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Most of last week’s economic news indicated that forward momentum continues in a recovery that is slowly gaining traction. And the latest jobs report came in much better than expected, hinting that even the lagging labor market has gotten closer to ending that sector’s continuing recession.
 Equities returned to the win column for the week as financial jitters over Dubai World eased and economic news was mostly encouraging—especially the jobs report for November. Traders returned to work after a long Thanksgiving weekend and were happy to see that concern over Dubai World’s debt restructuring was not leading to contagion in the financial markets. The conclusion that U.S. banks had little exposure helped settle equities which started the week with a modest rebound.
While the biggest economic news was on Friday, the biggest equity gains generally were on Tuesday—and based on a variety of positive economic data. Encouraging news started before open as a survey of manufacturing in China indicated that growth in Chinese manufacturing was at its strongest in five years. Also, the severity of Dubai World’s problems lessened somewhat as Dubai World needed to restructure less than earlier believed. Although the ISM manufacturing index was not quite as positive as hoped, a stronger-than-expected gain in pending home sales helped lift equities.
At mid-week, the Fed’s Beige Book was moderately positive. Equities were mixed but generally up slightly as some investors took the Fed anecdotal report to be about as expected and others saw it as slightly beating expectations.
Economic news was mixed on Thursday even though a surprisingly sharp drop in the level of initial jobless claims boosted stocks initially. The initial euphoria was damped by a fall in the ISM non-manufacturing index below the breakeven mark. Late in the day, Bank of America weighed on financials with its huge equity offering—spurring concern that other banks might do the same.
As would be expected, much better-than-expected numbers for the November employment situation sent equities up sharply early in the day on Friday. But by close, stocks had come down significantly as many traders simply worried that equities have gotten too far ahead of economic conditions. Also, the dollar jumped on the release of the jobs report and weighed on materials and energy sectors. Still, for the day and week, most indexes posted moderate to sizeable gains.
Equities were up this past week. The Dow was up 0.8 percent; the S&P 500, up 1.3 percent; the Nasdaq, up 2.6 percent; and the Russell 2000, up 4.4 percent.
For the year-to-date, major indexes are up as follows: the Dow, up 18.4 percent; the S&P 500, up 22.4 percent; the Nasdaq, up 39.1 percent; and the Russell 2000, up 20.7 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Treasury yields rose significantly this past week. There were several key themes—reversal of flight to safety, stronger-than-expected economic data, and rising equity prices. Concern over Dubai World’s debt restructuring eased early in the week, helping Treasury rates to firm. Economic news was generally positive. Standout upside surprises during the week included a healthy gain in pending home sales, sharply lower initial jobless claims, and the November employment situation. Somewhat offsetting were disappointing data ISM manufacturing and ISM non-manufacturing. For most of the week, equity gains pulled funds out of Treasuries, supporting a rise in rates.
For this past week Treasury rates were up as follows: 3-month T-bill, up 2 basis points; the 2-year note, up 16 basis points; the 5-year note, up 21 basis points; the 7-year note, up 27 basis points; the 10-year bond, up 28 basis points; and the 30-year bond, up 21 basis points.
 Despite mostly encouraging economic news this past week, the spot price for West Texas Intermediate was down just over a buck a barrel for the week. Price pressure was on the upside, however, the first two days of the week, reflecting the Iranian seizure of a British yacht and a rise in Chinese manufacturing activity.
A jump in oil inventories bumped prices down at mid-week. Slippage in the ISM non-manufacturing index more than offset a fall in initial jobless claims on Thursday. You would think that the better-than-expected payroll employment and unemployment rate number would boost oil prices at week end. But a surge in the dollar trumped the jobs report, pushing down the price of crude.
Net for the week, spot prices for West Texas Intermediate declined $1.02 per barrel to settle at $75.03.
The highlight of the past week was an unexpectedly improved employment situation. Other economic news was mixed but mostly on the positive side. Essentially, the recovery continues but unevenly by sector and month to month.
 No, payroll employment has not yet returned to positive territory—but it came close for November. Payroll jobs barely moved down while the unemployment rate actually eased. Nonfarm payroll employment in November edged down only 11,000, following a revised decline of 111,000 in October and a revised decrease of 139,000 in September. October and September revisions were up 159,000 net (less worse) for the two months.
Several big things stand out from the payroll numbers. The November contraction in payroll employment was far better than the market forecast for a 100,000 decrease. The revisions to September and October were significantly upward. And the loss was close to breakeven—about as close as you can get to being positive without being positive. November’s dip was the smallest since the start of recession.
 Improvement in November payroll numbers was due both to a less negative goods-producing sector and a gain in jobs in the service-providing sector. Goods-producing jobs declined 69,000 in November, following a 113,000 drop the month before. Construction jobs decreased 27,000 while manufacturing decreased 41,000 and mining slipped 1,000.
There were two leading indicator type series in the report that were encouraging. First, temporary help services were up a strong 52,000 after a healthy 44,000 boost in October. This category has been up for four months in a row. Businesses tend to hire temps before hiring permanent workers. Next, the average workweek points to pending improvement in hiring as the workweek rose to 33.2 hours in November from 33.0 hours in October. Employers typically boost the workweek before adding to their workforce during recovery.
Good for the Fed but not-so-good for consumers, wage inflation eased as average hourly earnings in November edged up only 0.1 percent, following a 0.3 percent boost the prior month.
Wage growth has been soft for some time as the year-ago pace slowed to 2.2 percent in November from 2.5 percent the month before.
From the household survey, the unemployment rate fell back to 10.0 percent from 10.2 percent in October. However, the November decline may have been a statistical correction from October’s four-tenths spike. The household survey is much smaller than the payroll survey and is more volatile on a monthly basis.
 Unemployment remains high, though, and it is worse when looking at the rate of underemployment. The percent of unemployment, marginally attached workers, and part-time for economic reasons slipped to 17.2 percent from 17.5 percent in October. Nonetheless, the downtick for November will provide some modest psychological boost for markets and consumers.
The latest employment report was a pleasant surprise. Although the labor market is still in recession, it appears that the return to positive job growth is a little closer than previously believed. Still, there is no compelling evidence that the overall recovery is going to be robust—sluggish is still the operative word. Also, most economists still expect the unemployment rate to rise significantly in coming months as discouraged workers return to the labor force as it becomes apparent that companies are hiring.
 Modestly encouraging news comes from the auto sector. Sales continued to rebound despite the absence of new government incentives and despite the weak jobs market. Combined domestic and import sales rose to 10.9 million units annualized from 10.5 million in October and the recent low of 9.2 million in September. The cash-for-clunkers program ended in August as sales surged to 14.1 million that month. While October and November posted gains, they should be seen in the context of “returning to normal”—at least relative to pre-clunkers. Still, November’s pace is moderately above the 9.2 million to 9.7 million pace at the start of 2009.
Even better news is that domestic producers have been gaining share recently. Sales of domestic-made vehicles came in at an 8.2 million annual rate in November, sizably above the 7.9 million pace in October. Import model sales also gained but rose more modestly—to 2.8 million units from 2.7 million in October.
 The construction sector continues to head in divergent directions with housing improving but being offset with declines in nonresidential and public outlays. Overall construction spending was unchanged in October after dropping a revised 1.6 percent in September. For the latest month private residential outlays jumped 4.4 percent after a 2.0 percent decline in September. In contrast, private nonresidential fell 2.5 percent in October while public outlays dipped 0.4 percent in the latest month.
 On a year-ago basis, overall construction outlays improved to minus 14.4 percent in October from minus 15.8 percent the previous month. But the recent monthly negatives for public sector and private nonresidential construction have tugged down on their year-ago numbers. On a year ago basis, public construction eased to 3.8 percent in October from 5.1 percent the month before. Private nonresidential worsened to minus 20.6 percent from minus 17.9 percent in September. In contrast, private residential has been improving, moving to down 23.6 percent from down 31.6 percent the month before.
The bottom line is that recovery in construction is not going to be even. While housing has slowly established an uptrend over recent months, this sector and overall economic growth are now being damped by weakness in commercial and public sector construction.
 Pending home sales in October continued to be boosted by fears of missing out on a big tax credit. The tax credit for first time homebuyers originally was scheduled to end at close of business on November 30. Pending home sales jumped 3.7 percent in October to 114.1, adding to September's even more impressive 6.0 percent gain. Pending home sales are based on contract signing and usually take several weeks to close. Hence, pending home sales were boosted in earlier months as the original tax credit deadline was based on closing rather than contract signing.
Year-on-year pending home sales are up 31.8 percent. Now the question is whether the extended and expanded homebuyer tax credit can keep home sales positive. It will take several months to see whether forward momentum has been maintained.
 The latest ISM manufacturing report indicates that this sector continues to grow despite modest slippage in the headline index. The ISM's composite manufacturing index edged back 2.1 points to 53.6. But the number was still in positive territory. For a diffusion index, positive numbers are comparable to positive growth rates for other indicators such as industrial production. Importantly, the new orders index rebounded to 60.3 from 58.5 in October. New orders have been moderately strong for several months, pointing to future growth in production. Export orders, benefiting from the weak dollar, were also strong, up 1/2 point to 56.0.
 The services and construction sectors weakened in November as the ISM's non-manufacturing composite index tumbled backwards, down nearly 2 points to a sub-50 and sub-par 48.7. This composite had been marginally positive in September and October. However, the November dip appears to be temporary as the new orders index remained clearly above break-even, coming in at 55.1—close to October's even more positive 55.6.
According to ISM, the key declining industries for the composite in November were real estate, rental & leasing; and management of companies & support services
Improvement in jobs, however, is still the central focus and the latest report was very downbeat with an index of 41.6 to show significant deterioration. The bottom line is that the non-manufacturing sector—based on orders—is still in recovery mode, albeit a very sluggish one.
According to the latest Beige Book from the Fed District Banks, the recovery is continuing to improve. And when you compare the careful tweaking of Fed wording, Fed regional contacts appear to be marginally more positive about the economy. The latest Beige Book from the Fed stated “economic conditions have generally improved modestly since the last report.” The Beige Book commentary dropped its previous emphasis on “stabilization” of the economy and is a little more positive. Eight Districts indicated some pickup in activity or improvement in conditions, while the remaining four--Philadelphia, Cleveland, Richmond, and Atlanta--reported that conditions were little changed and/or mixed.
Even though overall conditions appear to be the best since the start of recession two years ago, the economy is still quite mixed.
Consumer spending was said to have picked up moderately for both general merchandise and motor vehicles. Manufacturing is steady to moderately improving across most of the U.S. Residential real estate had improved with sales up somewhat but from very low levels and led by the lower end of the market. Home prices, however, were flat or declining modestly. Commercial real estate was depicted as very weak or even deteriorating. Vacancy rates generally are rising.
Financial institutions are still having problems. Loan demand is steady or weaker with credit standards still tight. Loan quality is still deteriorating. The weakness appears to have been concentrated in the commercial sector.
Labor market conditions remain weak. Layoffs continue but at a reduced pace in many Fed Districts. Districts generally reported little or no upward wage pressures. However, some Districts noted upward pressure in commodity prices. Selling prices generally were stable.
Overall, the latest Beige Book indicates that the recovery is still on track but at a soft pace. Conditions are much as the Fed anticipated in the last FOMC minutes and forecast.
The recovery is slowly improving but it is a choppy process. Despite the better-than-expected employment report for November, the consumer sector is still tepid. Housing is improving but commercial construction is worsening. Manufacturing is on an uptrend but it is not getting much support outside of exports. Overall, the economy is on track for a modest recovery but with plenty of patchiness.
After last week’s unexpectedly exciting employment report, this week’s news should be a little tamer. But maybe not by a lot—manufacturers will be watching to see if exports are up in Thursday’s international trade report. And there will be an update on the all important consumer sector with retail sales on Friday.
Consumer credit outstanding fell $14.8 billion in September to extend a long run of declines. Revolving credit, mostly credit cards, fell $9.9 billion with non-revolving, mostly car loans, down $4.9 billion. Consumer credit likely will continue to contract in October but a rebound in auto sales for the month probably will boost the non-revolving components and soften the overall decline.
Consumer credit Consensus Forecast for October 09: -$8.8 billion
Range: -$9.5 billion to -$5.5 billion
The U.S. international trade gap in September widened to $36.5 billion from $30.7 billion worth of red ink in August. Exports rose 2.9 percent while imports jumped 5.8 percent. The worsening of the trade deficit was led by a wider petroleum shortfall which came in at $20.5 billion compared to $16.6 billion the previous month. The nonpetroleum gap increased to $25.9 billion from $24.3 billion in August. Looking ahead, the sneak peak indicators are mixed. First, there could be a drop in auto imports from Canada as not as many are needed with cash for clunkers having concluded. But a drop in shipments of nondefense capital goods in October could show up in lower capital goods exports. Also, higher oil prices will cut into any potential improvement in the trade gap.
International trade balance Consensus Forecast for October 09: -$36.4 billion
Range: -$38.0 billion to -$35.0 billion
Initial jobless claims fell 5,000 in the November 28 week to 457,000, extending a run of impressive improvement. Continuing claims for the November 21 week rose slightly to 5.465 million with the insured-workers unemployment rate steady at 4.1 percent, well down from a summer peak of 5.2 percent.
Jobless Claims Consensus Forecast for 12/5/09: 460,000
Range: 450,000 to 500,000
The U.S. Treasury monthly budget report showed a massive $176.4 billion deficit in October, the first month of the government's fiscal year. The year-ago October deficit was $155.5 billion. Latest receipts were down a year-on-year 18 percent with outlays up 6 percent. Looking ahead, the month of November typically shows a deficit for the month. Over the past 10 years, the average deficit for the month of November has been $68.4 billion and $95.3 billion over the past 5 years. The November 2008 deficit came in at $165.4 billion.
Treasury Statement Consensus Forecast for November 09: -$135.0 billion
Range: -$170.0 billion to -$100.0 billion.
Retail sales in October rebounded 1.4 percent after a revised 2.3 percent fall in September. The October jump in overall sales was led by a 7.4 percent rebound in auto sales after a 14.3 percent plunge in September. Excluding motor vehicles, retail sales improved 0.2 percent, following a 0.4 percent rise in September. Excluding motor vehicles and gasoline, retail sales increased 0.3 percent, matching September’s gain. Looking ahead indicators are mixed. Motor vehicle sales were up again for November but department store sales were soft for the month as a whole. Net, there likely will be a sizeable rise in retail sales for November, led by autos.
Retail sales Consensus Forecast for November 09: +0.9 percent
Range: +0.5 to +1.2 percent
Retail sales excluding motor vehicles Consensus Forecast for November 09: +0.5 percent
Range: +0.1 to +1.0 percent
The Reuter's/University of Michigan's Consumer sentiment index came in at 67.4 for November, up slightly from mid-month but down from 70.6 in October. The monthly drop was led by a weakening in current conditions with that index dropping to 68.8 from 73.7 in October. The expectations index slipped to 66.5 from 68.6. But with stock market gains and improvement in jobless claims, sentiment could rebound in early December.
Consumer sentiment Consensus Forecast for preliminary December 09: 68.2
Range: 67.0 to 70.0
Business inventories in September fell 0.4 percent. The decline in inventories was close to proportion to the decline in sales, which fell 0.3 percent. Softening the latest decline in business inventories was a boost in motor vehicles as dealers and auto parts stores added more than $4 billion to their inventories in September for a 3.8 percent surge and biggest since 1992. But more recently, manufacturers’ inventories posted a 0.4 percent gain in October, indicating we could see a rise in overall inventories for that month even though the consensus thinks otherwise. We will get additional information on wholesale trade inventories Wednesday, December 9.
Business inventories Consensus Forecast for October 09: -0.2 percent
Range: -0.7 to 0.0 percent
R. Mark Rogers is the author of The Complete Idiot’s Guide to Economic Indicators, Penguin Books, October 2009.
Econoday Senior Writer Mark Pender contributed to this article.
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