Encouraging economic news came from the government’s early release of data on Wednesday: Jobless claims dropped to 199,000 last week, the lowest since 1969, while the advance goods trade deficit narrowed significantly to $82.9 billion in October, led by a sharp rise in exports.
The jobs data was a surprise, especially when estimates had indicated only an incremental decrease, and was a sign of a strong recovery in the labor market ahead of the much-anticipated employment report next week from the Bureau of Labor Statistics.
The significant decline in the goods trade deficit will have a major impact on gross domestic product, adding upside risk to growth in the last quarter of the year.
On the other hand, mixed results came from durable goods orders: The total number of orders continued to fall for the second month in a row, down by 0.5%, while core orders—excluding transportation and defense orders—posted a small but healthy increase of 0.8% for October.
The capital goods component—a proxy for business investment—had modest gains for new capital goods orders, up by 0.6%, and shipments for core items that exclude transportation and defense, up by 0.3%.
This showed a slight deceleration of business investment, which had been running hot since late last year. It is important also to take into consideration the impact of inflation because durable goods data is based on dollar terms.
With inflation surging in October, we cannot rule out that business investment, after adjusting for price changes, declined in October.
Inside the data
The decline in new filings for jobless benefits to 199,000 for the week ending Nov. 20 was 71,000 claims lower than the previous week and represented the largest decline since April, when the economy started to reopen on a large scale.
It confirms what we have been seeing in the labor market for a long time: The market is tight now with demand robust, outstripping the supply of labor seemingly everywhere one looks. With the quit rate at a record high in September, layoffs should also reach a record low, and that is exactly what happened last week.
For goods trade, the drop in October was $14.1 billion compared to September, with goods exports rising by $15.3 billion and goods imports falling by $1.1 billion. While all export categories increased in October, imports of industrial supplies and capital goods declined on the month, down by 1.2% and 0.9%, respectively.
Also in the advance report from the Census Bureau, both wholesale inventories and retail inventories increased in October, rising by 2.2% and 0.1%, respectively. Again, with peak inflation in October, the gain in wholesale inventories should be less impressive while retail inventories should decline on a volume basis.
Still, with wholesale inventories continuing to climb back to their pre-pandemic trend, the report adds to recent data and anecdotal evidence that the supply chain issues are easing somewhat.
With durable goods, inventories were down to 0.6% from 1% in the prior month, while core inventories were also down to 0.7% from 1.2%. As a result, the inventory-to-shipment ratio inched down slightly to 1.78 from 1.8 on the month.
Overall, the first data drop on Wednesday pointed toward strong improvements in the labor market and international trade that will feed into growth for the last quarter of the year.
Those improvements should make up for the moderation in business investment from the durable goods data, which contributed most to growth in the third quarter (up 11.6%) and will continue to drive last quarter’s growth.