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The week’s highlight was a better-than-expected jobs report. Unfortunately, the lowlight was an unexpectedly sharp drop in consumer sentiment, cutting into the favorable effects of the employment situation. Worries about the fiscal cliff continued.
 Equities this past week were mixed. Focus remained on the fiscal cliff problem while economic news was mixed. Stocks started the week down on an unexpected drop of ISM manufacturing into negative territory. Partially offsetting were strong reports on construction and motor vehicle sales. Also helping to offset were developments in Europe—Spain formally requested the disbursement of more than US$50 billion of European funds to recapitalize its crippled banking sector, while Greece said it would spend €10 billion to buy back bonds in a bid to reduce its ballooning debt.
Stocks were mostly down Tuesday on lack of progress on the fiscal cliff. President Obama emphasized his position the tax rates should be allowed to expire for high income households while Bush era tax cuts for the middle class and lower income earners should be extended.
Equities were mixed at mid-week as stocks were boosted by a rally in bank shares. However, a steep drop in Apple limited the advance and kept Nasdaq in negative territory. Helping support stocks were favorable reports on ADP employment and ISM non-manufacturing. And the day’s political commentary added to optimism for resolving the fiscal cliff. On Thursday, major indexes posted modest gains with key lift from comments from President Obama that he saw “some movement” within Republican House ranks to allow rates to rise on high-income taxpayers. A rebound in Apple shares added to lift. Also, initial jobless claims fell notably. Damping the day’s gains was news from Europe— the European Central Bank lowered its forecast for the Eurozone.
At week’s close, most major index posted gains with the Nasdaq a key exception. Equities were lifted by a better-than-expected jobs report but early gains were cut by a sharp drop in consumer sentiment released later in the morning. By late day, there was a moderate rally on optimism regarding the fiscal cliff and healthy numbers for consumer credit. The Nasdaq was pulled down to a large degree by Apple.
Equities were mixed this past week. The Dow was up 1.0 percent; the S&P 500, up 0.1 percent; the Nasdaq, down 1.1 percent; the Russell 2000, flat; and the Wilshire 5000, up 0.1 percent.
For the year-to-date, major indexes are up as follows: the Dow, up 7.7 percent; the S&P 500, up 12.8 percent; the Nasdaq, up 14.3 percent; the Russell 2000, up 11.0 percent; and the Wilshire 5000, up 12.6 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Treasury rates ended the week unchanged or essentially unchanged. Despite notable economic news, the first four trading days saw only incremental movement as traders remained in the safety of Treasuries during the ongoing banter in Washington over the fiscal cliff. This led rates to marginally slip through Thursday. But yields rebounded Friday on the unexpectedly strong payroll employment data—but the rebound was very moderate.
For this past week, the following Treasury rates were up 1 basis point: the 5-year note, the 10-year note, and the 30-year bond. The following were unchanged: 3-month T-bill, the 2-year note, and the 7-year note.
The spot price of West Texas Intermediate started the week flat. On Tuesday, crude declined a little more than half a dollar a barrel on weak manufacturing reports. WTI declined by about the same amount on Wednesday on disappointing economic news from Europe and on rising gasoline inventories in the U.S.
The biggest decrease was Thursday’s buck and half decline on news that the European Central Bank had cut its growth forecast for the eurozone. Crude dipped marginally at week’s close as the dollar strengthened on the jobs report and on continued impact of the ECB’s lower economic forecast released the day before.
Net for the week, the spot price for West Texas Intermediate dropped $2.83 per barrel to settle at $86.04.
The news on the consumer sector was very mixed with strong motor vehicle sales, moderately healthy payroll gains, and a sharp drop in consumer confidence. Meanwhile, manufacturing remains near flat while construction improves on housing.
 The November jobs report was surprisingly positive—at least at the headline level. First, the unemployment rate declined to 7.7 percent after edging up one tenth in October to 7.9 percent.
Payroll jobs in November rose a moderately strong 146,000, following an increase of 138,000 in October (originally up 171,000), following a gain of 132,000 in September (previously up 148,000). The net revisions for September and October were down 49,000.
 Private payrolls advanced 147,000 in November after increasing 189,000 the prior month. Payroll employment was divergent in the private sector as the goods-producing sector was negative while service-providing industries generally showed notable gains. Private service-providing jobs rose 169,000 in November after a 171,000 increase in October. For November, notable gains were in retail trade (up 53,000), professional & business services (up 43,000), and health care (up 20,000). The retail trade numbers are particularly encouraging as these jobs have risen 140,000 over the past three months, suggesting healthy holiday sales this year.
The goods-producing sector posted a 22,000 drop in jobs after an 18,000 gain the prior month. In November, manufacturing jobs slipped 7,000, construction fell 20,000, and mining rose 4,000.
Government jobs nudged down 1,000 in November after plunging 51,000 the month before.
Wage inflation firmed as average hourly earnings in November rose 0.2 percent, following no change in October. The market consensus was for a 0.2 percent rise. The average workweek held steady at 34.4 hours in November. Expectations were for 34.4 hours.
Turning to the household survey, the decline in the unemployment rate reflected a drop in the labor force of 350,000 after a spike of 578,000 in October. This means that more workers have quit looking for jobs. Household employment slipped 122,000, following a 410,000 jump the prior month. The number of unemployed fell 229,000 in November, following a 170,000 increase the month before.
According to the Labor Department, Hurricane Sandy had little effect on the November numbers due to the timing of both the October and November surveys and definitions of being employed. For the payroll, survey, for example, being on a company’s payroll means you are employed, regardless of whether you received a pay check that pay period.
Looking ahead, payroll details suggest some upward momentum in personal income and industrial production for November. Private aggregate earnings rose 0.3 percent, suggesting a moderate rise in the private wages & salaries component in personal income. Production worker hours in manufacturing increased 0.2 percent, indicating a modest gain in the manufacturing component of industrial production for November. A rise in the manufacturing average workweek offset a marginal decline in manufacturing jobs.
While the headline numbers were better-than-expected, details indicate that the November report is good overall but not quite as robust as indicated by headline numbers. Detracting from the headlines were a decline in goods-producing jobs and the dip in the unemployment rate being due to contraction in the labor force.
 Vehicle sales were very strong in November, surging a monthly 8.7 percent to a 15.5 million annual rate. Replacement demand tied to Hurricane Sandy boosted sales as did incentives during the month.
Sales were led by imports, up 11.2 percent, versus domestics, up 8.0 percent. Sales of imported trucks were up a sharp 15.9 percent, likely reflecting demand due to Sandy.
Changes in unit sales do not always translate into the same changes for dollar sales, but these gains are so significant that they point squarely to a significant gain for the government's motor vehicle component especially given an easy comparison with a soft October.
 Consumer credit posted its third strong increase in a row in October. But there are pluses and minuses in the details. Consumer credit outstanding jumped $14.2 billion, following a $12 billion gain in September. Much of the gain is once again tied to loans for students. This likely reflects the soft jobs market and students continue to stay in school.
However, strong sales of autos are also driving up borrowing. Student and auto loans are part of the nonrevolving component which was up $10.8 billion in the month. The revolving side, where credit cards are tracked, popped up $3.4 billion following the prior month's $2.2 billion decline. Willingness to borrow money and willingness to make big ticket commitments like auto purchases are good signs for the holiday shopping season.
 Apparently consumers are paying attention to the news and especially the wrangling in Washington, D.C. over the pending fiscal cliff. And consumers are not happy about what they are seeing. Consumer sentiment suddenly moved into reverse, falling a very steep 8.2 points to 74.5 for the initial reading for December. This was the lowest reading since August.
 Weakness was centered squarely in the expectations component which plunged 13 points to 64.6. A double-digit decline is very rare and points to a sudden pessimism in the consumer, right on the approach of the final holiday shopping surge. A separate reading on 12-month economic expectations was especially down, falling a whopping 22 points to 75.
Worries about pending higher taxes for upper income households appear to have played a role in December’s slide in sentiment. Sentiment for upper-income households (with incomes greater than $75,000 annually) dropped 11.3 points, while sentiment for lower-income households (with incomes less than $75,000) fell 6.9 points.
But there was good news in the report. The assessment of current conditions held firm, down only eight tenths to 89.9 and holding near the recovery's high point. This reading was one of the first on conditions in early December and it points to an extension of steady growth for the general economic picture, at least for this month.
The latest report offers negotiators in Washington a measure of public skepticism that the White House and House will successfully avert the onset of higher taxes and cuts in spending that would risk derailing the economic recovery. What the consumer wants is resolution of the fiscal cliff and enactment of such legislation could lead to a nice bounce back in consumer sentiment.
Manufacturing has been soft in recent months. The two latest national surveys on this sector differ somewhat—one showing slight growth and one showing slight contraction in November.
The PMI index from Markit Economics posted a final reading of 52.8 for the month, up four tenths from the flash reading and up a sharp 1.8 points from October. Output improved to 53.5 from 52.9 in October. New orders were encouraging as this index rose further into positive territory to 53.6 from 52.8 in October. New exports orders show their first monthly increase since May. The backlog index increased to 50.1 from 49.8 the first time backlogs have been in the plus column since August. Employment growth is steady and respectable. In a mixed signal, inventories continue to move lower in what hints that businesses may have doubts over the strength of future demand.
 The ISM manufacturing report headed in the other direction as the composite index slipped to 49.5 from 51.7 in October. This index has been in negative territory in four of the last six months.
The new orders index showed only fractional growth relative to October, posting at 50.3 in November versus 54.2 the prior month. Backlog orders remained notably negative at 41.0, compared to 41.5 in October. Inventories were down significantly in the month in what is further evidence that businesses are taking a guarded view of future demand. Employment was especially weak in this report, showing the first monthly contraction in more than three years.
The bottom line is that manufacturing is near flat—though maybe marginally positive or marginally negative.
 The non-manufacturing sector picked up steam in November but the gains did not lead to new hiring. The ISM's index rose five tenths to 54.7 with business activity over 60 for the first time since February.
New orders came in at 58.1 for a more than three point gain and the best reading since March. But employment was barely over 50, at 50.3 for a nearly five point monthly dip for the worst reading since July. Businesses are doing more with less as seen in the latest productivity report.
 Construction activity in October was healthy across the board. Other sectors within construction have been up and down but housing continues its sustained uptrend. Construction spending jumped 1.4 percent in October, following a gain of 0.5 percent the month before.
The rise in October was led by private residential spending which advanced 3.0 percent after rising 1.1 percent the prior month. For the latest month, new 1-family outlays jumped 3.6 percent, new multi-family construction jumped 6.2 percent, and residential excluding new homes (largely improvements) gained 1.8 percent. Private nonresidential spending rose 0.3 percent after increasing 0.5 percent in September. Public outlays rebounded 0.8 percent, following a 0.1 percent dip the prior month.
On a year-ago basis, overall construction was up 9.6 percent in October, compared to 8.9 percent the prior month.
While manufacturing data this morning continued to indicate a soft manufacturing sector, construction-especially housing-is adding to the recovery's momentum.
The recovery continues with housing currently taking the lead. And the consumer sector is making a positive contribution despite the drop in sentiment. However, the pending fiscal cliff could lead to sharp changes in growth—upward if there is a respectable resolution, downward otherwise.
This week’s highlight is probably November retail sales. Analysts will be looking for effects from Hurricane Sandy, an early Thanksgiving, and wavering confidence. Traders will be watching the Fed at mid-week for changes in its quarterly economic forecasts and policy signals on quantitative easing. The chairman’s press conference later in the day may explain new directions on guidance. There will be key readings on the latest trends in exports in international trade, manufacturing in the industrial production report, and on inflation with the PPI and CPI.
The NFIB Small Business Optimism Index in October rose slightly to 93.1 but remained in "solidly pessimistic" and "recessionary territory," according to the National Federation of Independent Business. With the fiscal cliff looming at year-end, the report cited uncertainty over business conditions as a key issue for small businesses. Sales remain a problem and job creation is weak.
NFIB Small Business Optimism Index Consensus Forecast for November 12: 92.5
Range: 92.0 to 93.5
The U.S. international trade gap in September improved, largely on petroleum. And the best news is that exports rebounded. The trade deficit narrowed to $41.5 billion from $43.8 billion in August. Exports rebounded 3.1 percent, following a 1.0 percent decline in August. Imports increased 1.5 percent after slipping 0.2 percent the month before. The shrinking in the trade gap was led by the petroleum deficit which decreased to $21.7 billion in September from $23.5 billion in August. The non-petroleum goods shortfall actually grew to $35.2 billion from $34.9 billion for the prior month. The services surplus improved to $15.9 billion from $15.1 billion in August.
International trade balance Consensus Forecast for October 12: -$42.8 billion
Range: -$44.6 billion to -$41.0 billion
Wholesale inventories rose a steep 1.1 percent in September in a build that was easily offset by a 2.0 percent jump in sales at the wholesale level. The mix made for a leaner stock-to-sales ratio which was at 1.19.
Wholesale inventories Consensus Forecast for October 12: +0.4 percent
Range: 0.0 to +0.7 percent
Import prices rose a sizable 0.5 percent in October following very sharp fuel-driven gains of 1.1 percent and 1.2 percent in the two prior months. These were sharp monthly gains but come from a low base with the year-on-year rate, after five straight months in the negative column, finally emerging into positive ground but just barely at plus 0.4 percent. Fuel pressures eased in October highlighting pressures in other readings including ex-petroleum industrial supplies, up a steep 1.2 percent in the month, and incremental gains in finished goods prices where the category of motor vehicles shows a 0.3 percent monthly rise for a year-on-year rate of plus 1.8 percent which doesn't look like much but is the highest since April.
Import prices Consensus Forecast for November 12: -0.4 percent
Range: -0.9 to +0.3 percent
Export prices Consensus Forecast for November 12: +0.3 percent
Range: -0.5 to +0.5 percent
The FOMC announcement at 12:30 p.m. ET for the December 11-12 FOMC policy meeting is expected to leave the fed funds target unchanged at a range of zero to 0.25 percent. However, guidance could change on how long to expect exceptionally low policy rates to last. Also, the Fed will release its quarterly forecast between the announcement and the chairman’s press conference, generally about 2:00 p.m. ET.
FOMC forecasts are released for GDP, PCE inflation, unemployment, the fed funds rate, and expected timing of next policy move. Release time generally is about 2:00 p.m. ET.
The U.S. Treasury monthly budget report showed a deficit $130.0 billion this October versus $129.0 billion last October. 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 $86.4 billion and $113.4 billion over the past 5 years. The November 2011 deficit came in at $137.3 billion.
Treasury Statement Consensus Forecast for November 12: -$146.3 billion
Range: -$172.0 billion to -$136.0 billion.
Chairman press conference after the FOMC meeting statement is scheduled for release at 2:15 p.m. ET. Chairman Ben Bernanke will discuss the latest Fed forecasts but almost certainly will take questions on the current status of quantitative easing and how the Fed will address then end of Operation Twist at the end of December. Also, there have been comments by Fed officials hinting at a change in guidance to economic measures instead of specific timing of rate changes and this topic could come up.
The producer price index in October fell 0.2 percent, following a 1.1 percent jump in September. The core rate, which excludes both food and energy, declined 0.2 percent in October after being unchanged the prior month. According to the BLS, Hurricane Sandy had virtually no impact on data collection efforts or survey response rates for October, and no changes in estimation procedures were necessary. Food inflation rose to 0.4 percent from a 0.2 percent increase in September. Energy eased 0.5 percent, following a monthly 4.7 percent jump in September. Gasoline decreased 2.2 percent in October after a monthly spike of 9.8 percent the prior month. Within the core, lower prices for light motor trucks and passenger cars led the October decline, falling 1.5 percent and 1.6 percent, respectively.
PPI Consensus Forecast for November 12: -0.5 percent
Range: -0.9 to +0.2 percent
PPI ex food & energy Consensus Forecast for November 12: +0.2 percent
Range: 0.0 to +0.4 percent
Retail sales in October were likely affected by Hurricane Sandy. Total retail sales in October declined 0.3 percent after jumping 1.3 percent the month before. Motor vehicle sales dipped 1.5 percent after a 1.7 percent boost in September. Ex-auto sales were unchanged, following a rise of 1.2 percent in September. Gasoline sales advanced 1.4 percent in October, following a 2.5 percent spike the prior month. Excluding both autos and gasoline components, sales dropped 0.3 percent, following a 1.0 percent boost in September (originally up 0.9 percent). Core components showed broad softening.
Retail sales Consensus Forecast for November 12: +0.6 percent
Range: +0.2 to +2.0 percent
Retail sales excluding motor vehicles Consensus Forecast for November 12: 0.0 percent
Range: -0.6 to +1.0 percent
Less motor vehicles & gasoline Consensus Forecast for November 12: +0.5 percent
Range: -0.2 to +0.7 percent
Initial jobless claims fell 25,000 in the December 1 week to 370,000. This was the third straight major decline that together just about fully unwinds a giant 90,000 spike in early November tied to Hurricane Sandy. The latest level falls in line with the trend that preceded the giant storm, a comparison that hints at no significant change in the nation's jobs market.
Continuing claims showed a similar pattern of unwinding from Sandy. Continuing claims in data for the November 24 week fell a very steep 100,000 to 3.205 million, a level that's in line with the month-ago trend.
Jobless Claims Consensus Forecast for 12/8/12: 370,000
Range: 360,000 to 375,000
Business inventories have posted three solid gains in a row with a 0.7 percent rise in September following gains of 0.6 percent and 0.8 percent in the two prior months. What makes these gains solid is that they are on plan, that they lag what is greater strength in sales, up a very strong 1.4 percent in September for the strongest monthly gain since March last year. The inventory-to-sales ratio was down 1 notch to 1.28.
Business inventories Consensus Forecast for October 12: +0.4 percent
Range: 0.0 to +0.6 percent
The consumer price index in October slowed to a 0.1 percent increase after a 0.6 percent spike the prior month. Excluding food and energy, the CPI increased 0.2 percent, following a 0.1 percent rise in September. By major components, energy dipped 0.2 percent after jumping a monthly 4.5 percent in September. Gasoline declined 0.6 percent, following a 7.0 percent surge in September. Food prices gained 0.2 percent versus a 0.1 percent rise in September. Within the core, the shelter index rose 0.3 percent as the rent index increased 0.4 percent, its largest rise since June 2008.
CPI Consensus Forecast for November 12: -0.2 percent
Range: -0.3 to +0.2 percent
CPI ex food & energy Consensus Forecast for November 12: +0.2 percent
Range: +0.1 to +0.2 percent
Industrial production declined 0.4 percent in October after having increased 0.2 percent in September. Hurricane Sandy, which held down production in the Northeast region at the end of October, is estimated by the Fed to have reduced the rate of change in total output by nearly 1 percentage point. In October, the index for manufacturing decreased 0.9 percent, following a 0.1 percent gain in September. Excluding storm-related effects, factory output was roughly unchanged from September. The output of utilities edged down 0.1 percent in October, and production at mines advanced 1.5 percent. Capacity utilization for total industry decreased 0.4 percentage point to 77.8 percent in October.
Industrial production Consensus Forecast for November 12: +0.3 percent
Range: -0.4 to +0.9 percent
Manufacturing production component Consensus Forecast for November 12: +0.4 percent
Range: -0.2 to +1.2 percent
Capacity utilization Consensus Forecast for November 12: 78.0 percent
Range: 77.5 to 78.4 percent
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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