From Deutsche Bank, an early read on November. The real nut is at the bottom where economist Joe Lavorgna notes that tax withholding in November is already indicating more robustness on the labour front:
We were encouraged by last Friday’s employment report, especially with respect to what it implied for October gains in wages and salaries, which account for over half of total personal income. We can estimate wages and salaries by taking the product of the level of private employment, the number of hours worked and average hourly earnings. This provides us with a good proxy for gains in private wages and salaries. According to our calculations, October private wages and salaries rose 0.7% last month or 8.4% year-to-date (annualized rate). This would be the largest monthly increase since April 2009. The official personal income (and consumption) data for October are released on November 24.
The projected recovery in income is integral to our forecast of above trend growth this quarter (+3.3%) and for next year (+3.3% on a Q4 over Q4 basis), because consumer spending thus far has lagged past economic cycles, and we need the income gains to bring about a faster pace of consumption. Since the recession ended, real consumer spending has increased at just a 1.9% pace, roughly one third of the typical pace over the comparable time following the deep 1973-75 and 1981-82 recessions. Because households have more debt in the current cycle—the household debt to income ratio was 123% as of Q2 2010, down from a peak of 135% as of Q4 2007 but still well above its pre-bubble level of 100% back in 2001—the acceleration in consumer spending is likely to be more modest. Still, an increase in consumer spending to around 3% or so seems likely, especially with the aforementioned strengthening in income. Importantly, our tally on employee tax withholding receipts tells us further strong gains are in store for November.
Through the first week of November, tax receipts which are released daily and are a function of the number of people working, the hours they work and the pay they make, are up over 7% from their year earlier level. In fact, tax receipts have been accelerating steadily since late June. Keep in mind that the y/y comparisons have become increasingly more difficult since the economy began expanding in H2 2009. The upshot is that the income gains from the October employment report coupled with what we are seeing in tax receipts point to faster consumer spending growth in the quarters ahead. This is welcome news for the economy.
Photo: Deutsche Bank