The economy grew by 3.1 percent during the second quarter, the strongest performance since early 2015, but job creation fell in September for the first time in seven years.

The Bureau of Economic Analysis (BEA) in July estimated Q2 growth at 2.6 percent, but as it collected new data, the agency revised its calculations upward in subsequent months to 3 percent, then 3.1 percent. Gross domestic product (GDP) increased by just 1.2 percent during the first quarter.

“With this third estimate for the second quarter, private inventory investment increased more than previously estimated, but the general picture of economic growth remains the same,” the BEA stated.

Consumer spending rose 3.3 percent during the quarter, accounting for 2.24 points of overall growth.

Labor market statistics have been solid in recent years, even when GDP numbers have fluctuated, but the country lost 33,000 jobs in September, a month in which analysts had expected 90,000 jobs to be created, according to the Bureau of Labor Statistics (BLS). This marked the first monthly jobs decrease since 2010. The good news, though, is that this does not appear to be a structural issue, but rather an effect of severe weather in Texas and Florida.

“A sharp employment decline in food services and drinking places and below-trend growth in some other industries likely reflected the impact of Hurricanes Irma and Harvey,” BLS stated.

Despite the job losses, the unemployment rate fell to 4.2 percent, the lowest level since February 2001, as the labor force participation rate increased 0.2 percentage points to 63.1 percent, the highest since March 2014.

The Federal Reserve Federal Open Market Committee (FOMC) met Sept. 19-20 and left interest rates unchanged, as it observed that “economic activity has been rising moderately so far this year.” The Fed has raised interest rates twice in 2017 – most recently in June – and at least one more hike is expected this year.

“The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further,” the Fed stated following its meeting.

The Fed signaled its confidence in the economy by announcing that it will begin withdrawing the $4 trillion in “quantitative easing” bond purchases it engaged in following the Great Recession. It plans to reduce its holdings by $10 billion a month to start, with that amount expected to rise to $50 billion a month over the next year.

“The basic message here is U.S. economic performance has been good,” Fed Chairman Janet Yellen said.

The next FOMC meeting is scheduled for Oct. 31-Nov. 1, but a rate increase is not expected until the Dec. 12-13 meeting.

Yellen’s term as Fed chairman is set to expire on Feb. 3, and President Donald Trump indicated at the end of September that he would announce whether he will reappoint her or select somebody new in October.

Consumer confidence was little changed in September, with The Conference Board reporting that its Consumer Confidence Index slipped 0.6 points to 119.8. (The index’s baseline is 100 in 1985.) As with the jobs statistics, the September storms appear to have depressed the numbers.

“Confidence in Texas and Florida … decreased considerably, as these two states were the most severely impacted by Hurricanes Harvey and Irma,” the organization’s director of economic indicators said. “Despite the slight downtick in confidence, consumers’ assessment of current conditions remains quite favorable and their expectations for the short term suggest the economy will continue expanding at its current pace.”

The University of Michigan’s Index of Consumer Sentiment also declined – and for the same reasons – falling to to 95.1 in September from 96.8 in August.

“Given that the survey was able to reach most households in Florida and Texas in late September, it should be no surprise that small declines were recorded in the current financial situation of households,” researchers said.

The index’s average through the first nine months of the year is the highest the university has recorded since 2000.

Business confidence appears to be improving, with the Institute for Supply Management’s Purchasing Managers Index rising 2 points in September to 60.8, the highest reading since May 2004. All but one of the 18 manufacturing industries surveyed reported growth, with the only exception being furniture and related products.

“Comments from the panel reflect expanding business conditions, with new orders, production, employment, order backlogs and export orders all growing in September; as well as, supplier deliveries slowing (improving) and inventories growing at a slower rate during the period,” the organization stated.

Housing starts were largely unchanged from July to August, declining by 0.8 percent, according to the Census Bureau and the Department of Housing and Urban Development, while existing home sales slid 1.7 percent, the fourth decline in five months, the National Association of Realtors reported.

“Steady employment gains, slowly rising incomes and lower mortgage rates generated sustained buyer interest all summer long, but unfortunately, not more home sales,” the association’s chief economist said. “What’s ailing the housing market and continues to weigh on overall sales is the inadequate level of available inventory and the upward pressure it’s putting on prices in several parts of the country. Sales have been unable to break out because there are simply not enough homes for sale.”

Car sales in September were down 3.3 percent compared to September 2016, contributing to a 10.5 percent decrease in year-to-date sales, according to Motor Intelligence. Light-duty truck sales increased 12.4 percent and were up 4.4 percent through the first nine months of the year.

The Dow Jones Industrial Average hit a record high on Sept. 20, before sliding back a few points and closing the month at 22,405.09. The S&P 500 Index ended September at a record 2,519.36.

The dollar was trading at 0.85 euros, 0.75 pounds, 112.49 yen and 6.65 yuan, all close to where it has been in recent months.

Notwithstanding the impact of Harvey and Irma, the economy appears to be gaining strength, with both consumer and business confidence at high levels. Also of critical importance to the nation’s economic well being, the Trump administration is taking a break from pushing for the protectionist policies that it has endorsed for much of the year. The Commerce Department is still working on its Section 232 investigation of steel imports – an inquiry it had been expected to complete in June – and Commerce Secretary Wilbur Ross said in September that the administration will not address steel trade issues, including the possible imposition of tariffs, until after Congress takes up tax reform. While Ross framed this as merely a “question of timing,” it is at least encouraging that the urgency with which Trump advocated for a tightening of restrictions on steel imports appears to have diminished. If it actually has, then Trump will move the country much closer to achieving his goal of consistent 3 percent growth. But if this is simply a tactical delay and tariffs and quotas are still on his agenda, the current momentum will quickly disappear.

Steel Shorts September 2017

Section 232 Investigation on Hold Until After Tax Reform

Secretary of Commerce Wilbur Ross said in late September that his agency’s completion of the Section 232 investigation of steel imports will have to wait until after Congress takes up tax reform.

In April, President Donald Trump directed the Commerce Department to initiate the investigation of the impact of steel imports on national security. Although it has nine months to complete the inquiry, the agency had been expected to issue a report in June.

The administration is delaying a decision on tariffs and other steel trade measures because it is wary of alienating senators whose support will be needed to overhaul the tax code, Ross said.

“What we don’t want to do is things that will unnecessarily irritate the Senate because we need the votes there, and as was proven with health care, there’s a very fragile margin,” Ross said on CNBC.

Ross indicated that the administration is not backing away from its support for more protectionist trade policies, saying the move “is a question of timing more than it is direction.”

Chamber of Commerce Warns Against Abandoning NAFTA

The U.S. Chamber of Commerce is cautioning against pulling out of NAFTA, with the head of the organization saying such a move “would be an economic, political and national-security disaster.”

Both as a candidate and as president, Trump has bashed the North American Free Trade Agreement (NAFTA) as being unfair to the United States. Amid threats to withdraw from the pact, his administration initiated talks with Canada and Mexico to revise the deal.

Several rounds of negotiations have taken place, and Chamber of Commerce President and CEO Thomas Donohue wrote in a Sept. 24 column in The Wall Street Journal that the administration must avoid pushing for certain “ideas that are opposed vociferously by the U.S. business and agriculture communities, as well as by the Canadian and Mexican governments,” since they “would all but guarantee that negotiations break down.”

Ending tariff-free trade in North America, Donohue wrote, “would hit American consumers and exporters in the pocketbook. … Hundreds of thousands of American jobs would be lost, and that’s a conservative estimate.”

“Undermining Nafta [sic] would be a grave and costly mistake that would hurt the very farmers, manufacturers, workers and families this White House purports to protect,” he wrote. “Americans should do everything necessary to avert this grievous self-inflicted wound.”

Steel Production Cuts Implemented in China

China in late September implemented steel production cuts that are expected to reduce national output by 20 million metric tonnes.

Amid criticisms by the United States and other Western nations that it is contributing to global excess capacity, China, the world’s largest steel-maker, is setting out to reduce production as part of an industrial overhaul intended to make the country’s manufacturing more efficient and environmentally sustainable.

Chinese authorities have reportedly been more aggressive recently in conducting environmental investigations of steel mills. This has resulted in hundreds of smaller mills being closed and production becoming more concentrated among larger companies.

“The inspections are much more rigorous than previous years,” Reuters quoted a senior manager at a state-owned mill in Shandong province as saying. “Authorities are sending more teams to the mills more frequently. They don’t give you any notice in advance and only carry out surprise checks.”

Commerce Department Finds China, India Subsidized Tubing Exports to U.S.

The Department of Commerce announced affirmative preliminary determinations in the countervailing duty investigations of imports of cold-drawn mechanical tubing from China and India.

“The merchandise covered by these investigations is cold-drawn mechanical tubing of carbon and alloy steel (cold-drawn mechanical tubing) of circular cross-section, in actual outside diameters less than 331 mm, and regardless of wall thickness, surface finish, end finish or industry specification,” the agency explained.

Subsidy rates for China ranged from 33.31-35.69 percent, while subsidy rates for India were from 3.04-8.09 percent.

The Commerce Department is expected to make final determinations in the cases by Dec. 4. If those determinations are positive, the International Trade Commission will then determine if domestic manufacturers suffered material injury as a result of the subsidies.

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