Monday Update: Consumers Still Shopping

A look at last week’s data

Consumers willing to keep spending. The retail sales report showed that consumers continued to spend, despite the turmoil of the election.

• Headline sales, which include autos, grew by 0.8 percent in October, significantly faster than expected, and the previous month’s growth was strong as well, at 0.6 percent.
• Core retail sales, excluding autos and gas, also significantly beat expectations, at 0.6 percent growth, and the prior month was revised upward from growth of 0.3 percent to 0.5 percent.

Industrial production disappoints. Industrial production data came in worse than expected—flat for October and with a downwardly revised decline of 0.2 percent in the previous month. The weakness was weather related, however, as utility production dropped during the third-warmest October on record. Manufacturing output did better, up by 0.2 percent for the second month in a row, and mining output, which includes oil production, had the biggest rise in more than two years. Although the data wasn’t great, the details were better than the headline number suggested, and the manufacturing figures show continued slow growth.

Housing starts jump. The National Association of Home Builders (NAHB) survey remained stable at 63, a very solid figure. Housing starts, on the other hand, popped from 1.047 million to 1.323 million, well above expectations of 1.156 million and the highest level since before the financial crisis. On a 12-month average basis, housing starts are also at their highest point since before the crisis. This result suggests that consumers are very positive about the economy and that housing will remain a tailwind.

Inflation seems contained. As expected, the consumer price index increased by 0.4 percent in October, up from a monthly increase of 0.3 percent the previous month; it increased by 1.6 percent on the year, up from 1.5 percent, largely due to higher energy prices. Core consumer prices, excluding food and energy, increased by 0.1 percent, the same as the previous month and less than the expected 0.2 percent, while year-on-year changes dropped to 2.1 percent. The increase in oil prices is driving the two measures to converge, but inflation pressures overall remain contained.

The week ahead

Following up on last week, this week’s data will include looks at housing and industry, as well as possible insight into the Fed’s thinking.

Slated for release on Tuesday, existing home sales are expected to drop slightly, from 5.47 million to 5.44 million, constrained by a lack of inventory, with homes for sale close to a 15-year low. New home sales, released on Wednesday, are expected to drop slightly as well, from 593,000 to 590,000.

Also on Wednesday, the durable goods orders report will provide a snapshot of business confidence and the manufacturing outlook.

• The headline order number, which includes aircraft, is expected to bounce from a decline of 0.3 percent to a gain of 1.1 percent, with significant upside potential. Such a bounce would likely be due to the notoriously volatile commercial aircraft segment.
• Core orders, which exclude transportation, are expected to show a more modest increase, from growth of 0.1 percent to 0.2 percent, which would ratify the continued slow improvement in the manufacturing data from other surveys.

Finally, also on Wednesday, the minutes of the latest meeting of the Federal Open Market Committee will be released. Expectations are low for any real new news here, but analysts will be looking for hints as to what, if anything, might derail a December rate increase.

Happy Thanksgiving!

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