On Tuesday, the November Producer Price Index report was released. Producer prices increased by more than expected during the month, as headline prices increased by 0.8 percent in November against calls for a 0.5 percent increase. On a year-over-year basis, producer prices increased by 9.6 percent, up from the upwardly revised 8.8 percent year-over-year growth rate that we saw in October. This brought the annual increase in headline producer prices up to its highest level from records back to 2010. Core producer prices, which exclude volatile food and energy prices, increased by 0.7 percent during the month and 7.7 percent on a year-over-year basis. The larger-than-expected increase in prices was driven by rising price pressure on materials and services during the month. Producer prices have seen upward pressure throughout the year as improvements on the medical front led to a surge in spending, while supply chains remained tangled and transportation costs increased.
Wednesday saw the release of the November retail sales report. Sales increased by less than expected during the month, as headline sales increased by 0.3 percent against calls for a 0.8 percent increase. This was down notably from the upwardly revised 1.8 percent increase in retail sales that we saw in October, but it still marked four consecutive months with retail sales growth. Core retail sales, which strip out the impact of volatile auto and gas sales, increased by 0.2 percent during the month against calls for a 0.8 percent increase. The slowdown in spending growth during the month is understandable given the declines in consumer confidence that we’ve seen throughout the past few months. But slower growth is still growth, which is a good sign for the overall economic recovery during the month.
Wednesday also saw the release of the National Association of Home Builders Housing Market Index for December. This measure of home builder confidence improved as expected during the month. The index increased from 83 in November to 84 in December, which was in line with economist forecasts. This solid result brought the index to its highest level since February and signals an accelerated expansion for the home building industry during the month. Home builder confidence has improved over the past few months after dipping modestly during the summer, supported by high levels of prospective home buyer demand and a relative lack of existing homes for sale. The improvement in December was driven by an increase in prospective home buyer foot traffic, which is an encouraging sign that home buyer demand remains strong despite rising prices and mortgage rates.
The third major release on Wednesday was the FOMC rate decision from the Fed’s December meeting. The Fed cut interest rates to virtually zero at the start of the pandemic, and there were no changes to the federal funds rate at this meeting, as expected. Instead, the focus was on the Fed’s decision to increase the pace of tapering for secondary market asset purchases. The Fed had been purchasing $120 billion per month in Treasury and mortgage-backed securities throughout most of the pandemic, but it started to ease the pace of purchases by $15 billion in both November and December. The central bank announced that it will drop the pace of purchases by an additional $30 billion in January, which doubled the pace of the original tapering plan and indicates that the Fed may wind down its quantitative easing program by March of next year. Given the high levels of inflationary pressure throughout the economy and the improvements that we’ve seen this year for the labor market, this increased hawkishness was expected and may signal further tightening in the months ahead.
Thursday saw the release of the November housing starts and building permits reports. These measures on new home construction both showed signs of faster growth during the month. Permits increased by 3.6 percent, while starts surged by 11.8 percent. Both permits and starts saw faster growth than expected during the month. These better-than-expected results brought the pace of new home construction to its second-fastest level in eight months, highlighting the positive impact of rising home builder confidence during the month. The pace of new home construction remains well above pre-pandemic levels, as the housing sector continues to show signs of healthy growth due to high levels of home buyer demand. Given the increased home builder confidence in December, lack of available homes for sale, and continued high levels of home buyer demand, construction growth is expected to remain strong to finish out the year.
We finished the week with Thursday’s release of the November industrial production report. Industrial production increased by 0.5 percent during the month, which was slightly below the 0.6 percent increase that economists had previously forecasted. Manufacturing production increased by 0.7 percent during the month, which was in line with expectations. We also saw capacity utilization increase to its highest level since December 2018, which was an encouraging sign that the producer recovery continued to pick up steam in November. This now marks two consecutive months with industrial production and manufacturing output growth following a weather-related slump in September. Production growth was supported by high levels of demand for consumer goods and business equipment during the month, and increased auto production helped support overall production growth in November. Overall, this was an encouraging report, as it indicates that manufacturers continue to invest in and grow their businesses in order to meet high levels of pent-up demand.
Wednesday will see the release of the Conference Board consumer confidence survey for December. This widely followed measure of consumer confidence is expected to increase modestly during the month, from 109.5 in November to 110.6 in December. If estimates hold, this would represent a partial rebound for the index after confidence slumped in November. But it would still leave the index well below the recent high of 128.9 that we saw in June. Confidence has declined over the past few months from summer highs due in large part to rising concerns about inflation, as well as rising health risks due to the Delta and Omicron variants. Historically, improving confidence has helped support increased consumer spending growth, so this will continue to be a widely monitored monthly data release due to the importance of consumer spending to the overall economy.
Wednesday will also see the release of the November existing home sales report. Existing home sales are expected to increase by 3.3 percent during the month, following a better-than-expected 0.8 percent increase in October. If estimates prove to be accurate, this would bring the pace of existing home sales to their highest level since January, and it would signal continued strength for the housing market. Home sales growth has picked up notably compared to pre-pandemic levels, as low mortgage rates and shifting home buyer preference for more space due to the pandemic have spurred a surge in sales growth. The sales growth this year has been especially impressive given the lack of supply of existing homes for sale, as well as rising prices and mortgage rates. If we do see continued sales growth in November, it would be a reminder that the housing sector remains one of the highlights of the current economic recovery.
On Thursday, the preliminary estimate for the November durable goods orders report is set to be released. Durable goods orders are expected to increase by 1.8 percent during the month, following a 0.4 percent decline in October. The anticipated rebound in headline orders is due in part to a rebound in volatile commercial aircraft orders during the month. Core durable goods orders, which strip out the impact of transportation orders, are set to increase by 0.6 percent during the month, following a solid 0.5 percent increase in October. If estimates hold, this would mark nine straight months with core durable goods orders growth. Core durable goods orders are often viewed as a proxy for overall business investment, so this anticipated increase in November would be a positive sign that businesses continued to spend and invest during the month in order to meet high levels of demand.
We’ll finish the week with Thursday’s release of the November personal spending and personal income reports. Both personal income and personal spending are expected to increase by 0.5 percent during the month. If estimates hold, this would mark nine straight months of personal spending growth. Spending growth has been supported throughout much of the year by improvements on the public health front, which allowed for an easing of state and local restrictions that, in turn, supported steady spending growth. Personal income growth has been more volatile throughout the course of the year, as shifting federal unemployment and stimulus payments have led to high levels of monthly volatility in average income. With that being said, if estimates prove to be accurate, this would mark two consecutive months with rising personal income after the expiration of enhanced unemployment benefits in September caused income to decline during the month.
That’s it for this week—thanks for reading!