Today's post is from Sam Millette, a fixed income analyst on our Investment Management and Research team.
Last week, we saw positive results from some of the major economic data releases, as the economy appears to be strengthening following the hurricanes. This strong performance is in line with recent data and indicates that we may be entering a period of accelerated growth.
Last week’s news
On Wednesday, the Fed released the minutes from its last meeting in September. Based on the notes, Fed members are concerned that weak inflation numbers are likely to persist. Markets still believed that the minutes were hawkish, as a majority of Fed officials plan for one more rate hike this year.
Speaking of inflation, the Fed was given more news on Friday with the release of consumer price data. The headline Consumer Price Index rose by 0.5 percent in September against expectations for a 0.6-percent increase. The annual figure also came in slightly lower than anticipated, with growth of 2.2 percent compared with expectations of 2.3 percent. The core figure, which excludes volatile gasoline and food prices, rose by a more modest 0.1 percent and 1.7 percent for the month and year, respectively. Although this result is slightly below the Fed’s stated 2-percent inflation target, again, the recent minutes show that the Fed may be ready to raise rates once more this year.
Also on Friday, retail sales showed very solid growth of 1.6 percent for September. Much of this was due to an uptick in auto sales, as vehicles damaged in the hurricanes had to be replaced. The core figure, which excludes automobile and gas purchases, rose by a healthy 0.4 percent. Overall, these positive numbers indicate that consumers are continuing to spend despite the hurricanes.
Finally, on Friday, the University of Michigan Consumer Sentiment Index surprised by jumping from 95.1 to 101.1, against expectations for a slight decrease to 95. This increase brought the survey to a 13-year high, suggesting that consumers are clearly unconcerned with the impact of the hurricanes. This resilience is very positive given the important role of the consumer in the economy, and it bodes well for faster growth.
What to look forward to
This will be a relatively subdued week for economic news; however, we’ll see the release of a number of important housing data points.
On Tuesday, industrial production is expected to rise modestly following a 0.9-percent decline in August. We anticipate some lingering hurricane-related effects on this figure, as oil production was hit particularly hard by the first hurricane in August. If this measure disappoints, it would not be worrisome, as it’s likely to rebound significantly next month.
Also on Tuesday, the National Association of Home Builders survey will be released. This measure of home builder confidence is expected to decline slightly, largely due to labor and material shortages. This index remains near multi-year highs, however; any reading near current levels would indicate continued confidence.
On Wednesday, the release of September housing starts data will show if home builders are translating this confidence into new construction. While the expectation is for housing starts to remain flat, low levels of supply and rising prices may influence some growth in this figure.
Finally, on Friday, existing home sales data for September is also expected to remain flat. Supply continues to be a major concern for existing home sales, as August marked the seventh month in a row where the supply of existing homes dropped. Existing home supply now sits at lows that haven’t been seen since 1994. Demand remains strong, however, so this figure may also improve.
Have a great week!