Key US data releases and events
On tap for next week: housing, consumer sentiment, and durable goods.
Fed members contemplate the possibility of tapering. According to the minutes from the Federal Reserve’s 29–30 October meeting of the Federal Open Market Committee, at which the committee maintained the $85-billion/month pace of asset purchases, members pointed out that “if economic conditions warranted, the Committee could decide to slow the pace of purchases at one of its next few meetings.” This was not news. We have known for some time now that the decision to initially taper QE3 would come in either mid-December, late January (2014), or late March (2014). At this point, we discount the probability of a mid-December taper, since Fed officials will want to see evidence that recent labor market gains are sustainable. That said, a particularly strong November employment report, which will be released in early December, would make a mid-December taper significantly more likely. As of now, we continue to believe that the Fed will wait until early next year, and that QE3’s days are numbered.
Last week, more quiet inflation data; price growth remains below the Fed’s target. The core Producer Price Index firmed 0.2% month on month (m/m) in October, but this is the month in which the government begins to count the new year’s auto and light truck models in the sample. This bolsters the price index, causing it to outperform the recent trend. Core prices firmed 1.4% year on year (y/y). On the consumer side, core prices ticked up 0.1% from September to October; core consumer prices were up 1.7% y/y. Gasoline prices are very low for this time of year; energy prices were down 1.7% m/m.
Despite accommodative gasoline prices, holiday sales growth projected to be the weakest since 2009. October retail sales (excluding autos, building materials, and gas stations) rose 0.4% for the second consecutive month, numbers that confirm our view that real consumer spending should rise about 2.3% annualized in the fourth quarter. This sets holiday sales up to rise 3.2% y/y, down from last year’s 3.4% y/y gain.
Existing home sales are projected to slow over the holiday season, as well. In October, sales slid 3.2%, to a 5.12-million-unit annual rate. Home prices are rising at double-digit rates, fueled by strong demand and a relatively low share of distressed sales. This impressive price growth, paired with elevated mortgage rates (relative to the first half of the year) and prohibitively high flood insurance rates, is restraining buyer traffic and sales. We anticipate that the price pressure will begin to release once builders add more new housing units to the total stock.
Next week should bring some good news for the housing market. The S&/P Case-Shiller Home Price Index should mark another month of nearly off-the-charts price growth, hitting 12.5% y/y. While this is bad news for would-be buyers in the short term, it incentivizes builders to put up new structures. There is some evidence from the FDIC, the Federal Senior Loan Officer Survey, and the NAHB/Wells-Fargo Home Price Index to suggest that the shortage of available lots is no longer as restrictive as it has been in recent months. This should translate into more building permits and housing starts in September and October. Durable goods orders are expected to drop 1.5% in October, but this headline figure masks a 1.5% improvement in capital goods orders, which had a particularly weak month in September. Consumers will be cheered by recent positive news on the employment front: the Conference Board’s Consumer Confidence Index is expected to rise to 73.2 in November, while the Reuters/University of Michigan Consumer Sentiment Index should rise to 73.0, a hair below the final October reading.
Tuesday, 26 November – Housing Starts (Sep. and Oct.)
Housing starts (Sep.)
- IHS Global Insight: 0.908 Million
- Last Actual: 0.891 Million (Aug.)
Building permits (Sep.)
- IHS Global Insight: 0.923 Million
- Last Actual: 0.926 Million (Aug.)
Housing starts (Oct.)
- IHS Global Insight: 0.918 Million
- Consensus: 0.920 Million
Building permits (Oct.)
- IHS Global Insight: 0.935 Million
- Consensus: 0.930 Million
What to look for
- Pressures easing farther back in the pipeline
Housing starts should begin to pick up in September, to a 908,000 annual rate, as relatively looser credit and climbing home prices incentivize building. Building permits should rise to a 923,000 annual rate as more finished lots come online. These trends should continue in October.
Tuesday, 26 November – S&P/Case-Shiller Home Price Index (Sep.)
- IHS Global Insight: 12.5%
- Consensus: 13.0%
- Last Actual: 12.8% (Aug.)
What to look for
- Explosive price growth continues
The 20-city composite S&P/Case-Shiller home price index likely rose 12.5% year on year. This growth is slightly slower than last month’s, in part because the share of distressed sales rose by 2 percentage points in September.
Tuesday, 26 November – Consumer Confidence (Nov.)
- IHS Global Insight: 73.2
- Consensus: 72.2
- Last Actual: 71.2 (Oct.)
What to look for
- An increase in consumer confidence
The Conference Board’s Consumer Confidence Index likely rose 2 points in November, as the relatively positive employment report boosted consumers’ spirits.
Wednesday, 27 November – Durable Goods Orders (Oct.)
- IHS Global Insight: -1.5%
- Consensus: -1.8%
- Last Actual: 3.8% (Sep.)
What to look for
- Aircraft orders descend, pulling down the headline
Durable goods orders should drop 1.5% in October, payback for a surge in aircraft orders in September. Core capital goods likely picked up 1.5%.
Wednesday, 27 November – Reuters/University of Michigan Consumer Sentiment Index (Nov., final)
- IHS Global Insight: 73.0
- Consensus: 73.0
- Last Actual: 72.0 (Nov., preliminary)
What to look for
- A net drop in November
The November final Reuters/University of Michigan Consumer Sentiment Index will regain a point of its mid-November drop, bringing the index to stand a mere 0.2 point below the final October reading. Consumers are cheered by the relatively positive employment report.
by Stephanie Karol, Patrick Newport, and Doug Handler
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