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Economic Week in Review: Job picture gets murky

October 25, 2013

A much anticipated employment report—the first major gauge of the economy released after the end of the partial federal government shutdown—revealed that the labor market isn't growing as fast as economists hoped.

Although the unemployment rate ticked down in September, job growth came in below expectations. This appeared to affirm the Federal Reserve's hesitation about pulling back its aggressive stimulus program until the economy shows more substantial signs of improvement.

For the week ended October 25, 2013, the S&P 500 Index was up 0.9% to about 1,760 (for a year-to-date total return—including price change plus dividends—of about 26%). The yield of the 10-year U.S. Treasury note was down seven basis points to 2.53% (for a year-to-date increase of 75 basis points).

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Job growth slower than expected

The U.S. economy added 148,000 jobs in September, below analysts' expectations for an increase of 180,000. The sluggishness stemmed from weaker- than-expected hiring in private services, including leisure and hospitality and health care.

Meanwhle, a separate household survey showed the unemployment rate declined slightly to 7.2%, the lowest rate since November 2008. Unlike previous months, when the employment rate fell because people dropped out of the labor force, September's figures declined because more people found jobs and fewer of them lost their jobs. Still, 11.3 million people remained unemployed.

Federal Reserve officials are watching the employment data closely because their decision to draw back the government's $85 billion-a-month bond-buying program largely depends on improvements in the overall economy, including the labor market.

"Because there weren't as many new jobs added to the economy in September, it dragged the monthly average for 2013 down to 178,000," said Vanguard economic analyst Vytas Maciulis. "The next employment situation report, which will be delayed by a week due to the government shutdown, will provide some indication of the impact that uncertainty in Washington is having on the labor market and broader economy."

U.S. employment chart

Sales of previously owned homes slip, but prices rise

Existing-home sales dropped 1.9% in September, to a seasonally adjusted annual rate of 5.29 million from 5.39 million in August. Single family and condo sales retreated last month partly because higher mortgage interest rates and rising prices weighed on consumer demand. Despite the month-over-month decline, sales of previously owned homes remained 10.7% higher than in September 2012.

The median existing-home price fell to $199,200 in September from $209.700 in August, but remained 11.7% higher than a year ago. According to Freddie Mac, the 30-year, conventional, fixed-rate mortgage rose to 4.49% in September from 4.46% in August—the highest rate since July 2011, when it was 4.55%.

"Affordability has fallen to a five-year low as home price increases easily outpaced income growth," said Lawrence Yun, chief economist at the National Association of Realtors, in a statement. "Expected rising mortgage interest rates will further lower affordability in upcoming months. Next month, we may see some delays associated with the government shutdown."

Construction spending moved up

Construction spending rose 0.6% in August to an annual rate of $915.1 billion—a 7.1% increase from a year ago, and the highest level since April 2009. Private residential construction spending, which increased 1.2% in August, accounted for much of the gain. Spending on new single-family homes notched up 1.6%, while spending on new multifamily homes climbed 3.2%. Private nonresidential construction spending had a more modest increase of 0.1%. Public construction spending rose 0.4% in August. However, there are concerns that uncertainty around U.S. fiscal policy may restrict federal aid to states and constrain construction of federal facilities.

Durable-goods orders rise

Factory orders for durable goods jumped 3.7% in September from 0.2% in August. New orders were driven by commercial aircraft orders. Transportation-related orders rose 12.3%. Outside of transportation, new orders declined 0.1%. Core capital goods orders, often used as a proxy for business investment, fell 1.1%. Some analysts are concerned slower economic growth and uncertainty about the government sector may be softening business investment.

U.S. trade gap widens a bit

The U.S. trade deficit widened slightly in August, as exports slipped 0.1% and imports remained unchanged. Exports of goods and services declined primarily because of a decrease in nonpetroleum trade. Although there was a large demand for U.S. automobiles, there wasn't as much excitement about industrial products. Global trade appears to have cooled off. Trade with the Pacific region was more robust than with Europe. The exception was Japan, as imports from that country rose because of the weaker yen.

The economic week ahead

Next week will be a busy one for those following economic reports. Here's a list of what's on tap: industrial production (Monday); Producer Price Index, retail sales, and the Conference Board's Consumer Confidence data (Tuesday); Consumer Price Index and the Federal Open Markets Committee's release (Wednesday); and the ISM Manufacturing Index (Friday).

Summary of major economic reports
Date Report Actual
value
Consensus
expected value
10-year note yield S&P 500 Index
October 21 Existing-Home Sales (September, annualized)
Source: National Association of Realtors
5.29 million 5.39 million +3 bp 0.0%
October 22 Unemployment Rate (September)
Source: Labor Department
7.2% 7.3% –9 bp +0.6%
Nonfarm Payrolls (September)
Source: Labor Department
+148,000 +160,000    
Construction Spending (August)
Source: Commerce Department
+0.6% +0.6%    
October 23       –3 bp –0.5%
October 24 Initial Jobless Claims (week ended October 19)
Source: Labor Department
350,000 340,000 +2 bp +0.3%
  U.S. Trade Balance (August)
Source: Commerce Department
–$38.8 billion –$39.5 billion    
October 25 Durable-Goods Orders (September)
Source: Commerce Department
+3.7% +0.1% 0 bp +0.3%
      Weekly change –7 bp  +0.9%

bp=basis points. 100 basis points equal 1%. For example, if a bond's yield rises from 5.0% to 5.5%, the increase is 50 basis points.

Notes

  • The economic statistics presented in this report are subject to revision by the agencies that issue them. For more information on the reports mentioned in this article, read our Guide to major U.S. economic reports.
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  • Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
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