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NAM: Monday Economic Report

The U.S. economy grew 3.5 percent at the annual rate in the third quarter, according to revised data, its strongest pace since the third quarter of 2014. That was up from an earlier estimate of 3.2 percent, with the improvement coming from better service-sector spending, nonresidential fixed investment and state and local government spending. Nonetheless, real GDP is expected to increase by just 1.6 percent in 2016, pulled lower by a very weak first half of the year, which grew only 1.1 percent. In addition, fourth-quarter real GDP will likely increase by around 2 percent. The reduced performance in the final quarter of the year stemmed from disappointing consumer spending, durable goods orders and international trade figures, among others. On the latter point, the goods trade deficit jumped significantly in November, likely making net exports a drag on real GDP growth in the fourth quarter. The strong U.S. dollar, which has risen 27.5 percent over the past two and a half years against major currencies, has dampened international demand for goods exports.

Today, we will get a further sense of how rising sentiment has impacted manufacturers with the release of the latest Purchasing Managers’ Index data from the Institute for Supply Management. The November survey results reflected a five-month high, with demand and output experiencing notable improvements. We will see if that expansion will strengthen further in December.

In addition, financial markets will be closely watching the jobs data, which come out on Friday. Nonfarm payrolls have averaged roughly 180,000 per month through the first 11 months of 2016, indicating decent growth overall, with the unemployment rate falling to 4.6 percent, its lowest level since August 2007. However, the data have been choppy at times and not as broad based as we might prefer, especially for manufacturing, which lost 60,000 workers on net year to date. We would expect continued softness in hiring for the sector in December, but employment should begin to pick up in 2017.

Other data highlights this week include new numbers for construction spending as well as factory orders and shipments.

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