On Wednesday, the Consumer Price Index (CPI) for October was released. Consumer inflation came in a bit above the forecast, with prices rising 0.4 percent for the month against expectations for a 0.3 percent increase. This brought headline inflation up to 1.8 percent on a year-over-year basis, more than the 1.7 percent growth predicted. Rising gas prices were the major driver of the headline figure. Core CPI, which strips out the impact of energy and food prices, increased by only 0.2 percent for the month. Year-over-year core CPI growth fell from 2.4 percent in September to 2.3 percent in October. Apparently, consumer prices haven’t been feeling the anticipated upwards pressure from the additional tariffs on Chinese goods that went into effect in September.
On Thursday, we received the Producer Price Index (PPI) for October. As was the case with consumer inflation, rising gas prices drove headline PPI growth to 0.4 percent for the month. Core PPI lagged with a 0.3 percent increase. On a year-over-year basis, headline PPI growth fell to 1.1 percent, down from 1.4 percent in September. Core producer inflation increased by 1.6 percent over the past year, down from the 2 percent growth rate in September. Together, the CPI and PPI reports show that, despite the impact of increasing gas prices, core inflation pressure remains muted for both consumers and producers.
On Friday, the October retail sales report was published. Headline retail sales beat expectations, rising 0.3 percent against predictions for more modest 0.2 percent growth. This result was partially due to increased gas prices. The core retail sales that strip out automobile and gas spending grew only 0.1 percent during the month, rather than the 0.3 percent growth that was expected. Despite the miss on core retail sales growth, this report was still positive, given that headline and core sales returned to growth, following disappointing declines in September. Consumer spending has been a major bright spot this year, so this start for the fourth quarter is encouraging. Perhaps we’ll see overall economic growth to end the year.
Finally, we finished out the week with Friday’s release of the October industrial production report. Industrial production fell 0.8 percent during the month, against expectations for a 0.4 percent decline. This disappointing result was due to the General Motors (GM) strike and a fall in utilities output caused by warmer-than-average weather. Each of these factors is expected to reverse in November. GM has ramped up its factories since the strike ended in late October, and the Northeast and Midwest have been gripped in an extended cold streak. Still, even with these tailwinds, manufacturing output in November may remain muted due to the slowdown in global trade and continued manufacturer pessimism.
The week began with Monday’s release of the National Association of Home Builders Housing Market Index, which declined slightly from 71 in October to 70 in November. This decline breaks a four-month streak of increased home builder confidence. Despite the modest pullback in November, home builder confidence still sits near post-recession highs, as cheap borrowing costs continue to drive an uptick in potential buyers. The portion of the index that focuses on future sales increased in November, which indicates that home builders are more optimistic about the next six months for the housing market. Overall, while the decline this month was slightly disappointing, home builder confidence remains high, so there is no immediate cause for concern.
Speaking of home builders, with Tuesday’s release of October’s building permits and housing starts reports, we’ll get a chance to see if the increased confidence has led to faster housing growth. Permits are expected to decline modestly, while starts are slated to increase by a healthy 4.9 percent. These measures of new home construction can be volatile on a month-to-month basis. But over the course of the year, housing starts have trended up. Material costs have come down from 2018 highs, while buyer demand remains strong.
On Wednesday, the FOMC minutes from the October meeting will be released. The committee voted to cut the federal funds rate by 25 bps at this meeting, marking the third straight meeting with a rate cut. Recent comments from Fed chairman Jerome Powell to Congress reiterated the Fed’s messaging that further rate cuts are unlikely unless a marked slowdown in economic growth occurs. Economists are looking for any hints in the October minutes as to what type of weakness would lead the Fed to reevaluate that stance. We might also get some interesting commentary regarding the recent volatility in the overnight repurchase market and how the Fed is reacting to this development.
Thursday will see the release of October’s existing home sales report. Home sales are expected to grow by 2.1 percent in October, rebounding from a decline of 2.2 percent in September. This result would mark the fourth straight month of year-over-year growth in existing home sales. Housing has been one of the major bright spots in the economy over the past few months, as the return to year-over-year growth in existing home sales demonstrates.
Finally, we’ll finish out the week with the second and final reading of the University of Michigan consumer confidence survey for November. Economists expect the index to increase slightly, from 95.7 at the start of the month to 95.8. Continued equity market strength and a better-than-expected jobs report helped boost confidence for the second straight month, following the surprising decline to a three-year low in August. Going forward, higher consumer confidence would be quite welcome, as high confidence levels should help support faster consumer spending growth.
That’s it for this week—thanks for reading!