Inflation Solidifies and Manufacturing Rebounds: November 13 – 17

Inflation measures continued to converge towards the Fed’s target. Here are the five things we learned from U.S. economic data released during the week ending November 17.  

#1Topline consumer inflation was modest in October. The Consumer Price Index (CPI) inched up 0.1 percent during the month, per the Bureau of Labor Statistics. This followed gains of 0.4 percent and 0.5 percent during August and September, respectively. Holding down the headline index was the 1.0 percent drop in energy prices as gasoline prices declined 2.3 percent. Food CPI was unchanged for the month. Net of both energy and food, core CPI grew 0.2 percent during October and has risen 1.8 percent over the past 12 months. This was the largest 12-month comparable for core consumer prices since April as it gradually edges closer to the Federal Reserve’s two-percent target inflation rate. Used car/truck prices jumped 0.7 percent, with prices also rising for shelter (+0.3 percent), medical services (+0.3 percent), and transportation services (+0.2 percent). Falling during the month were prices for new vehicles (-0.2 percent) and apparel (-0.1 percent).CPI October 2017--111717

#2Meanwhile, wholesale prices repeated the prior month’s increase in October. The Producer Price Index (PPI) for final demand grew at a seasonally adjusted 0.4 percent rate during the month, matching September’s increase and doubling August’s rise. The Bureau of Labor Statistics’ core measure of wholesale prices (removing energy, food, and trade services) grew 0.2 percent for the third consecutive month. PPI for final demand energy was unchanged during the month (as wholesale gasoline prices fell 4.6 percent) while that for final demand food jumped 0.5 percent, its biggest single-month increase since June. PPI for core goods (net of energy and food) grew 0.3 percent, impacted by a 2.1 percent jump in the price for pharmaceutical preparations. PPI for final demand services jumped 0.5 percent, including a 1.1 percent rise in trade services PPI (largely retailer and wholesaler margins). Final demand PPI has risen 2.8 percent over the past year while the 12-month comparable for the core measure has gained 2.3 percent, the fifth time over the past seven months that it has been at or above two-percent.

#3Manufacturing output grew faster than it has in any month since April. The Federal Reserve reports manufacturing production jumped 1.3 percent on a seasonally adjusted basis during October, following a 0.4 percent gain in September. The Fed attributes much of the gain to activity returning to normal levels following disruptions caused by the hurricanes in August and September. Output of durables increased 0.4 percent (including a 1.0 percent rise in automobile production) while nondurables output surged 2.3 percent. Production grew by more than one percent for chemicals, petroleum/coal products, textiles, and apparel. Manufacturing output has gained 2.5 percent over the past year. Overall industrial production increased 0.9 percent (also its largest single-month gain since April), putting output 2.9 percent above its October 2016 mark. Output at utilities gained 2.0 percent while mining output fell 1.3 percent (later caused by temporary disruptions in oil drilling due to Hurricane Nate).

#4Retail sales expanded at a slower pace during October. Following a hurricane preparation and recovery fueled 1.9 percent surge during the previous month, retail and food services sales grew a far more modest 0.2 percent during October. The Census Bureau estimates sales were at a seasonally adjusted $486.6 billion, which was 4.6 percent ahead of its year-ago pace. Sales at auto dealers/parts stores jumped 0.7 percent while activity fell 1.2 percent at gas stations (primarily because of declining prices at the pump). Net of both, core retail sales increased 0.3 percent. Sales grew at 1.5 percent at sporting goods/hobby stores, 0.8 percent at both apparel stores and bars, 0.7 percent at both furniture and appliance/electronics retailers, and 0.6 percent at grocery stores. Sales fell 1.2 percent at building material stores and 0.3 percent at nonstore retailers.

#5Housing starts rose to their highest level in a year during October. The Census Bureau reports that housing starts grew 13.7 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.290 million units. This was the highest level of housing starts since October 2016, when starts were at an annualized rate of 1.328 million units. Starts of single-family units increased 5.3 percent during the month while multi-family units surged 37.4 percent in October. Starts grew in three of four regions with only the West experiencing a decline. Looking towards the future, the number of issued building permits rose 5.9 percent in October to a SAAR of 1.297 million permits, 0.9 percent above the year-ago rate. The annualized rate of home completions blossomed 12.6 percent during October to 1.232 million homes with a 12-month comparable of 15.5 percent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 11, 2017, First-Time Claims, seasonally adjusted): 249,000 (+10,000 vs. previous week; +10,000 vs. the same week a year earlier). 4-week moving average: 237,750 (-5.4% vs. the same week a year earlier).
Import Prices (October 2017, All Imports, not seasonally adjusted): +0.2% vs. September 2017, +2.5% vs. October 2016. Nonfuel imports: +0.2% vs. September 2017, +1.4% vs. October 2016.
Export Prices (October 2017, All Exports, not seasonally adjusted): Unchanged vs. September 2017, +2.7% vs. October 2016. Nonagricultural Exports: -0.3% vs. September 2017, +2.5% vs. October 2016.
State Employment (October 2017, Nonfarm Payrolls, seasonally adjusted): 9 states with significant month-to-month increases in payrolls and 3 states had significant month-to-month employment decreases. 27 states had significant year-to-year increases in payrolls.
Small Business Optimism (October 2017, Index (1986=100), seasonally adjusted): 103.8 (vs. September 2017: 103.0; October 2016: 94.9).
Treasury International Capital Flows (September 2017, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$60.8 billion (vs. August 2017: +$40.4 billion, vs. September 2016: -$51.4 billion).
Monthly Treasury Statement (October 2017, Budget Surplus/Deficit): -$63.2 billion (vs. October 2016: -$45.8 billion).
Business Inventories (September 2017, Manufacturers’ and trade inventories, seasonally adjusted): $1.889 trillion (unchanged vs. August 2017, +3.5% vs. September 2016).

The opinions expressed here are not necessarily those of Kevin’s current and previous employers. No endorsements are implied.

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