Market Coverage: Wednesday October 28th Yahoo Finance

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U.S. Economic Data Continues to Impress.

On Tuesday, durable goods orders for September, and Richmond Federal Reserve data for October, showed the manufacturing sector continues to top expectations.

Durable goods orders rose 1.9% while core orders rose 0.4%. Economists noted the headline figure was flattered by orders in the airline industry.

Meanwhile, the Richmond Fed’s manufacturing index hit a record high in October 29. This report marked the fourth-straight month of positive readings. The figure is a diffusion index, which captures the difference between the number of respondents saying conditions are getting better minus those saying things are getting worse.

Meanwhile, the report also showed a notable pre-pandemic trend of employers unable to find skilled labor.

“Survey results indicated that many manufacturers continued to increase employment and wages in October,” the Richmond Fed’s report said. “However, firms struggled to find workers with the necessary skills. Contacts expected these trends to continue in the next six months.”

Separately, a decent — though less enthusiastic — reading on consumer confidence on Tuesday also outlined an economic backdrop that remains stronger than many had feared after the CARES Act expired back in August.

The Conference Board’s reading on consumer confidence in October came in at 100.9, down from 101.3 last month but still right around the levels that prevailed just before the 2016 election. Additionally, the reading’s present situation index actually rose in October, while the expectations index declined modestly.

Ian Shepherdson at Pantheon Macroeconomic noted that the present situation measure tends to track unemployment while expectations is more tied to the stock market.

“It’s tempting to blame the latter on the drop in stocks in the first three weeks of September, but other factors, including the rising trend in COVID infections and the impact of the end of enhanced unemployment benefits, likely played a role too,” Shepherdson wrote.

Yet the economist noted that with household savings still elevated, “people have plenty of cash to spend on goods over the holidays, even as the services sector remains in the grip of COVID. The confidence data are good enough to suggest that a critical mass of people will have the inclination to go shopping, as well as the wherewithal.”

The situation echoes what we highlighted in the Morning Brief on Tuesday, in which we covered expectations from some economists of a record holiday shopping period.

But even with this recent batch of solid data, Wall Street economists still caution that a slowdown is ahead for a recovery that remains without additional fiscal support.

“Despite a strong housing sector and resilient consumer spending activity, economic momentum decelerated in September,” said Gregory Daco, chief U.S. economist at Oxford Economics, in a report published Tuesday.

“Retail sales experienced a late summer hurrah in September, while housing permits rose to their highest level since 2007, and existing home sales reached a 14-year high,” the economist noted.

“Still, nonfarm payrolls posted their slowest gain in this recovery, rising only 661,000, while industrial production fell 0.7%,” he added. “Fiscal aid is running dry, households are depleting their savings, the health situation is deteriorating, and the weather is cooling. All these factors will restrain activity in the coming months.”

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