

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Economic Indicators

Mexican factories contract again as supply-side issues weigh, costs rise

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Mexican factories contract again as supply-side issues weigh, costs rise

MEXICO CITY (Reuters) – Mexico’s manufacturing sector remained little changed in November from October, shrinking for the 21st straight month as supply-side bottlenecks continued to weigh and input costs surged, a survey showed on Wednesday.

The IHS Markit Mexico Manufacturing Purchasing Managers’ Index inched slightly higher to 49.4 in November from 49.3 in October, below the 50 threshold that separates growth from contraction.

The index has consistently remained below that threshold every month since March 2020 and plummeted to 35.0 in April 2020 amid the fallout from the coronavirus pandemic, in what was by far the lowest reading in the survey’s 10-1/2 year history.

The new reading signaled a further deterioration in the health of the manufacturing sector, though the contraction was mild compared to those seen since the onset of COVID-19, the survey said.

“The performance of Mexican manufacturers was again negatively impacted by supply chain constraints, although subdued demand conditions partly contributed to the latest contraction in output,” said Pollyanna De Lima, Economics Associate Director at IHS Markit.

Data last week showed that Mexico’s economy contracted 0.4% https://www.reuters.com/markets/us/mexican-economy-shrinks-more-than-expected-third-quarter-2021-11-25 in the third quarter, receding faster than previously thought as services slumped and supply chain issues bit, challenging the central bank as it juggles record inflation, a weak peso and leadership changes.

“In some instances, companies indicated having purchased fewer inputs due to elevated prices for many items, exacerbating their stock-replenishing problems arising from lengthening delivery times,” said De Lima.

According to De Lima the survey underscored that inflationary pressures remained elevated, with the latest increase in input costs the second-strongest in over three years.

Mexican annual inflation accelerated faster than expected in the first half of November to more than 7%, the highest rate in over 20 years.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Economic Indicators

Italy may shift 2 billion euros from tax cuts to energy price curbs – sources

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Italy may shift 2 billion euros from tax cuts to energy price curbs - sources
© Reuters. FILE PHOTO: Italy’s Prime Minister Mario Draghi looks on during a news conference after signing an accord with French President Emmanuel Macron to try to tilt the balance of power in Europe, at Villa Madama in Rome, Italy, November 26, 2021. REUTERS/Remo

By Giuseppe Fonte and Gavin Jones

ROME (Reuters) -Italy is considering increasing by some 2 billion euros ($2.27 billion) funds set aside to curb energy prices next year, using resources previously planned to cut income and business taxes, three government sources said.

With international energy prices soaring, Mario Draghi’s government has already spent more than 4 billion euros this year to try to rein in utility bills by compensating companies that agree to cap their tariffs.

Draghi set aside a further 2 billion euros for next year in the 2022 budget approved by cabinet in October, but with energy cost pressures continuing to drive consumer price inflation, the government is now considering doubling that sum.

The money can be found because the government will use less than the 8 billion euros earmarked in the budget to cut income and business taxes, the sources said, asking not to be named because of the sensitivity of the matter.

With the Treasury aiming to trim the budget deficit to 5.6% of gross domestic product in 2022 from the 9.4% targeted this year, resources are limited.

The cabinet is likely to discuss the matter on Friday, one of the sources said.

The tax cut will focus mainly on income tax (IRPEF), reducing the number of tax rates to four from five, with the largest benefit going to middle-income tax-payers earning between 28,000 and 55,000 euros per year.

According to a preliminary deal reached among the ruling parties, the first tax band on annual income between 8,000 and 15,000 euros will be left at 23%. The second band, between 15,000 and 28,000 euros, will be lowered to 25% from 27%.

The third band, on income from 28,000 to 55,000 euros will get a more substantial cut to 35% from 38%.

The fourth band, on income from 55,000 to 75,000 euros will rise from 41% to 43%. This is the rate that is currently applied on income above 75,000 euros, effectively cancelling the fifth income tax band.

Draghi has been meeting delegations this week from parties in his national unity coalition to hammer out the details of the tax reform.

($1 = 0.8828 euros)

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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