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Data was mixed last week, with multiple signs of a slowdown. But, in many cases, this was due primarily to a pullback from strong recent performance, while the long-term trend remains positive. In addition, more forward-looking indicators were generally more positive than those that look back, suggesting the slowdown is passing.
Last week’s data
Consumer prices. Prices changed pretty much as expected. For the headline inflation rate, the October number moved back into positive territory, to 0.2 percent from –0.2 percent, bringing the annual rate up to 0.2 percent from flat over the previous year. For core inflation, which excludes energy and food, October also showed an increase of 0.2 percent, the same as in the previous month, with the annual rate for the past 12 months staying constant at 1.9 percent. Under the hood, medical care prices increased 2.0 percent on the month, which reversed much of the recent weakness, while gasoline prices started to increase by 0.4 percent on the month.
Industrial production. In contrast with prices, which came in line with expectations, the industrial production number was a disappointment, with a decline of 0.2 percent, the same as the previous month, as compared with expected growth of 0.1 percent. To some extent, this was an outlier, with the fourth-warmest October on record resulting in a decrease in utilities output, but energy also continued to be a larger-than-expected drag. The good news is that net of energy and utilities, the manufacturing sector grew by 0.4 percent, suggesting that at least part of the industrial complex is stabilizing.
Housing. The monthly survey of members of the National Association of Home Builders ticked down slightly, to 62, from the all-time high of 65 in the previous month. Despite the decline, builder confidence remains very high by historical standards. Housing starts also decreased, to 1,060,000 from 1,206,000. This decline was larger than expected, but it was somewhat mitigated by an increase in building permits, which were up from 1,103,000 to 1,150,000, suggesting the weakness might be temporary.
Federal Open Market Committee (FOMC). Finally, the minutes of the October meeting of the FOMC were released on Friday. These were generally considered to be more hawkish than expected and, given recent data, make a December rate increase likely. One notable component of the minutes was the Fed’s general assessment that economic growth remains solidly on track; given its generally downbeat tone, this was considered a positive indicator.
This week’s data
Despite the upcoming Thanksgiving holiday, there is quite a bit of data being released this week. Existing home sales were released today, with a drop to 5.36 million, down from 5.55 million in September, which was slightly below expectations. Along with the decrease in housing starts from last week, this suggests housing growth is slowing. But note that the September increase was substantial, so some pullback was reasonable, while the long-term trend remains positive. New home sales, released on Wednesday, are expected to increase from 468,000 to 510,000, suggesting that while housing growth may have slowed, it is not dead yet.
On Tuesday, the Conference Board’s Consumer Confidence survey is expected to increase from 97.6 to 99.2. Two of the primary drivers of confidence—gasoline prices and the stock market—have both been moving in the right direction, while jobless claims remain low. Consumer confidence is expected to remain strong as we head into the holiday season, which should augur well for retail sales.
The most important data release next week will be the personal income and spending reports on Wednesday. Both are expected to increase from weak results in September, with income growth anticipated to rise from 0.1 percent to 0.4 percent and spending growth from 0.1 percent to 0.3 percent. As consumer spending constitutes more than two-thirds of the economy—and depends on consumer income—these will be carefully watched. Although spending growth continues to lag income growth, both are growing at healthy and increasing rates.
Finally, durable goods orders will also be released on Wednesday. The headline number, which includes transportation, is expected to swing from a decline of 1.2 percent in September to an increase of 1.5 percent, on large orders for Boeing and a recovery in motor vehicle orders. The core number, which excludes transportation, should show its first increase in three months, going from a decline of 0.3 percent to an increase of 0.4 percent. Again, this is an indication that manufacturing may be starting to stabilize.
Have a Happy Thanksgiving!
