U.S. Personal Income Gain Light, Core Prices Firmer

Initial claims for unemployment insurance jumped 34,000 last week to 357,000 from an upwardly revised level during the prior period. Consensus expectations had been for a decline to 317,000.

No specific factors were sighted by the Labor Department for the increase but volatility related to large seasonal factors often occurs around the Thanksgiving holiday. The seasonally unadjusted number of initial claims fell 45,203 last week.

During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.

The four-week moving average of initial claims rose to 325,000 (3.0% y/y), its highest level since June.

Continuing claims for unemployment insurance also jumped by 45,000 after a downwardly revised 5,000 worker decline the prior week.

The insured rate of unemployment remained at 1.9%, the average rate since February.

The Conference Board reported that its Index of Help-Wanted Advertising in October ticked up to 30 in October from a downwardly revised reading of 29 in September.

During the last ten years there has been a 57% correlation between the level of help-wanted advertising and the three month change in non-farm payrolls.

The proportion of labor markets with rising want-ad volume surged to 57%, the highest level in nearly one year.

The Conference Board surveys help-wanted advertising volume in 51 major newspapers across the country every month.

The latest help wanted report from the Conference Board is available here.

According to the Office of Federal Housing Enterprise Oversight (OFHEO) home prices in the U.S. rose last quarter but the 0.9% gain was the slowest since 1998 and the y/y increase of 7.7% was the worst since 2003.

Price declines were scattered throughout the country. Job cutbacks in the auto industry helped lower prices in Michigan for the second consecutive quarter and in New York a 0.3% decline dropped the y/y rate of home price appreciation to 6.5%, the worst since 1999. Prices also fell q/q in Massachusetts (for the second quarter, +1.1% y/y), Rhode Island (+4.6% y/y) and New Hampshire (+3.7% y/y).

Home price appreciation in the District of Columbia continued reasonably firm last quarter at 1.0% but the still healthy y/y gain of 11.3% was down from last year's peak of 25.2%. Home prices in Idaho also turned in a strong showing with a 3.0% (17.5% y/y) increase. Notable for strength also were prices in Florida which rose 1.2% (15.1% y/y) though that is down from a 25.9% gain during all of last year.

The House Price Indices in this report are weighted indexes based on repeat sales or refinancings using data provided by Fannie Mae or Freddie Mac .

The latest report from the Office of Federal Housing Enterprise Oversight (OFHEO) can be found here.

The Chicago Federal Reserve Bank's Midwest manufacturing index fell 0.4% last month and it was the third consecutive monthly decline. The three month growth rate in the index dropped to -6.5% (AR), its worst since 2003.

During the last ten years there has been a 89% correlation between the y/y change in Chicago's Midwest Mfg. index and the change in US factory sector industrial production. The October Chicago Fed Midwest Manufacturing Index can be found here.

The auto sector index registered its fifth decline in the last six months while the steel index fell for the third consecutive month. The machinery index, however, reflected the firm capital goods sector and rose moderately (6.7% y/y).

Industrial Ecology: Environmental and Economic Boon from the Federal Reserve Bank of Boston can be found here.

The Canadian economy slowed in Q3, according to the national accounts array published today by Statistics Canada. GDP grew only 1.7% at an annual rate from Q2, slower than Q2's 2.0% and also less than the 2.0% widely expected by Canadian economists. It was the weakest performance since Q2 2003, when there was a decline of 1.3%.

The slowdown was not a result of weaker consumer spending; this actually strengthened to 4.2% growth from 3.8% in Q2 and was 4.1% ahead of a year ago, compared with year-on-year growth of 2.5% for total GDP. And private nonresidential fixed investment, often the generator of business cycles, also picked up, growing at a 7.0% pace compared with 5.4% in Q2.Further, net exports, while deteriorating, did so less than in Q2, as that deficit inched outward by only C$0.8 billion, following a sharp widening in Q2 of C$12.2 billion.

So the slowing in this one quarter was due primarily to a marked deceleration in government consumption and to further declines in housing investment. The swing in the government accounts related to the quinquennial census that was taken in mid-May. This created a bulge in government spending from Q4 2005 through Q2 2006. A quick look at the second graph shows the periodic slowdowns following these 5-year censuses, previously taken in 1996 and 2001.

Residential construction deepened its decline that set in during Q2 after the huge seasonally adjusted advance during last winter, which as we in the US know, was quite mild. Residential investment in Canada jumped 14.2% (annualized) in Q1 and has almost exactly offset that in Q2 and Q3, so the latest figure is very close to the C$68.8 billion in the second half of last year.

These sources of weakness appear to be temporary adjustments to outsized gains earlier. But before dismissing them as mere jiggles in numbers, it gives us pause that the other compilation of Canada's GDP, the industrial product breakdown calculated monthly, showed an outright contraction in September of 0.3%. So the economy ended the quarter on a down note, not a very promising position.

The Chicago Purchasing Manager's Assn. reported that its November business barometer fell to 49.9. It was the first month the diffusion index of factory sector activity fell below the break even line of 50 since 2003.

During the last ten years there has been a 69% correlation between the index and the three month change in US factory sector industrial production.

All of the component series weakened m/m with the employment index falling to 49.4 versus an average 54.2 last year and new orders fell to 52.0 versus a 2005 average of 64.4.

The prices paid index dropped to 60.2, its lowest level since since May of last year.During the last ten years there has been an 89% correlation between the level of the prices diffusion index and the three month change in the core PPI for intermediate good.