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The economy wavered this past week. Both the consumer and manufacturing sectors have turned into question marks. Meanwhile, housing, despite monthly oscillations, appears to still be on a modest uptrend.
 Stocks were down this past week on mostly disappointing economic news—U.S. and overseas—and renewed worries about European sovereign debt. At the start of the week, equities dipped as concerns over Greece and Spain mounted and a disappointing report on German business sentiment fueled worries about growth in the Eurozone. FedSpeak overshadowed moderately favorable economic news. Home prices were up according to Case-Shiller and FHFA and Richmond Fed manufacturing improved. Stocks retreated in the afternoon after Federal Reserve Bank of Philadelphia President Charles Plosser said the Fed’s new bond buying program probably would not boost growth or help reduce unemployment.
Equities declined at mid-week on a disappointing new home sales report that showed a modest decline for August instead an expected gain. Also, protests in Greece and Spain over austerity measures renewed worries about Europe.
 Stocks made a bit of a comeback Thursday despite mostly dismal economic news including a downward revision to second quarter GDP, a huge drop in durables orders, a dip in pending home sales, and a slowing in the Kansas City Fed manufacturing index. But there was a sizeable decline in initial jobless claims. The big news was from overseas. Spain announced a detailed timetable for economic reforms and a tough 2013 budget based mostly on spending cuts which actually exceeded recommendations by the European Union. And a Chinese official stated that China has severely underestimated this year's global economic slowdown, implying a higher probability for further stimulus ahead. At week’s close, equities were down on soft personal income, a disappointing Chicago PMI, and weaker than expected consumer sentiment.
Equities were down this past week. The Dow was down 1.0 percent; the S&P 500, down 1.3 percent; the Nasdaq, down 2.0 percent; the Russell 2000, down 2.1 percent; and the Wilshire 5000, down 1.4 percent.
Equities were up in September. The Dow was up 2.6 percent; the S&P 500, up 2.4 percent; the Nasdaq, up 1.6 percent; the Russell 2000, up 3.1 percent; and the Wilshire 5000, up 2.5 percent.
Equities were up in the third quarter. The Dow was up 4.3 percent; the S&P 500, up 5.8 percent; the Nasdaq, up 6.2 percent; the Russell 2000, up 4.9 percent; and the Wilshire 5000, up 5.5 percent.
For the year-to-date, major indexes are up as follows: the Dow, up 10.0 percent; the S&P 500, up 14.6 percent; the Nasdaq, up 19.6 percent; the Russell 2000, up 13.0 percent; and the Wilshire 5000, up 14.1 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Treasury yields declined this past week on mostly negative economic news and on flight to safety on concern about Europe.
Rates dipped Monday despite positive news from the Dallas Fed on manufacturing. Flight to safety was the main focus after Germany’s Ifo institute said its business-climate index,dropped to its lowest reading since February 2010. Economic news was actually favorable Tuesday but rates declined anyway. This largely was in reaction to Philly Fed President Charles Plosser stating in a speech that he believed the Fed’s latest round of quantitative easing would have little impact.
Treasury yields eased Wednesday mainly on concerns about Europe with protests taking place in Greece and Spain about austerity measures. Also, new home sales disappointed somewhat. Rates actually firmed Thursday on news that Spain made progress on deficit reduction and on an unexpectedly sharp drop in initial jobless claims. Other economic news was dismal but did not get bond trader attention as much. Rates were little changed on Friday.
For this past week Treasury rates were down as follows: 3-month T-bill, down 1 basis point; the 2-year note, down 3 basis points; the 5-year note, down 5 basis points; the 7-year note, down 8 basis points; the 10-year note, down 12 basis points; and the 30-year bond, down 13 basis points.
 The spot price of crude edged down the past week although there were a couple significant daily swings. The biggest daily movements were on Wednesday and Thursday. The spot price of West Texas Intermediate declined almost a buck and a half on Wednesday on news of lower oil demand from the government and on worries that Europe’s problems will lead to lower growth and softer demand. Crude settled below $90 per barrel for the first time in almost eight weeks. On Thursday, crude rebounded over $2 per barrel despite negative economic news in the U.S. Oil was lifted by hopes that China will engage in further stimulus and on news of Spain approving a 2013 austerity budget.
Net for the week, the spot price for West Texas Intermediate slipped 42 cents per barrel to settle at $92.19.
Not only was the economy sluggish in the third quarter but it was softer than earlier believed in the second quarter.
 Real GDP growth was unexpectedly revised down for the second quarter. The Commerce Department is now estimating growth at a mere 1.3 percent annualized pace, compared to the second estimate of 1.7 percent and advance estimate of 1.5 percent. The latest number is sharply slower than the 2.0 percent seen in the first quarter and especially the 4.1 percent boost posted for the fourth quarter of last year.
Downward revisions to components were widespread, including slower growth to personal consumption, nonresidential structures investment, and residential investment. Inventory growth was slower and net exports were somewhat more negative. Minor upward revisions were seen in equipment & software investment and government purchases dipped slightly less.
Final sales of domestic product increased a downwardly revised 1.7 percent, compared to an annualized 2.0 percent for the second estimate. Final sales to domestic purchasers (excludes net exports) were revised down to 1.4 percent annualized versus the second estimate of 1.6 percent.
The GDP price index was unrevised at a 1.6 percent annualized increase, matching expectations.
Overall, there was less forward momentum in the second quarter than earlier believed—partially explaining the softness in the third quarter.
 The consumer is getting less support from the economy but has not yet let up on spending. In August, income growth came in soft, spending was up on higher gasoline prices and autos, and inflation was high on the headline but modest on the core. Personal income in August rose a modest 0.1 percent after a gain of 0.1 percent the month before. Reflecting weak growth in jobs and hourly earnings, the wages & salaries component was sluggish with also a 0.1 percent rise and following the same pace in July.
Consumer spending continued to rise but this partly was due to higher gasoline prices. Personal consumption expenditures increased 0.5 percent in August, following a 0.4 percent boost in July. By components for spending, durables increased 0.3 percent after a 0.1 percent rise the prior month. On higher gasoline prices, nondurables jumped 1.7 percent, following a 0.8 percent gain in July. Services eased to 0.2 percent after a 0.3 percent gain the month before.
While spending was up in August, indeed much of it was price related—notably to gasoline. Real PCEs rose only 0.1 percent in August after a 0.4 percent gain in July and a 0.1 percent dip in June.
 On the inflation front, a bump in energy costs lifted headline inflation with the PCE price index jumping 0.4 percent in August, following a flat reading in July. The core rate was more modest with a 0.1 percent rise, after a 0.1 percent gain in July.
Year-on-year, headline prices were up 1.5 percent in August, compared to 1.3 percent in July. The core was up 1.6 percent in August, matching July’s pace.
The latest personal income report shows that the consumer sector is at risk of slowing further due to lack of income growth—which is heavily tied to employment gains. Spending has been moderately healthy and apparently related to a higher gasoline prices but also somewhat to pent up demand for autos. But spending growth could slow if income does not improve at a stronger pace. However, soft core inflation gives the Fed doves room to keep QE3 flowing.
 The consumer mood picked up in September on average but it appears there was some weakening in the latter part of the month.
According to the Conference Board’s consumer confidence index the consumer mood improved in September, jumping a very strong nine points to 70.3. This was the best reading since February and the third best reading of the whole recovery. This report stresses the consumer's improved assessment of the jobs market. Those saying jobs are currently hard to get fell seven tenths to 39.9 percent, which is the best reading since April. Those saying that jobs are plentiful rose, up 1.1 percentage points to a still however very modest 8.3 percent. Backing up these current readings was strength in the consumer's outlook for the jobs market where more see more jobs ahead and substantially fewer see fewer jobs.
Other readings include improvement in income expectations where, for the first time since June, optimists outnumber pessimists.
For the month on average, the Reuters/University of Michigan consumer sentiment index tells much the same story. But analysis of the final reading for September versus the mid-month reading indicates some deterioration in the consumer mood. Consumers saw the second half of this month as decidedly less positive than the first half, based on the consumer sentiment index which fell to 78.3 from 79.2 at mid-month. Still, the final September reading compares very well with 74.3 in August as well as July's 72.3. But throughout this two month run, at least until the last two weeks, the index had been climbing straight up to new recovery highs.
Softness the last two weeks was centered entirely in the assessment of current conditions which fell 2.6 points from mid-month to a final September reading of 85.7. This was three points below the final August reading which does not generally bode well for monthly economic data in September.
But expectations were a big positive, improving one tenth from mid-month to end at 73.5 which is up an extremely strong 8.4 points from August. Part of the rise in expectations is no doubt tied to the dip underway at the gas pump which is also reflected in inflation expectations. One-year expectations were at 3.3 percent, down two tenths from mid-month and down three tenths from August. Five-year expectations are at 2.8 percent, unchanged from mid-month and down two tenths from August.
 Housing has been the bright spot in the economy over the last few months. But the latest reports indicate that improvement is not at a smooth pace. New home sales slipped 0.3 percent in August to a 373,000 annual rate and followed a 3.6 percent gain in July. The curve for sales has flattened a bit the last couple of months but the longer term trend is still upward. Regional data were mixed showing monthly gains for three of the four regions but a third monthly decline for the South which is by far the largest region.
Supply has changed sharply since the worst of the recent recession. The big concern of homebuilders was when would supply come down to the point that new construction would be needed. It clearly appears that supply is down to that point. Supply is steady at low levels which is a plus for prices and will encourage builders to start new projects. Total adjusted new homes for sale were unchanged at 141,000 with supply at the current sales rate unchanged at 4.5 months.
Price readings in this report, which are not based on repeat transactions and are especially subject to volatility, showed rare gains for August. The median was up a record 11.2 percent in the month to $256,900 which was the highest reading since the bubble days of March 2007. The year-on-year rate of plus 17.0 percent was the highest since December 2004. The average price showed only slightly less shocking gains, up 9.1 percent in the month to $295,300 for a year-on-year rate of plus 13.9 percent.
Sales of new homes did not rise in August but the fundamentals are positive: low supply and rising prices.
 Pending home sales fell 2.6 percent in August pointing to a likely dip for final sales of existing homes. Low supply of houses on the market is a key factor holding down sales as are firming prices. Regional data showed a sharp fall for pending sales in the West where supply is especially tight. The Midwest and South also showed declines in the month with the Northeast showing a gain.
Existing home sales have been trending upward but not by very much. But the National Association of Realtors, which publishes the report, remains upbeat, noting that the year-on-year gain for this series, at 10.7 percent, is still very positive and that August may prove to be an outlier.
 Despite some mild retrenchment in home sales, home prices are pointing to improvement in demand. Home prices continued to trend higher in July, based on S&P Case-Shiller data that showed an adjusted 0.4 percent monthly gain for the 20 city index. This was the sixth straight monthly increase for the adjusted index though it is the slowest gain since February. Note that the index is a three-month average which points actually to very little change for July.
 Nevertheless, the report was very upbeat and stresses that gains are sweeping across the nation. At the top of July's data were Phoenix, Detroit, and Atlanta -- three cities that had in the past suffered sharp declines in home prices. The year-on-year rate for the 20 city index is up a solid five tenths to plus 1.1 percent which is the second straight positive reading and the sharpest gain in nearly two years.
Unadjusted data, which are tracked closely in this report, showed a solid 1.6 percent monthly rise that, however, is down from gains of 2.3 percent and 2.4 percent in the two prior months. The year-on-year rate, at plus 1.2 percent, is very close to the adjusted rate.
The FHFA house price index posted another advance, gaining 0.2 percent in July after rising 0.6 percent in June. Year-on-year, the index was up 3.7 percent, compared to 3.8 percent in July.
Six of the nine Census regions posted gains in July led by a 1.3 percent rise in the Mountain region and followed by a 1.0 percent rise in the West North Central region. Modest to moderate declines were seen in the East South Central, Middle Atlantic, and New England regions.
Home prices appear to be gaining traction, the result not of improvement in the jobs market but of easing supply as the number of distressed sales is coming down. Nonetheless, stabilization of the jobs market is encouraging those with a job to buy as are extremely low mortgage rates—part of the effect of the Fed’s Operation Twist and now QE3.
 It was a huge number for August durables orders—but in the wrong direction. Manufacturing lost significant momentum with nondefense aircraft leading the way down. New factory orders for durables plunged a whopping 13.2 percent (monthly) in August after a revised 3.3 percent boost in July. Excluding transportation, orders dipped 1.6 percent, following a 1.3 percent rise in July.
The transportation component fell 34.9 percent after a 13.1 percent gain in July. Leading the way down, civilian aircraft orders dropped a monthly 101.8 percent. Yes, that is more than 100 percent, meaning Boeing had more cancellations than new orders for the month, compared to the prior month. Motor vehicles also contributed to the drop in transportation orders, falling 10.9 percent after a 12.1 percent advance the prior month. Rounding out the transportation subcomponents, defense aircraft orders declined 8.1 percent in August.
Weakness was broad based outside of transportation with declines seen in all major industries except one. Electrical equipment rebounded in August.
The bottom line is that there is further evidence of significant slowing in manufacturing in August. More recent regional Fed surveys were mixed.
 August was not a good month for manufacturing. The early data for September are mixed with two of the three latest survey positive and one negative.
Texas factory activity increased in September as the production index rose from 6.4 to 10, suggesting stronger output growth. Forward momentum may be picking up somewhat as the new orders index rose to 5.3 following a reading of zero last month, suggesting a pickup in demand. The capacity utilization index advanced from 1.7 to 9.3, largely due to fewer manufacturers noting a decrease. The shipments index rose to 4.5, bouncing back into positive territory after falling to minus 2.3 in August.
Indexes reflecting broader business conditions were mixed. The general business activity index remained slightly negative but edged up from minus 1.6 to minus 0.9. The company outlook index was positive for the fifth month in a row but fell slightly to 2.4 from a reading of 4.1 in August.
Overall, the Dallas Fed report was slightly more positive (net) than other recent manufacturing reports.
 Manufacturing may be rebuilding momentum based on the Richmond Fed manufacturing index which rose to plus 4 in September from minus 9 in August for the first positive reading since May. And the gain included a rise in new orders which at 7 is also the first positive reading since May, and it compares with steep declines of minus 20 and minus 25 in the prior two reports. In a partial offset, backlog orders, at minus nine, continue to contract though the drawdown is growing much less severe.
Other readings include a second straight month of growth for shipments and at an increasing rate, along with an increase in capacity utilization. A negative in the report was a second straight month of contraction for employment.
In contrast to the mostly positive Dallas and Richmond reports, the Kansas City Fed survey showed weakening. The Kansas City composite index eased to 2 from 8 in August. However, the production index was more disappointing, declining to minus 4 from plus 7 in August. Momentum also slipped with the new orders index dropping to minus 2 from plus 11 in August. Part of the problem is weakness in export orders which remained in negative territory at minus 4 from minus 6 in August.
 However, hiring was marginally positive at 1 in September versus 2 the month before. But plant managers are cutting back on hours worked as the workweek index fell to minus 13 from minus 5.
Perhaps August was the bottom in the slowing in manufacturing but there are cross currents from slower growth in Asia and recession in much of Europe versus modest demand growth in the U.S. And some regions in the U.S. are likely to improve sooner than others.
Based on home prices on an uptrend and only mild retrenchment in sales, housing still appears to be on a modest uptrend. Manufacturing may have hit the bottom of a slowdown in August as some regional surveys show improvement in September. But the news definitely is mixed and with softer growth in Asia, recession in Europe, and a wavering consumer sector in the U.S. Basically, the strength of the economy is a notable question mark and fiscal policy needs to be addressed ASAP after the election to reduce uncertainty.
This week’s highlight is Friday’s employment situation report—the next to last before the presidential election. The consumer sector has been wavering and other readings on consumer health will be ADP employment, motor vehicle sales, and consumer credit. The manufacturing sector has softened and key updates include ISM manufacturing, Markit Economics PMI, and factory orders. The recent bright spot for the economy (relatively) has been housing and traders will hope for a gain in construction outlays. Finally, the likely effectiveness of recent Fed policy changes is being hotly debated inside and outside the Fed. Thursday’s release of the latest FOMC minutes will add to that debate.
The Markit PMI manufacturing flash index for September was unchanged at 51.5. A modest but healthy rise in new orders, up five tenths to 52.4, led the details of the report. This reading showed two months of gains after hitting a recovery low in July at 51.0. But strength in new orders was centered in the domestic economy based on new export orders which, at 47.9, were below 50 for the fourth straight month to indicate monthly contraction.
Markit PMI manufacturing index (final) Consensus Forecast for September 12: 51.5
Range: 51.1 to 51.9
The composite index from the ISM manufacturing survey for August was more negative, slipping further into negative territory at 49.6 in August versus 49.8 in July. A big part of the drop was a decline in the production index to 47.2 from 51.3 in July. Also, the new orders index dipped to 47.1 in August from 48.0 the prior month. New export orders were definitely part of the problem, at 47.0 for what is also the third straight month of contraction.
ISM manufacturing composite index Consensus Forecast for September 12: 49.7
Range: 48.0 to 50.6
Construction spending fell back 0.9 percent in July, following a 0.4 percent gain in June and 1.7 percent boost in May. The drop in July was led by private residential outlays which declined 1.6 percent after a 2.4 percent boost in June. But private residential was led down by spending on existing structures which plunged 5.5 percent, following gains of 1.4 percent in June and 4.6 percent in May. New one-family structures actually rose 1.5 percent, following a 3.1 percent boost the prior month. New multifamily structures advanced 2.8 percent after a 3.5 percent increase in June. So, the recent uptrend in housing starts was not misleading. Turning to other sectors, private nonresidential outlays declined 0.9 percent in July, following a 0.9 percent drop in June. Public outlays decreased 0.4 percent after no change in June.
Construction spending Consensus Forecast for August 12: +0.6 percent
Range: -0.2 to +1.0 percent
Sales of total light motor vehicles gained a sizable 3.1 percent in August, following a 2.0 percent dip in July. Sales for the month were an annualized 14.5 million units which matched February as the best rate of the year. August's gain was centered in domestic cars and domestic trucks where strength offsets slight monthly weakness on the import side. Domestic sales of autos and light trucks jumped 5.1 percent to an 11.6 million annualized pace.
Motor vehicle domestic sales Consensus Forecast for September 12: 11.5 million-unit rate
Range: 11.3 to 11.7 million-unit rate
Motor vehicle total sales Consensus Forecast for September 12: 14.5 million-unit rate
Range: 14.1 to 14.8 million-unit rate
ADP private payroll employment for August was estimated at a gain of 201,000. The BLS number for private payroll employment later posted at an increase of 103,000.
ADP private payrolls Consensus Forecast for September 12: 140,000
Range: 90,000 to 190,000
The composite index from the ISM non-manufacturing survey for August rose 5 tenths to 52.6. The new orders index rose 1 full point to 54.3. Business activity, which is an indication on output of goods and services in the sample, really took off, up 5.5 points from a depressed June level to 57.2 in July for the best rate of monthly growth since March.
ISM non-manufacturing composite index Consensus Forecast for September 12: 53.5
Range: 52.0 to 54.7
Initial jobless claims eased significantly in the September 22 week, falling a very sharp 26,000 to 359,000 (prior week revised slightly higher to 385,000). This was the best single week decline since late July for the lowest level since late July. The four-week average was down a sizable 4,500 to 374,000 which however is still slightly above the month-ago trend. Continuing claims are also showing improvement, down 4,000 in data for the September 15 week to 3.271 million which is the best level since May.
Jobless Claims Consensus Forecast for 9/29/12: 370,000
Range: 364,000 to 375,000
Factory orders in July rebounded 2.8 percent after a 0.5 percent decline in June. The July gain was led by a 4.1 percent surge in durable goods orders and included a 1.5 percent rise for nondurable goods which got a boost from petroleum and coal. More recently, new factory orders for durables plunged a whopping 13.2 percent (monthly) in August after a revised 3.3 percent boost in July. The August drop was led down by plummeting orders for civilian aircraft.
Factory orders Consensus Forecast for August 12: -6.0 percent
Range: -10.0 to -1.2 percent
The Minutes of the September 12-13 FOMC meeting are scheduled for release at 2:00 p.m. ET. Traders will be parsing comments on the debate for the third round of quantitative easing and points made on costs and benefits of the new easing programs. Also garnering attention will be comments by staff economists and FOMC participants on the economic outlook.
Nonfarm payroll employment in August advanced a mere 96,000, following gains of 141,000 in July and 45,000 in June. The net revisions for June and July were down 41,000. The unemployment rate slipped to 8.1 percent from 8.3 percent in July due to a sharp drop in the labor force—a negative reason for the dip. Private payrolls increased 103,000 in August after gaining 162,000 the prior month. Turning to wage inflation, average hourly earnings were flat after a 0.1 percent rise in July. The average workweek was unchanged at 34.4 hours.
Nonfarm payrolls Consensus Forecast for September 12: 113,000
Range: 75,000 to 162,000
Private payrolls Consensus Forecast for September 12: 130,000
Range: 100,000 to 165,000
Unemployment rate Consensus Forecast for September 12: 8.1 percent
Range: 8.0 to 8.3 percent
Average workweek Consensus Forecast for September 12: 34.4 hours
Range: 34.4 to 34.5 hours
Average hourly earnings Consensus Forecast for September 12: +0.2 percent
Range: +0.1 to +0.3 percent
Consumer credit outstanding rose $6.5 billion in June, following a $16.7 billion jump the month before. The latest gain was led by non-revolving credit, gaining $10.2 billion in June after a $9.2 billion rise in May. Non-revolving credit is mostly for motor vehicle purchases and student loans. The revolving credit component was not good in June, declining $3.7 billion but following a $7.5 billion boost in May. The June dip largely reflected soft retail sales for the month.
Consumer credit Consensus Forecast for July 12: +$7.8 billion
Range: +$3.7 billion to +$11.0 billion
R. Mark Rogers is the author of The Complete Idiot’s Guide to Economic Indicators, Penguin Books, 2009.
Econoday Senior Writer Mark Pender contributed to this article.
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