Indicators offer good news, although GDP still shows big drop

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As the third quarter ends, Wednesday’s indicators offered positive news: the Chicago Business Barometer hit its highest level since December 2018, an “impressive” ADP employment report, soaring sales of pending homes, and two reads of manufacturing in the midwest suggesting expansion.

The Chicago Business Barometer gained to 62.4 in September from 51.2 in August. The reading was the highest since December 2018, and showed a rebound in business sentiment.

"All five main indicators saw monthly gains in September, with production and new orders leading the way," the report said. "On a quarterly basis, supplier deliveries was the only category to see a decline."

Economists polled by IFR Markets expected a 52.0 read.

Total nonfarm private payrolls gained by 749,000 in September, after climbing a revised 481,000 in August, initially reported as a 428,000 jump, ADP said Wednesday.

Economists projected a 605,000 jobs gain.

“The labor market continues to recover gradually,” according to Ahu Yildirmaz, co-head of the ADP Research Institute. “In September, the majority of sectors and company sizes experienced gains with trade, transportation and utilities; and manufacturing leading the way. However, small businesses continued to demonstrate slower growth.

Ed Moya, senior market analyst at OANDA said, the ADP report “impressed."

“The housing market is not cooling anytime soon," said Ed Moya, senior market analyst at OANDA .

“The ADP report highlighted strong hiring increases with small businesses (up from 52K to 192K), the service-providing sector (rising from 389K to 552K), and manufacturing jobs (surging from 9K to 130K),” he said. “Throughout the labor market recovery during COVID-19, ADP has underestimated the nonfarm payroll report, so investors might become a little more optimistic about Friday’s report.”

Pending home sales index
Pending home sales gained 8.8% in August, after a 5.9% jump in July, the National Association of Realtors said Wednesday.

Economists anticipated a 3.2% rise.

Year-over-year, sales are up 24.2%.

“Tremendously low mortgage rates — below 3% — have again helped pending home sales climb in August,” NAR chief economist Lawrence Yun said. “Additionally, the Fed intends to hold short-term fed funds rates near 0% for the foreseeable future, which should in the absence of inflationary pressure keep mortgage rates low, and that will undoubtedly aid homebuyers continuing to enter the marketplace.”

While Yun anticipated the housing sector would be “stable” when the virus shut things down,, he is “pleasantly surprised to see the industry bounce back so strongly and so quickly.”

This number “will not necessarily translate to a record number of home sales because not all contracts lead to closings and due to sampling size variations,” he said.

Moya said the housing sector remains the “bright spot.”

“Today’s pending home sales release was impressive with a record high increase in August, crushing the forecast,” he said. “The housing market is not cooling anytime soon, perhaps it will around the holidays.”

The last revision of gross domestic product showed a 31.4% decline in the second quarter on a seasonally adjusted annual basis, up from the earlier estimate of a 31.7% drop, , the Commerce Department said Wednesday.

Economists expected the final number to show an unrevised contraction of 31.7%. T

In the first quarter, GDP fell 5.0%.

“The ugly Q2 data was slightly revised better across the board, but nothing to brag about,” said Moya.

The personal consumption expenditures price index slid 1.6% in the second quarter in the final reading, compared to an estimated 1.9% decrease in the second reading . Excluding food and energy the core PCE price index dropped 0.8% in the final read, compared to a 1.0% dip in the earlier read.

“A [GDP] rebound in the third quarter [is] not enough to get us out of COVID canyon,” said Diane Swonk, chief economist at Grant Thornton. “We lose momentum every time cases surge.”

Chicago Fed Midwest index
The Federal Reserve Bank of Chicago's Midwest Economy Index suggested “above trend” growth in August.

The MEI increased to positive 1.59 in August from negative 3.58 in July, while the relative MEI widened to negative 5.98 in August from negative 4.38 in July.

Milwaukee PMI
The Institute for Supply Management-Milwaukee PMI rose to a seasonally adjusted 54.49 in September from 51.37 in August.

New orders rose to 63.28 from 58.15, production increased to 51.02 from 50.61 while employment dropped to 44.79 from 49.65.

Supplier deliveries climbed to 73.24 from 58.86, inventories crept to 40.10 from 39.56 and prices gained to 61.76 from 54.55.

The blue collar index grew to 53.7 in September from 49.7 in August, while the white collar index climbed to 50.8 from 45.1.

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Economic indicators Employment data Housing market Manufacturing industry Housing