Month of October 2019

• Employment: The unemployment rate declined 0.2 percentage point to 3.5% in September. The last
time the rate was this low was in December 1969, when it also was 3.5%. Total employment increased
by 136,000 in September after adding 168,000 (revised) new jobs in August. The average monthly job gain

so far in 2019 is 161,000 per month (223,000 in 2018). Notable employment increases for September

occurred in health care (39,000), professional and business services (34,000), government (22,000), and

transportation and warehousing (16,000). The number of unemployed persons dropped by
275,000 to 5.8 million. The labor participation rate remained at 63.2%, and the employment-population
ratio rose to 61.0% (60.9% in August). The average workweek remained at 34.4 hours for September.
Average hourly earnings fell by $0.01 to $28.09. Over the last 12 months ended in September, average
hourly earnings have risen 2.9% (3.2% for the 12 months ended in August).

• FOMC/interest rates: By an 8-2 vote, the Federal Open Market Committee dropped the target range for
the federal funds rate 25 basis points following July's 25-basis-point cut and September's comparable
rate slash. The federal funds rate range has been decreased by 75 basis points so far this year. The
target range now sits at 1.50%-1.75%. In support of its decision to reduce interest rates again, the
Committee noted that inflation continues to run below the Fed's 2.0% target rate, business fixed
investment and exports have weakened, and global economic developments are uncertain.

• GDP/budget: Economic growth slowed again in the third quarter. According to the initial estimate for the
third-quarter gross domestic product, the economy accelerated at a rate of 1.9%, down from the second
quarter's 2.0% annual growth rate. The first quarter saw an annualized growth of 3.1%. The personal
consumption expenditures price index increased 1.5% in the third quarter compared to an increase of
2.4% in the second quarter. Driving economic growth in the third quarter was consumer spending, which
increased at an annualized rate of 2.9% (4.6% in the second quarter). Another positive from the report
comes from residential investment, which rose 5.1% — the first positive contribution to the GDP since
2017. Nonresidential (business) fixed investment continues to lag, falling 3.0% in the third quarter after
dropping 1.0% in the second quarter. September marked the close of the 2019 fiscal year for the federal
government. For the month, the federal budget came in at a smaller-than-expected surplus of $82.2
billion in September, narrowing the fiscal 2019 deficit to $984.4 billion, still 26.4% higher than the fiscal
2018 deficit.

• Inflation/consumer spending: According to the personal income and outlays report, inflationary
pressures remain weak, as prices for consumer goods and services rose less than 0.1% in September.
Prices are up 1.3% over the last 12 months. Consumer prices excluding food and energy showed no
movement in September and are up 1.7% year-over-year. On the other hand, consumers continue
spending, as purchases rose 0.2% (0.2% in August). Personal income and disposable (after-tax)
personal income each climbed 0.3% in September (0.5% and 0.6%, respectively, in August).

• The Consumer Price Index was unchanged in September following a 0.1% advance in August. Over the
12 months ended in September, the CPI rose 1.7%. Energy prices fell 1.4% on the month with gasoline
down 2.4%. Prices less food and energy rose 0.1% in September after increasing 0.3% the previous
month. Since last September, core prices (less food and energy) are up 2.4%.

• According to the Producer Price Index, the prices companies received for goods and services fell 0.3%
in September after increasing 0.1% in August. The index increased 1.4% for the 12 months ended in
September. Prices for goods fell 0.4% in September. Most of the decline is attributable to energy prices,
which tumbled 2.5%. Prices for services dropped 0.2% in September, pulled down by declining prices
for machinery and vehicle wholesaling, which fell 2.7%. The price index less foods, energy, and trade
services was unchanged after jumping ahead 0.4% in August. For the 12 months ended in September,
producer prices less foods, energy, and trade services advanced 1.7%.

• Housing: The housing sector has been anything but steady for much of the year, and September was
no exception. Existing home sales plunged 2.2% in September following two consecutive monthly
increases. Year-over-year, existing home sales are up 3.9%. Existing home prices fell in September, as
the median price for existing homes was $272,100, down from August's median price of $278,200.
Nevertheless, existing home prices were up 5.9% from September 2018. Total housing inventory for
existing homes for sale in September decreased to 1.83 million (1.86 million in August), representing a
4.1-month supply at the current sales pace. After rising 6.1% in August, sales of new single-family
houses tumbled 0.7% in September. However, new home sales are up 15.5% over their September
2018 estimate. The median sales price of new houses sold in September was $299,400 ($328,400 in
August). The average sales price was $362,700 ($404,200 in August). Inventory at the end of
September remained at a supply of 5.5 months.

• Manufacturing: According to the Federal Reserve, industrial production fell 0.4% in September after
advancing 0.8% in August. Manufacturing output declined 0.5% following a 0.5% rise the prior month. In
September, mining output fell 1.3%, while utilities climbed 1.4%. Total industrial production was 0.1%
lower in September than it was a year earlier. Following three consecutive monthly increases, new
orders for durable goods dropped 1.1% in September. Excluding transportation, new orders decreased
0.3%. Excluding defense, new orders decreased 1.2%. Transportation equipment, also down following
three consecutive monthly increases, led the decrease, dropping 2.7%. New orders for capital goods
(used by businesses to produce consumer goods) fell 2.8% in September as business investment

continues to be weak.

• Imports and exports: Both import and export prices remained soft in September. Import prices rose
0.2%, pushed higher by a boost from petroleum-based products. Nonfuel goods edged down 0.1%. For
the year, import prices are also down 1.6%. Export prices fell 0.2% and are down 1.6% over the past 12
months. Agricultural export prices declined 1.8% in September, while nonagricultural prices for items
such as consumer goods, automobiles, and industrial supplies and materials dropped 0.1%. The latest
information on international trade in goods and services, out October 4, is for August and shows that the
goods and services deficit was $59.4 billion, $0.9 billion over July's revised figure. August exports were
$207.9 billion, $0.5 billion more than July exports. August imports were $262.8 billion, $1.3 billion more
than July imports. Year-to-date, the goods and services deficit increased $28.3 billion, or 7.1%. Exports
decreased $3.2 billion, or 0.2%. Imports increased $24.1 billion, or 1.2%. The advance report on
international trade in goods (excluding services) revealed the trade deficit fell to $70.4 billion in
September, down from $73.1 billion in August. However, both export and import trading slowed in
September, with exports of goods dropping $2.2 billion from August and imports falling $4.9 billion below
August's total.

• International markets: Still unable to reach an accord on a Brexit plan, the United Kingdom requested,
and was granted, another extension by the European Union, this time to January 31. However, the UK
could leave before that date if Parliament passes a withdrawal bill. UK stocks sank following news that
the country was headed to yet another general election before the end of the year. In China, consumer
prices rose 0.9% in September and are up 3.0% over the past 12 months — the highest level since 2013.
Nevertheless, the Chinese economy continued to slow as its third-quarter gross domestic product
expanded at a 6.0% year-over-year pace, down from the 6.2% rate of expansion in the second quarter.

• Consumer confidence: Consumer confidence remained tepid in October. The Conference Board
Consumer Confidence Index® registered 125.9, down from 126.3 in September. The Present Situation
Index — based on consumers' assessment of current business and labor market conditions — increased
from 170.6 to 172.3. The Expectations Index — based on consumers' short-term outlook for income,
business and labor market conditions — declined from 96.8 last month to 94.9 this month.

While stocks rebounded nicely last month, will that trend continue in November? Stock market growth
seemingly rides on the progress made in the trade negotiations between the United States and China. With
the impeachment process moving on to another phase and the government on target to shut down by the
middle of November, it should be an interesting fourth quarter.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation);
U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City
Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance:
Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S.
Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK);
www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based
on reports from multiple commonly available international news sources (i.e. wire services) and are
independently verified when necessary with secondary sources such as government agencies, corporate
press releases, or trade organizations. All information is based on sources deemed reliable, but no
warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion
expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be
relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk,
including the potential loss of principal, and there can be no guarantee that any investing strategy will be
successful.

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