Business activity contracted for the fifth straight month in November and jobless claims rose last week to a three-month high. Although consumer confidence and new home sales improved, both remain depressed and indicate less interest in spending and subdued housing demand.
At the same time, another report showed a solid rebound in capital goods and shipping that will help fuel what is projected to be strong growth in the fourth quarter.
“We see signs of cooling in the labor market and overall business surveys point to weakening momentum in the economy“, said daniel silver, an economist at JPMorgan Chase & Co., in a note. “But the source GDP data has been surprisingly bullish in recent weeks.”.
The Fed’s most aggressive monetary tightening campaign since the 1980s has so far had a fairly limited effect on overall demand, but Wednesday’s data shows early signs that some of the most resilient parts of the economy are starting to to weaken.
That could persuade some policymakers that not only is it appropriate to slow the pace of tightening soon, but it also adds a twist to the debate about how much higher interest rates will rise.
So far, the labor market has proven resilient to the effects of higher interest rates, reinforced by record low unemployment. But the number of jobless people who have received benefits for a week or more rose to the highest level since March, supporting many economists’ expectations that unemployment will rise next year.
Americans are beginning to feel the same. Unemployment expectations are at the worst level since 2011, according to the final reading for November from the University of Michigan consumer survey.
Businesses show continued signs of slowing momentum. The activity measure of S&P Global it fell to the second lowest level since the immediate post-pandemic period.
That’s at odds with a Commerce Department report that showed business equipment orders rebounded sharply last month. Shipments of so-called basic capital goods, a benchmark for business investment in the GDP report, rose by the most since the beginning of the year.
Retail sales for October, which posted the biggest increase in eight months, still bode well for economic growth. But the cumulative effects of rising interest rates are expected to weigh on future investment.
The real estate market, however, is in recession. Although new home sales rose unexpectedly last month, the data is extremely volatile and the increase was mainly driven by the southern part of the country. For the rest, the market has been deteriorating throughout the year due to a sharp rise in mortgage rates, which have fallen somewhat in recent weeks.