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Last week was relatively quiet for economic news—the few major reports released related to international trade and service sector and consumer confidence. The trade deficit narrowed as expected, while service sector and consumer confidence both increased by more than anticipated. This week, a little more action is forthcoming, as we’re expecting updates on consumer and producer inflation, retail sales, and industrial production.
Last week’s news
The week began with Tuesday’s release of the September international trade report. As expected, the trade deficit narrowed from $54.9 billion in August to $52.5 billion in September. The cause was a 1.7 percent decrease in imports, which more than offset the 0.9 percent decline in exports we saw during the month. The General Motors (GM) strike was partly responsible for the decrease in exports, as motor vehicle exports fell by 7 percent in September. International trade was a net negative for third-quarter GDP growth, as continued uncertainty from the U.S.-China trade war slowed overall trade activity.
Also on Tuesday, the ISM Nonmanufacturing index was released. This measure of confidence for the service sector increased by more than expected, from a three-year low of 52.6 in September to 54.7 in October. Economists had forecasted a more modest increase to 53.5. This is a diffusion index, where values above 50 indicate expansion, so the uptick in confidence helps calm fears of a potential recession in the service sector. Although the October increase was welcome, the index sits well below 2018 levels, indicating slower growth is likely.
On Friday, the University of Michigan consumer confidence survey was released. Consumer confidence climbed from 95.5 in October to 95.7 in November, against expectations to remain flat. A stronger-than-expected October jobs report, combined with equity markets at or near all-time highs early in the month, helped support the higher confidence levels. In turn, high consumer confidence has supported the strong consumer spending growth we’ve experienced throughout most of the year. So, even if the strong survey results represent only a modest increase in absolute terms, they were welcome.
What to look forward to
On Wednesday, the Consumer Price Index (CPI) for October is scheduled to be released. Headline inflation is set to increase by 0.3 percent during the month, following a flat September. On a year-over-year basis, economists expect headline inflation to remain steady at 1.7 percent. One of the major drivers of low headline inflation is the low gas prices we’ve seen this year. Core CPI, which strips out the impact of volatile food and energy prices, is set to show 2.4 percent annual growth.
Speaking of inflation, on Thursday, the Producer Price Index for October will be released. As was the case with consumer prices, economists expect to see headline inflation increase by 0.3 percent during the month. Core producer inflation is expected to grow at a faster rate than the headline figure. The forecast for core prices is a 1.5 percent increase on a year-over-year basis, compared to 0.9 percent annual headline inflation growth. Despite the expected uptick in both consumer and producer prices for October, inflation remains largely subdued and below the Fed’s 2 percent target.
On Friday, the October retail sales report is set to be released. Economists expect a rebound in retail sales of 0.2 percent following the 0.3 percent decline in September. September marked the first time in seven months that sales declined, so a return to growth in October would be quite welcome. Consumer spending growth powered much of the economic expansion in the second and third quarters, so continued sales growth to start the fourth quarter would bode well for overall economic growth.
Finally, we’ll finish out the week with the release of the October industrial production report. Economists are predicting another down month for industrials, with a 0.3 percent decline expected to follow the 0.4 percent drop in September. Manufacturing output is expected to fall 0.5 percent in October, matching a similar decline in September. For the second month in a row, the GM strike is partially to blame for the anticipated decline. Even before the strike, however, manufacturer confidence had dropped to recessionary levels due to the uncertainty caused by the trade war. Going forward, there may be some room for industrial production growth in November. The end of the GM strike, combined with the potential de-escalation of the trade war, could help spur manufacturer confidence and output.
That’s it for this week—thanks for reading!
