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Weekly Economic and Financial Commentary: Parsing Economic Data while Awaiting Election Results

U.S. Review

Parsing Economic Data while Awaiting Election Results

  • As of this writing, the outcome of the U.S. presidential election is undecided. Joe Biden, however, appears likely to become president based off of his growing lead in several key states.
  • Total payrolls rose by 638K in October. Growth continues to slow, however. The unemployment rate fell to 6.9%.
  • The FOMC made no major changes to monetary policy, although did acknowledge the downside risk of rising COVID cases throughout the country.
  • The ISM manufacturing index soared to 59.3 in October. By contrast, the ISM services index declined to 56.6.

Parsing Economic Data while Awaiting Election Results

The U.S. elections commanded all of the attention this week. As of this writing, the race for the White House remains undecided. Joe Biden, however, appears likely to become president based off of his growing lead in several key states. Regardless of who wins, it appears likely that the next president will face a divided Congress (more on this in the Topic of the Week). All eyes are on the election, but it was also a week replete with impactful economic data.

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The week began with an update on conditions in the manufacturing sector. The ISM manufacturing index soared to 59.3 in October. The monthly jump was propelled by sizable gains in new orders, inventories and employment. The improvement was also well ahead of expectations and marked the highest reading since 2018. The recent strength in the factory sector is partially owed to the swift rebound in COVID-related goods spending, which has led to a draw-down in inventories and spurred a jump in new orders from wholesale and retailers.

By contrast, the services side of the economy is having a tough time getting back on track. During October, the ISM services index declined to 56.6. The close-contact nature of many services has prevented a faster recovery such as we have seen in manufacturing.

The COVID crisis has led to a similar divergence in residential and commercial construction. Total construction spending rose 0.3% in September and overall outlays are up 4.1% year to date. All of the recent strength in construction spending, however, has been in the residential sector. Record low mortgage rates and shifting preferences for more livable space to accommodate home offices and remote learning has been a boon for single-family development. On the other hand, sluggish demand for commercial space as well as heightened economic uncertainty continues to hold back nonresidential construction.

The employment report for the month of October capped off the week. Total payrolls rose by 638,000 during the month, above expectations. While slowing slightly, job growth maintains strong momentum. That being said, private sector hiring picked up somewhat, adding 906,000 jobs during the month. For the second-straight month, government payrolls contracted by over 200,000 jobs, mostly a result of temporary Census workers coming off the books. The unempl