4 Quick Things:
Durable Goods | Durable Improvement? While volatility in private aircraft orders have pushed headline Durable Goods around the last couple months the core subaggregates are showing some fledgling mojo. Durable Goods Ex-Defense and Aircraft – which represents the series most closely aligned with household demand - rose +0.6% sequentially while improving to +1.2% YoY. This represents a 2nd month of positive YoY growth – the first such streak in almost 2 years – and the fastest pace of growth since April 2015.
Core Capex | A December to Remember? Core Capital Goods orders held negative for a 13th consecutive month in November, extending the epic run of negative growth in core capex spending to 22 of the last 23 months. But, orders rose +0.9% sequentially, were less bad on a YoY basis at -3.2% YoY and the 2Y trend continues to improve. Next month (December) also represents the highest probability opportunity for ending the negative growth streak. Against an easy Dec ‘15 comp, anything better than -0.97% MoM will be enough to take year-over-year growth back above the zero line.
Income & Spending | It Didn't, It Was, It Will: As we’ve highlighted repeatedly, with aggregate hours and wage growth in November decelerating it was unlikely aggregate income growth would accelerate in November. It didn’t. By extension, without a significant drop in the savings rate and/or acceleration in credit growth, an acceleration in consumption growth would be similarly constrained. It was. Real spending was up just 0.1% sequentially and decelerated -10bps to +2.8% YoY.
The drop in the savings rate to 5.5% (vs. 5.7% prior and 6.1% in Nov ’15) helped buttress against a steeper deceleration against one of the hardest comps of the cycle. December comps are similarly difficult but ease moderately into the first part of next year. It’s unlikely employment growth shows a sustainable re-inflection so wage growth will have to soldier northward, rising faster than employment growth declines in order to maintain the present pace of aggregate income growth.
Consumption | Just The Right Amount of Boring:
The simple consumption math to close out 4Q looks like this:
- QoQ: We are currently tracking at +2.0% QoQ annualized in 4Q (that compares to +3.0% realized in 3Q) which implies sequential growth needs to be >0.5% in December for 4Q to contribute to headline growth at a level similar to 3Q. That’s not a gimme and December NFP will resolve most of the uncertainty
- YoY: Hitting the sequential target above requires a +20bps acceleration in YoY PCE growth to +3.0% YoY. That may or may not happen, but it probably doesn’t matter. Outside of an outlier print on either side, YoY PCE growth in 4Q will be largely flat relative to 3Q.
In short, for a market collective still acutely focused on the January coronation and the prospects for mid-2017 policy initiatives, middling consumption growth in 4Q probably represents just the right amount of fundamental benignity.
Christian B. Drake
@HedgeyeUSA
