INDICATOR: November Industrial Production and Housing Starts and October Job Openings

KEY DATA: IP: +1.1%; Manufacturing: +1.1%/ Starts: +3.2%; 1-Family: +2.4%; Permits: +1.4%; 1-Family: +0.8%/ Openings: +235,000; Hires: -187,000

IN A NUTSHELL: “It is nice to see manufacturing rebound, but it isn’t booming and neither is the housing sector.”

WHAT IT MEANS: Now that the immediate threat of an all-out trade war has dissipated, we can actually spend some time looking at the real economic data. So, what are they telling us? The economy continues to expand moderately. Manufacturing output surged in November, but the gain simply recouped the large decline posted in October. Since November 2019, manufacturing production is down 0.8%. That pretty much sums things up. Given Boeing’s decision to take a hiatus from building and storing the 737 Max planes, look for output to be down further. That is because aerospace production was up 1.1% over the year. Looking at the industries, the only one that has boomed in the last twelve months is computers. Every one of the nondurable sectors has reduced output in the past year. Six of the eleven durable components were down.

On the heels of the huge rise in NAHB/Wells Fargo Housing Market Index, to its highest level in over 20 years, you would have expected that housing starts surged in November. Well, they were up, but only moderately. For the year, construction was up less than one percent and that was all in multifamily buildings. Single-family starts were off modestly. In November, the single-family construction rose somewhat less than multi-family activity as well. A huge building boom in the South propelled the total upward. Activity in the West rose modestly and starts were down in the Northeast and Midwest.

As for the labor markets, job openings rose solidly in October. Whether that signals a change in the downward trend that has been underway for the past year is unclear. But it is nice to see the number rise. At the same time, hiring slowed. The Bureau of Labor Statistics data on hires has bounced around quite a bit for the past eighteen months but when you smooth is out, the trend is largely flat. That pretty much mirrors what we are seeing in the monthly job numbers. The number of workers quitting their jobs also rose, but the rate was constant. The relatively limited level of movement is helping firms keep wages down.

MARKETS AND FED POLICY IMPLICATIONS: The economy is in decent shape, but it is hardly booming along. Boeing’s decision to stop assemblies for a while will put a damper on the economy, but it is not clear by how much. Undoubtedly, first quarter 2020 growth will take a hit, but that could be unwound once the plane is allowed to fly again. I assume that will eventually happen, but since it is unclear when, it is impossible to put a number on the impact on growth. As for the rest of the economy, there are no leaders of the pack. No sector has stepped up and taken charge of driving the economy forward. That is not a sign of weakness. It just means the status quo will continue to be the status quo. In other words, what you are seeing is likely to be what you will be getting. For the Fed, that means no moves for quite a while. For investors, it means they don’t have to fret a recession in the near term but they cannot assume strong growth will reappear and that earnings will soar.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.