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US Q4 data points to some loss in economic momentum – Nomura

FXStreet (Delhi) – Research Team at Nomura, expects the first round of monthly data for November to show that the economy continued to move along at a steady pace.

Key Quotes

“Incoming data were tilted to the negative for near-term growth. Personal spending increased by only 0.1% m-o-m in October, shipments of core capital goods (non-defense capital goods ex-aircraft) declined by 0.4%, and durable goods inventories declined by 0.2%. Housing activity remained choppy, as existing home sales declined by 3.4% in October, but new home sales rebounded nicely after a sharp drop in September. Last, the advance goods trade report for October showed that the goods trade deficit narrowed—a positive for GDP accounting—but primarily due to another substantial drop in goods imports (goods exports declined after a surge in the previous month).”

“Consumer sentiment was also tilted to the negative, with the Conference Board’s consumer confidence index dropping sharply in November and the University of Michigan’s consumer sentiment index turning lower at the end of the month.”

“All things considered, our Q4 GDP tracking estimate ended the week up at 2.0% from 1.6% previously. But the upward revision was primarily due to less drag from imports. And the tenor of the data—slowdown in consumption and consumer sentiment, trade activity, and choppy housing activity—suggest the risks to the near-term outlook are skewed downward.”

“Nevertheless, taken together with the upward revision to Q3 GDP to 2.1% from 1.5%, second-half growth should come in around 2%, enough to keep the FOMC on track to raise the federal funds rate at its December FOMC.”

“We expect a gradual pickup in core PCE inflation in coming months, mainly due to an acceleration in medical care prices. However, today's data suggest some downside risk to our core PCE inflation forecast.”

“Looking ahead, we will receive the first set of economic data for November. We expect the industrial side of the economy to underperform and the rest of the economy to continue to expand at a steady pace. We expect the ISM manufacturing index to decline slightly to 50, while the nonmanufacturing index should remain elevated. We expect auto sales to remain strong in November. Last, we forecast that nonfarm payrolls added 180k additional workers in November, a slower pace than in October and that the unemployment rate remained at 5.0%.”

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