Last week was a big one for economic data, and today I’m helping you sift through it and help you to determine what this will mean for your stocks.
Energy Boom Helping U.S. Trade Deficit
The trade deficit declined to $40.6 billion last month, right around the $40.5 billion consensus estimate. Breaking it down, exports rose 1.8% to $192.7 billion and imports rose 0.4% to $233.3 billion. Soybean exports rose 22% compared to a year ago and led the U.S. export boom, followed by refined petroleum exports, which rose 16%. The energy boom in both North Dakota and Texas is clearly helping to reduce the U.S. trade deficit, was well the exports of refined products, such as diesel, gasoline, jet fuel and fuel oil.
Big Jump in New Home Sales as Prices Dip
In October, new homes sales surged 25.4% to an annual rate of 444,000, well above economists’ consensus estimate of 419,000. Interestingly, median home prices decline by 5.3% to $245,800 as lower priced homes sold especially well. The inventory of new homes declined to 4.9 months, down from 6.4 months in September. This is encouraging because home sales drive sales of appliances, furniture and other household items, which is good for GDP growth. I also expect that median home prices will firm up due to tighter inventories.
Massive Third-Quarter GDP Revision
The Commerce Department revised its third-quarter GDP estimate up to a 3.6% annual pace, up from its previous estimate of 2.8%. This upward revision was substantially higher than economists’ consensus estimate of a 3.2% pace. This was primarily due to a massive surge in inventories to $116.5 billion, up from initial estimates of $86 billion. This accounted for 1.7% of overall GDP growth, up from 0.8% in previous estimates. That was the good news for GDP growth. The bad news is that any big inventory surge typically causes GDP growth to stall the following quarter. So economists now only expect 1.6% annual growth in the fourth quarter.
Better-than-Expected Jobs News
Last week, jobless claims declined by 23,000 to 298,000. This was a pleasant surprise as economists had expected the measure to rise to a 335,000 annual rate. The four-week moving average also fell from 333,000 to 322,250. Since May 2007, this is just the second time that jobless claims have dipped below 300,000. Granted, some of this was from the late Thanksgiving holiday, so jobless claims will likely tick up next week.
But the general trend is that job growth is picking up, as we see with the November Unemployment Rate Report. In fact, 203,000 payroll jobs were created in November, above economists’ consensus estimate of 180,000. Meanwhile, the unemployment rate fell to 7% in November, down from 7.3% in October. The labor force participation rate rose 63% in November, up from 62.8% in October, so that was also an improvement. This is the best case scenario, given the circumstances.
Overall, the payroll report was good, but likely not good enough for the Fed to “taper” at the next meeting, which will be on December 17 to 18. I’m also encouraged that the September and October payrolls were revised higher by 8,000.