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Home price growth is beginning to show signs of strain, recording the slowest annual gain since mortgage rates peaked in 2023. In August, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index recorded a 4.2% annual gain, down from 4.8% in July.

The 10-City Composite saw an annual increase of 6.0% in August, a decrease from 6.8% the previous month, while the 20-City Composite rose 5.2% year-over-year, down from 5.9% in July. Among the 20 cities, New York again posted the highest annual gain at 8.1%, followed by Las Vegas at 7.3% and Chicago at 7.2%. Denver had the lowest annual increase at 0.7%.

On a month-over-month basis, the U.S. National Index decreased 0.1% before seasonal adjustment but increased 0.3% after adjustment. The 20-City and 10-City Composites saw declines of 0.3% and 0.4%, respectively, pre-adjustment, while both posted gains of 0.4% and 0.3%, respectively, post-adjustment.

Despite the slowdown, home prices reached an all-time high for the 15th consecutive month after accounting for seasonality of home purchases. Regionally, all markets continue to remain positive, but only barely.

Compensation costs for civilian workers increased 0.8% in the three months ending in September. In the past year, compensation costs rose 3.9%, with wages up by the same amount and benefits up 3.7%. Manufacturing compensation costs rose 0.8% in the three months ending in September and are up 3.8% in the past 12 months, with manufacturing wages up 4.0% and benefits up 3.3%.

Private industry compensation costs increased 3.6% over the year, with wages up 3.8% and benefits up 3.3%. Inflation-adjusted compensation costs rose 1.2%. Within private industry, union workers saw a 5.8% increase in compensation costs, while nonunion workers had a 3.4% increase. State and local government workers experienced a 4.7% rise in compensation costs, with wages up 4.6% and benefits up 4.8%.

Consumer confidence rebounded in October to 108.7 from 99.2 in September. October’s gain was the largest since March 2021, with all five components of the index improving.

The Present Situation Index, reflecting current business and labor market conditions, increased 14.2 points to 138.0. The Expectations Index, which reflects consumers’ short-term outlook for income, business and labor market conditions, rose 6.3 points to 89.1, well above the recession signal threshold of 80. Consumers’ assessments of current business conditions turned positive, with 21.4% of consumers saying business conditions were “good.” Views of the current labor market situation also improved from September, with a higher share of consumers saying jobs were “plentiful.” Consumers also felt more optimistic about future labor market conditions for the first time since July 2023, with more consumers anticipating more jobs to be available than less. In addition, consumers felt more positive about future business conditions and future income prospects. Meanwhile, consumers’ views of their current financial situation were essentially unchanged from the prior month.

Despite slower overall price increases, inflation expectations ticked up to 5.3% in October, and expectations for higher interest rates rose. Consumers welcomed the recent reduction in interest rates but felt the rate level was still too high. Buying plans for homes and new cars continued to rise, while purchase plans for big-ticket appliances were mixed. While response were largely positive about economic conditions, concerns about a recession dropped to a new low in October.

In October, Texas factory activity rose notably, with the production index increasing dramatically from -3.2 to 14.6, while other indicators of manufacturing were mixed. The new orders index remained negative at -3.7, indicating demand was still slightly in decline. On the other hand, both the capacity utilization index and shipments index exhibited substantial gains and moved into positive territory, registering at 4.3 and 1.5, respectively.

Overall business conditions remained negative, although pessimism abated some. The general business activity index moved up six points but remained negative at -3.0, and the company outlook index improved slightly to -3.3. The outlook uncertainty index, which has been volatile lately, ticked down less than one point to 16.4 after surging nearly 10 points in the previous month.

Labor market indicators pointed to some employment declines and shorter workweeks in October. The employment index fell eight points to -5.1, while the hours worked index inched down three points to -5.5. About 14% of firms reported net hiring, while more than 19% noted layoffs. Moderate upward pressure on prices and wages persisted. The wages and benefits index rose five points to 23.5, roughly aligned with historical averages. The raw materials prices index ticked down to 16.3, while the finished goods prices index remained relatively unchanged at 7.4.

The outlook for future manufacturing activity remained optimistic. The future production index rose to 42.4, the highest reading in nearly three years, while the future general business activity index shot up 18 points to 29.6, also a three-year high.

Real GDP grew at an annual rate of 2.8% in the third quarter of 2024, down slightly from 3.0% in the second quarter and below consensus expectations of 3.1% growth. Growth during the quarter was driven by increases in consumer spending, exports and government spending.

Consumer spending grew at an annual rate of 3.7%, with both spending on goods (up 6.0%) and services (up 2.6%) contributing to the gain. Consumer spending on nondurable goods, led by prescription drug spending, rose a strong 4.9%, while spending on durable goods, led by motor vehicles and parts spending, showed more significant growth at 8.1%. Within services, spending on health care and food services and accommodations were the largest contributors to the increase. The increase in exports (up 8.9%) primarily reflected an increase in capital goods exports, excluding automotive, while the increase in federal government spending (up 9.7%) was led by defense spending (up 14.9%).

The drags on growth came from residential fixed investment, which decreased 5.1% in the third quarter, and a downturn in private inventory investment. Nonresidential fixed investment exhibited healthy growth of 3.3%, with a key driver being business spending on equipment, which rose 11.1%. A large portion of this gain was from investment in transportation equipment, which also contributed positively to GDP in the previous quarter.

In October, U.S. manufacturing remained in contraction but at the slowest pace in three months. The S&P Global U.S. Manufacturing PMI rose to 48.5 in October from 47.3 in September, remaining below the 50 threshold that indicates a contraction in the sector. This suggests manufacturing conditions continued to deteriorate but to a lesser extent than the previous month.

Output and new orders fell at slower rates in October, with political uncertainty cited as the key reason for the drop in new orders. Despite new orders continuing to fall, manufacturers scaled back production to the smallest degree in three months. However, manufacturers continued to reduce employment and purchasing activity.

New export orders also declined slightly but to a much lesser degree than total new business, as demand weakness was notable in Europe. Weaker sales led manufacturers to reduce output for the third consecutive month. While respondents’ optimism about future business conditions strengthened, the current demand slump has resulted in firms continuing to lower their employment levels and purchasing activity as we enter the final quarter of the year.

The pace of inflation eased slightly, with input costs increasing at the slowest pace in almost a year and output price inflation also easing. Where input prices increased, respondents reported higher costs for freight and raw materials, such as cardboard, metals and packaging.

In October, the U.S. manufacturing sector contracted for the seventh consecutive month, with the Manufacturing PMI falling to its lowest reading in 2024 at 46.5%, indicating activity was contracting at a faster pace. New orders (47.1%), production (46.2%), inventories (42.6%) and backlog of orders (42.3%) remained in contraction, with production, inventories and backlog of orders at faster rates of decline. Supplier deliveries are still slowing, and demand continued to be weak, with companies hesitant to invest due to uncertainty about the direction of federal monetary policy as it relates to the election.

The New Orders Index continued its contraction for the seventh consecutive month but is up 1.0 percentage point from September. This decline reflects ongoing uncertainty and concern about a lack of new order activity, with only two major sectors−computer and electronic products and food, beverage and tobacco products−reporting an increase in new orders. While their confidence in the future economic environment remains low, it ticked up slightly in October.

The Production Index remained in contraction in October and is down 3.6 percentage points from September. Of the six largest manufacturing sectors, three (computer and electronic products; food, beverage and tobacco products; and fabricated metal products) reported increased production.

The Employment Index inched up 0.5 percentage points from September, still among the lowest readings since July 2020. Companies continued to reduce headcounts through layoffs, attrition and hiring freezes, with only the food, beverage and tobacco products and machinery sectors expanding employment in October.

The Prices Index rose 6.5 percentage points to 54.8%, indicating raw materials prices increased in October after decreasing the month before. Energy and transportation costs were the primary drivers, with crude oil and natural gas increasing somewhat, offset by weakness in the steel markets. Approximately 20% of companies reported paying higher prices, compared to 13% in September.

In September, the number of job openings fell to 7.4 million, a decrease of 418,000 from the previous month and 1,864,000 from the previous year. The job openings rate decreased to 4.5%, down from 4.7% in August and 5.6% last year. This is the lowest level of job openings since January 2021 and another sign of a slowing labor market.

Job openings for manufacturing dropped by 10,000 to 481,000 in September, with the decrease of 15,000 job openings in nondurable goods outweighing the increase of 6,000 job openings in durable goods. The manufacturing job openings rate fell to 3.6%. The rate for durable goods manufacturing increased from 3.8% to 3.9%, while it decreased from 3.4% to 3.1% for nondurable goods.

The number of hires rose to 5.6 million from 5.4 million in August but are down 293,000 from the previous year. The hires rate edged up 0.1% to 3.5%. Meanwhile, the hires rate for manufacturing increased 0.4% to 2.8%. The hires rate for durable and nondurable goods rose to 2.6% and 3.0%, respectively.

Total separations, which includes quits, layoffs, discharges and other separations, rose 28,000 from August to 5.2 million but are down 326,000 from the previous year. The total separations rate stayed the same at 3.3% but rose to 2.9% from 2.5% for manufacturing. Within that rate, layoffs and discharges rose in September, while quits fell. The quit and layoff rates continue to remain lower for manufacturing than the total nonfarm sector.

Nonfarm payroll employment increased by a measly 12,000 in October, impacted by Hurricanes Helene and Milton and strike activity. August and September job gains were also revised downward by 112,000 jobs. The 12-month average stands at 181,000 job gains per month. Manufacturing employment, however, declined by 46,000, largely influenced by the Boeing strike. In addition, August and September manufacturing job losses were revised downward by 2,000. The unemployment rate stayed the same at 4.1%, while the labor force participation rate dipped 0.1% to 62.6%.

The employment-population ratio fell slightly to 60.0% and is down 0.3 percentage points from a year ago. Employed persons who are part-time workers for economic reasons decreased by 67,000 to 4.56 million but are up from 4.28 million in October 2023. Native born employment is up over the month but down 773,000 over the year. Meanwhile, foreign born employment is down over the month but up 1,034,000 over the year.

Average hourly earnings for all private nonfarm payroll employees rose 0.4%, or 13 cents, reaching $35.46. Over the past year, earnings have grown 4.0%. The average workweek for all employees remained at 34.3 hours in October.

The NAM recently interviewed Rep. Adrian Smith (R-NE) about the actions that he and congressional colleagues are taking to fight a looming “Tax Armageddon.” The full text is below.

NAM: Rep. Smith, Congress is facing a “Tax Armageddon” next year, as crucial provisions from 2017’s Tax Cuts and Jobs Act are set to expire. As a member of the House Ways and Means Committee, what is your focus moving into next year’s debate?

Smith: The 2017 cuts unleashed economic growth, promoted American business investment and benefitted workers more meaningfully than any policy reforms in a generation. Leading the Ways and Means Rural America Tax Team and as a member of the Main Street Tax Team, I am working hard to gather input from stakeholders, job creators and drivers of our nation’s growth potential. Manufacturing is an overlooked component of rural economies, and Americans know tax policy must encourage investment in their communities.

NAM: As you know, prior to 2022, businesses could deduct 30% of earnings before interest, tax, depreciation and amortization—a deduction standard known as EBITDA. A change in the tax code limits the deduction to only EBIT—excluding depreciation and amortization. This presents an added cost for businesses taking out loans to finance large capital investments in their facilities and equipment and disproportionately impacts the manufacturing sector.  What are you doing to correct this policy?

Smith: American manufacturers are already suffering under inflation, a worker shortage and a sustained high-interest environment in the United States. Bipartisan legislation I have introduced, the AIM Act, would amend the U.S. tax code to increase the cap on deductible business interest to pre-2022 levels. By ensuring capital-intensive industries can deduct more of the cost of interest from their taxes, we can enhance opportunities to develop new products in America, create jobs by making those products here and then sell those products around the world.

NAM: Congressman, you were on the Ways and Means Committee during passage of the TCJA in 2017, so you know how impactful the legislation was for manufacturers to be able to compete on a global level. As we get closer to next year, what are you hearing from stakeholders on the need for pro-growth tax policy so American businesses can engage and grow around the world?

Smith: Ensuring our tax code reflects the cost of doing business is essential for American manufacturing to compete in the global market. Prior to 2017, even President Obama realized our tax code was making American businesses less competitive. The fact there have been no major corporate inversions since passage of the TCJA is a remarkable testament to commonsense policy. Businesses we have heard from widely agree on the importance of keeping these policies in place and sustaining our strong growth.

NAM: Thank you, Rep. Smith. What else can NAM members do to stay engaged and be a resource for you going into next year?

Rep. Smith: Contacting my office with your feedback and how you have been impacted by the TCJA is always welcome. Continue to share stories about why growth-centered tax policies are key to your success and how you would change course should they expire. Together, we can maximize productivity and growth through a tax code that is a net benefit to all.