Print
Last week gave us a broad look at the economy, including industrial production and housing. While the business news was generally positive, housing was more mixed—suggesting a potential slowdown in the next couple of quarters. It is clear that growth continues and is likely to keep going for some time. Still, and despite the disruptions from the hurricanes, there are signs that we are in the later part of the economic cycle and will need to keep an eye out for slowing growth.
Last week’s news
On Tuesday, industrial production met expectations. We saw a 0.3-percent increase in September, up from an upwardly revised 0.7-percent decline in August. There is likely some lingering weather impact on this figure, as oil drilling and utilities production were hit especially hard. As such, there may be scope for even more of a rebound in October. Manufacturing was up by 0.1 percent in September, a small rebound from the 0.2-percent decline in August. This result was somewhat disappointing, but again, there were signs this was largely due to the storms. While not terrific, this data set is broadly in line with an economy recovering from storm damage and continuing to grow.
The National Association of Home Builders survey was also released on Tuesday. It substantially beat expectations by rising to 68 (a five-month high) from 64, rather than staying flat on labor and material shortages. This index remains near multiyear highs. Here, the question is how much of the confidence bounce is due to expected work in hurricane states, rather than to new development.
On Wednesday, the release of September housing starts showed that potential hurricane work might well be a big part of the aforementioned rise in confidence: despite high confidence levels, actual housing starts dropped substantially. There was a 4.7-percent decline in September, down from a 0.8-percent decline in August and well below expectations for a 0.4-percent decline. On top of the weak monthly data, the six-month trend also rolled over, suggesting possible further weakness ahead.
There was good news on Friday, as existing home sales for September came in better than expected. This result suggests that weakness, while possible, is not ensured. There was a 0.7-percent increase in September, up from a 1.7-percent decline in August and well above expectations of a further 0.9-percent decline. That being said, longer-term trends weakened here, with sales down 1.5 percent on a year-to-year basis, the first time since July 2016. Supply continues to be the major concern for existing home sales, as inventories were 6.4 percent lower than they were a year ago.
What to look forward to
This week will be a relatively slow one, but it still will give us a look at the economy as a whole.
On Wednesday, the durable goods orders data will indicate how business investment is doing. The headline number is expected to rise by 1.3 percent in September, down from a 2-percent gain in August. While this still would be a solid number, it could have some downside risk, as commercial aircraft orders are extremely volatile. The core index, which excludes transportation and is a better economic indicator, is expected to grow by 0.4 percent in September. This would be down from 0.5-percent growth in August, but it would indicate continued healthy business investment growth.
Also on Wednesday, the new home sales report is expected to tick down slightly from 560,000 in August to 550,000 in September. August’s number was a surprise drop to its lowest level since the end of 2016, so there may be some upside risk of a bounce back. If the number comes in as expected, it would suggest a continued moderation in housing demand.
Finally, on Friday, the first estimate of economic growth for the third quarter will be released in the GDP report. Expectations are for growth to drop from 3.1 percent in the second quarter to 2.5 percent, which still would be reasonably healthy. The slowdown is expected to come from slower consumption growth and lower government spending, although those would be partially offset by faster business investment growth. Overall, if the numbers come in as expected, they would indicate continued but moderate growth. This would be considered a positive sign going forward.
Have a great week!
