Macroeconomic Overview: The International Monetary Fund (IMF) recently released the October edition of their World Economic Outlook. The release features an updated set of forecasts for global and country-level GDP. Projections for world economic growth in both 2016 and 2017 were revised slightly lower (-0.1 percentage points in each year). The estimated growth rate for 2016 is now 3.1% and the forecast for 2017 is 3.4%. For comparison, growth rates in 2014 and 2015 were 3.4% and 3.2% respectively. In the decade preceding the financial crisis (1998-2007), the average annual increase in world economic activity was 4.2%. In the decade since the financial crisis (2008-2017), the global growth rate is expected to average only 1.1%.
The reductions made to predictions for 2016 and 2017 were primarily a result of slower than expected GDP growth in the U.S. this year and concerns regarding future effects of the United Kingdom's vote to leave the European Union. In developing markets, prospects improved in certain regions. The outlook for Chinese growth improved due to government actions. Growth has been strong in several other countries in emerging Asia and is particularly robust in India. The outlook for Africa worsened.
The reduction made to forecasts for global growth can be seen as part of a repetitive pattern in recent years. Since the global financial crisis, the IMF has consistently predicted that activity would pick up in years later into the future. However, those projections have been consistently lowered as they became less distant into the future, highlighting the difficulty in stimulating aggregate demand.
Employment: The U.S. economy was estimated to have added 156,000 jobs in September. This represents the lowest reading since May, when only 24,000 jobs were created. Revisions to figures for July (-23,000, from +275,000 to +252,000) and August (+16,000, from +151,000 to +167,000) led previous estimates to decline by a total of 7,000 positions. On average, payrolls have expanded by 178,000 jobs per month thus far into 2016 (January-September). Over the same time period last year, job growth averaged 211,000.
After holding to a level of 4.9% for the previous three months, the unemployment rate ticked marginally higher in September (to 5.0%). With job growth positive, and with initial claims for unemployment insurance recently posting the lowest values since 1973, an increase in the size of the labor force last month was behind the increase in the unemployment rate (444,000 more people were looking for work in September than in August). Year-over-year, the labor force has increased by more than three million people.
In September, average earnings rose 2.6% year-over-year. This represented the 19th consecutive month that wage growth has been higher than two percent. Amplifying the effect of wage growth has been low inflation. For the past 20 months, increases in wages have been over one percentage point. The average difference over this time period was 1.8 percentage points, which is wider than it was before the recession.
Consumer Confidence & Spending: The Conference Board's Index of Consumer Confidence rose 3.3 points in September. Despite the election and the possible uncertainty it may cause, the latest value is the highest since 2007 (prior to the recession). Consistent improvement labor market, notably the increase in disposable income implied by the widening separation between wage growth and inflation rates, have likely been the strongest supporter of consumer attitudes.
Higher consumer confidence and consumer income should support consumer spending in the important holiday sales period. The National Retail Federation (NRF), which is a trade group representing the entire retail sector, is forecasting that holiday spending will increase "a solid 3.6%" this season. Last year, holiday spending increased 3.2%. The strongest increases are expected to occur on-line, with internet sales projected to increase between 7% and 10% year-over-year.
In the latest available data, which describe spending in August, overall spending was down 0.1% month-over-month and was 2.6% higher year-over-year. Part of the reason for the monthly decrease was that there were two strong months of growth in June (+0.4% month-over-month versus May, representing a pace of 4.8% annualized growth) and July (0.3% month-over-month versus June, indicating annualized growth of 3.6%). Apparel spending rose 0.2% month-over-month in August, and was 2.6% higher year-over-year. The strength in spending a year ago, when year-over-year gains in spending on clothing were very strong (generally ranging between 4% and 6%) is a factor depressing current year-over-year rates for apparel spending.
Consumer Prices & Import Data: : Average retail prices for apparel were nearly unchanged in the latest data (-0.1% month-over-month in August). Year-over-year, consumer garment prices were also marginally higher (+0.4%). Sourcing costs for cotton-dominant apparel increased in August (+2.0% month-over-month). However, the figure posted for July was 2.9% lower than the one for June. The monthly decline in July was the steepest in recent history, and part of the increase this month may have simply been a rebound relative to the large change in the previous month. Year-over-year, average import prices were 3.8% lower than they were a year ago.