Market Month: November 2019

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

·         Employment: The unemployment rate inched up 0.1 percentage point to 3.6% in October as the number of unemployed persons reached 5.86 million (5.77 million in September). Total employment increased by 128,000 in October after adding 180,000 (revised) new jobs in September. The average monthly job gain so far in 2019 is 167,000 (223,000 in 2018). Notable employment increases for October occurred in restaurants and bars (48,000), social assistance (20,000), financial activities (16,000), professional and business services (22,000), and health care (15,000). Sectors seeing a drop in employed persons include government (17,000) and manufacturing (36,000). The labor participation rate rose 0.1 percentage point to 63.3%, and the employment-population ratio remained at 61.0%. The average workweek remained at 34.4 hours for October. Average hourly earnings rose by $0.06 to $28.18. Over the last 12 months ended in October, average hourly earnings have risen 3.0%.

·         FOMC/interest rates: The Federal Open Market Committee did not meet in November. Following October's interest rate decrease, the target range remains at 1.50%-1.75%. The Committee next meets December 10-11.

·         GDP/budget: According to the second estimate for the third-quarter gross domestic product, the economy accelerated at a rate of 2.1%, up from the second quarter's 2.0% annual growth rate. The first quarter saw an annualized growth of 3.1%. Growth in consumer spending (personal consumption expenditures), which accounts for roughly two-thirds of the GDP, slowed to 2.9% from the second quarter's 4.6%. Consumer prices for goods and services grew by 1.5% in the third quarter compared to an increase of 2.4% in the second quarter. A positive from the report comes from residential investment, which rose 5.1% — the first positive contribution to the GDP since 2017. October, the first month of the new fiscal year for the federal government, saw the budget open with a deficit of $134.5 billion ($100.5 billion in October 2018). The government spent roughly $380 billion in October and had receipts of $245.5 billion. Most of the government outlays were for Social Security ($89 billion), national defense ($71 billion), and Medicare ($56 billion). Individual income taxes accounted for the majority of receipts ($126 billion), followed by social insurance and retirement receipts ($90 billion).

·         Inflation/consumer spending: According to the Personal Income and Outlays report, inflationary pressures remain weak, as prices for consumer goods and services rose 0.2% in October, the first increase since July. Prices are up 1.3% over the last 12 months. Consumer prices excluding food and energy rose 0.1% in October (0.0% in September) and are up 1.6% year-over-year. Personal income and disposable (after-tax) personal income receded for the first time in several months in October. Personal income showed no gain after advancing 0.3% in September. Disposable personal income dropped 0.1% after climbing 0.3% the prior month. Despite a dip in income, consumers continued to spend. Personal consumption expenditures increased 0.3% in October after expanding 0.2% in September.

·         The Consumer Price Index climbed 0.4% in October following no change in September. Over the 12 months ended in October, the CPI rose 1.8%. Energy prices increased 2.7% on the month with gasoline up 3.7%. Prices less food and energy rose 0.2% in October after increasing 0.1% the previous month. Since last October, core prices (less food and energy) are up 2.3%.

·         Prices producers receive for goods and services rose 0.4% in October, after falling 0.3% in September. The index increased 1.1% for the 12 months ended in October, the smallest rise since a 1.1% increase in the 12 months ended October 2016. Prices for goods jumped 0.7% in October while prices for services advanced 0.3%. Pushing goods prices higher in October was a 2.8% spike in energy prices. The index less foods, energy, and trade services inched up 0.1% in October after no change in September.

·         Housing: The housing sector has been anything but consistent this year. After plunging 2.2% in September, sales of existing homes rebounded in October, jumping 1.9%. Year-over-year, existing home sales are up 4.6%. Existing home prices continued to drop in October, as the median price for existing homes was $270,900, down from September's median price of $272,100. Nevertheless, existing home prices were up 6.2% from October 2018. Total housing inventory at the end of October sat at 1.77 million units (representing a 3.9-month supply), down approximately 2.7% from September and 4.3% from one year ago (1.85 million). New single-family home sales also fell in October, dropping 0.7% from their September estimate, although sales are more than 31% ahead of last year's pace. Unlike prices for existing homes for sale, new home prices rose in October. The median sales price was $316,700 ($310,200 in September) and the average sales price was $383,300 ($366,900 in September). Available inventory, at 5.3-month supply, remained about the same in October as it was in September.

·         Manufacturing: Manufacturing and industrial production continued to lag in October. According to the Federal Reserve, industrial production fell 0.8% in October after falling 0.3% (revised) in September. Manufacturing output declined 0.6% following a 0.5% drop the prior month. Much of the decline in manufacturing in October was due to a drop of 7.1% in the output of motor vehicles and parts that resulted from a strike at a major manufacturer of motor vehicles. In October, mining output fell 0.7% (-1.3% in September), while utilities decreased 2.6% after climbing 1.4% in September. Total industrial production was 1.1% lower in October than it was a year earlier. Following a September decrease, new orders for durable goods rose 0.6% in October. Excluding transportation, new orders increased 0.6%. Excluding defense, new orders expanded by 0.1%. Helping drive the increase in durable goods orders were expansions in nondefense aircraft and parts (10.7%), defense aircraft and parts (18.1%), fabricated metal products (1.8%), machinery (1.3%), and computers and related products (2.4%). New orders for capital goods (used by businesses to produce consumer goods) grew 5.4% in October after falling 2.8% in September.

·         Imports and exports: Both import and export prices remained soft in October. Import prices fell 0.5%, driven by lower petroleum prices. Import prices excluding petroleum dropped 0.1%. Over the last 12 months ended in October, import prices are down 3.0% — the largest over-the-year decline since the index fell 3.7% during the period ended July 2016. Export prices fell 0.1% in October following a 0.2% decline in September. Overall, export prices dipped 2.2% over the past year, the largest 12-month decrease since a 2.4% decline in August 2016. Agricultural export prices rose 1.9% in October, while nonagricultural prices for items such as consumer goods, automobiles, and industrial supplies and materials receded 0.3%. The latest information on international trade in goods and services, out November 5, is for September and shows that the goods and services deficit was $52.5 billion, $0.9 billion less than August's $55.0 billion deficit. September exports were $206.0 billion, $1.8 billion less than August exports. September imports were $258.4 billion, $4.4 billion under August imports. Year-to-date, the goods and services deficit increased $24.8 billion, or 5.4%, from the same period in 2018. Exports decreased $7.0 billion, or 0.4%. Imports increased $17.8 billion, or 0.8%. The advance report on international trade in goods (excluding services) revealed the trade deficit fell to $66.5 billion in October, down from $70.5 billion in September. However, both export and import trading slowed in October. Exports of goods were $135.3 billion, $0.9 billion less than September exports. Imports of goods were $201.8 billion, $5.0 billion less than September imports.

·         International markets: The third-quarter gross domestic product for Germany inched up 0.1% following a 0.1% drop in the second quarter. While consumer spending advanced 0.4%, the main source of growth in the third quarter was net foreign trade where exports increased 1.0%, far exceeding imports, which grew a scant 0.1%. Global price inflation continues to lag. Consumer prices in Japan showed no growth in October and are up only 0.2% over the last 12 months. Great Britain saw consumer prices fall 0.9% in October. On the other hand, China's consumer prices rose 0.9% in October and are up 3.8% for the year.

·         Consumer confidence: Consumer confidence fell in November following a slight decrease the prior month. The Conference Board Consumer Confidence Index® registered 125.5 in November, down from 126.1 in October. The Present Situation Index — based on consumers' assessment of current business and labor market conditions — decreased from 173.5 to 166.9. The Expectations Index — based on consumers' short-term outlook for income, business and labor market conditions — increased from 94.5 in October to 97.9.

Eye on the Month Ahead

December is typically a slow month for trading. Last December saw stocks plummet, but economic signs in the United States are fairly encouraging. The Federal Reserve reduced interest rates three times so far in 2019, but it is less likely to drop rates again this month. Employment is expected to remain strong, while inflation, fixed business investment, and manufacturing may continue to show weakness.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

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