Economic Landscape October 2022
MANUFACTURING
- The ISM manufacturing index declined to 50.9% in September, reflecting very modest growth in the factory sector. The index for new orders fell 4.2 points to 47.1% pointing to slower growth in the pipeline. Employment contracted in the sector, but this may still represent more of a supply shortage than a demand issue. Supplier delivery times and order backlogs indicate some easing of pressures in the supply chains. The ISM Prices Index fell 0.8 points to 51.7%, the lowest reading since June 2020.
- Following a small decline in August, industrial production increased by 0.4% in September. Factory output rose for the third straight month, up 0.4% for September, with notable gains in computers and electronics; appliances; motor vehicles and parts; apparel and leather; food, beverage, and tobacco products; and petroleum and coal products. Mining production rose 0.6% for the month, while utilities output declined by 0.3%. The capacity utilization rate advanced 0.2 percentage points in September to 80.3%, marking a 15-year high.
LABOR MARKETS
- Nonfarm payrolls rose by 263,000 in September with notable job gains in leisure & hospitality (+83,000); health care (+60,000); professional & business services (+46,000); and manufacturing (+22,000). The unemployment rate returned to a fifty-year low of 3.5%, and the labor force participation rate edged down to 62.3%.
- Job openings decreased by 1.1 million in August to 10.1 million. Hires rose modestly (+39,000), and total separations rose by 182,000. Within separations, layoff and discharges increased by 70,000, while quits rose by 100,000 and the quits rate remained 2.7%.
PRICES
- The Consumer Price Index came in higher than expected again in September, up 0.4%. While the cost of energy services such as gas and electric utilities continued to rise, the energy index fell by 2.1% as gasoline and fuel oil prices declined for the month. The rise in food prices was a repeat of August, up 0.8% as the index for food at home (grocery prices) rose 0.7% and the index for food away from home increased 0.9%. Excluding food and energy, core consumer prices increased by 0.6% led by a 0.8% increase in core consumer services prices; core consumer goods prices were unchanged. Year over year, headline CPI ticked down to 8.2% in September while core CPI rose to 6.6%.
- The Producer Price Index for final demand rose 0.4% in September. Goods prices increased 0.4%, with food prices up 1.2% and energy prices up 0.7%; core final demand goods prices were unchanged; services prices rose 0.4%.
- The index of U.S. import prices decreased 1.2% in September, the third consecutive monthly decline. Prices for fuel imports decreased by 7.5% as both petroleum and natural gas import prices fell. Nonfuel prices declined by 0.4% in September with the rise in prices for foods, feeds, and beverages more than offset by the drop in industrial supplies and materials prices. U.S. export prices declined by 0.8% for the month; agricultural export prices dropped 1.0% and nonagricultural prices decreased 0.9%.
SALES
- Headline retail sales were unchanged from August to September. Auto sector sales declined by 0.4%, and gas station sales fell by 1.4%; excluding those two categories, retail sales rose 0.3%. While sales did fall at furniture stores (-0.7%); electronics and appliance stores (-0.8%); home improvement stores (-0.4%); and sporting goods, hobby, musical instrument, and book stores (-0.7%), sales increased at grocery stores (+0.4%); clothing stores (+0.5%); department stores (+1.3%); online stores (+0.5%); and bars and restaurants (+0.5%). Overall, sales are up 8.2% year over year.
SIGNS OF WEAR
The U.S. economy has held up remarkably well this year, but impact of the Fed’s aggressive tightening is beginning to show. Declining new orders, fewer job openings, and the drag in the real estate sector all point to slowing momentum and a likely recession in 2023. Based on comments from Fed officials, it appears that the Fed believes that unemployment must go up and wages must go down in order to curb inflation. While energy prices have generally trended lower over the past few months, core consumer service prices have accelerated leaving the Fed on course for two additional rate hikes this year.