Inflation Continues to Firm
The consumer-price index, measuring what Americans pay for everything from rent to razors, advanced a seasonally adjusted 0.4% from a month earlier, the Labor Department said Thursday. But when excluding the volatile costs of food and energy, so-called core prices rose a milder 0.1%.
Higher prices for gasoline, electrical utilities and shelter drove the gain, despite flat costs for medical services and food.
Compared with a year earlier, overall prices grew 1.6% in October, the strongest gain in two years. Core prices grew 2.1% from a year earlier, a slight deceleration from the prior two months. (…)
Shelter costs, which account for a third of the index, rose 0.4% last month, and were up 3.5% from a year earlier.
Food prices were flat for the fourth straight month in October. The cost of medical services were flat. (…)
According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.1% annualized rate) in October. The 16% trimmed-mean Consumer Price Index also rose 0.2% (2.2% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report.
The core of the CPI keeps rising by 0.2% per month, or 2.5% annualized. The slowdown in the YoY core CPI in October is very marginal as the actual number was +2.145% from +2.207% in September.
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Shelter costs may soon ease core CPI inflation
October’s 2.1% annual rate of core CPI inflation contained disparate readings of 3.0% core consumer service price inflation and -0.5% core consumer goods price deflation. Core consumer service price inflation was led by yearly price gains of 3.5% for shelter, 4.1% for medical care, and 2.5% for tuition.
Shelter costs account for a hefty 42% of the core CPI. Thus, the annual rate of core CPI inflation sinks from 2.1% to 1.2% after excluding shelter costs.
Shelter cost inflation may be topping off. Anecdotal evidence suggests that rents may be softening in the once hot markets of New York City and San Francisco. Moreover, a nationwide index describing the tightness of apartment markets recently plunged from its 62-point average of 2010-2015 to the 28 points of Q3-2016, which was its lowest reading since the 20 points of Q2-2009. In response to the latter, the average annual rate of shelter cost inflation slowed from the 2.5% of the two-years-ended June 2009 to the 0.2% of the two-years-ended June 2011. In all likelihood, the annual rate of shelter cost inflation will be slower than 3% by 2017’s final quarter.
For consumer products, core service inflation is typically faster than core goods inflation mostly because services are relatively insulated from global competition. Compared to US-domiciled manufacturers, low-cost producers from abroad are much less of a threat to US suppliers of services. In turn, the dollar exchange rate’s renewed appreciation should further suppress the dollar price of internationally traded products. Core consumer goods price deflation is likely to persist.
October revealed year-to-year price deflation of (i) -1.8% for household furnishings and supplies, (ii) -4.1% for used cars and trucks, (iii) -14.5% for video and audio products, (iv) -1.3% for sporting goods, and (v) -8.3% for computer equipment, software and telecommunications equipment. The growing number of vehicles coming “off-lease” is likely to intensify the price deflation now afflicting used cars and trucks and may lower the already minuscule 0.2% annual rate of inflation for new car and truck prices.
Notwithstanding faster wage growth and the recent surge by industrial metals prices, product price inflation is expected to remain well contained. The risks facing corporate credit quality from lower-than-anticipated prices are likely to outweigh whatever benefits flow from pockets of higher-than-projected prices. (Moody’s)
U.S. Housing Starts Jump 25.5% in October
Housing starts rose 25.5% in October to a seasonally adjusted annual rate of 1.323 million, the Commerce Department said Thursday, as multifamily housing starts came back with a vengeance. That was the highest pace since August 2007.
Single-family starts also continued to climb, reaching a rate of 869,000, another nine-year high. (…)
The volatile category of multifamily housing posted a dramatic rebound, with starts in structures with five or more units, such as condos or apartment buildings, notching a 74.5% gain to hit a rate of 445,000 in October.
But permits, which give a taste of how much construction is in the pipeline, grew at a milder pace. Building permits issued for privately owned housing units rose 0.3% in October from the prior month to a seasonally adjusted annual rate of 1.229 million, the highest pace in nearly a year.
Permits for single-family homes, about 60% of all permits, rose 2.7% to a rate of 762,000. (…) (charts from Haver Analytics)
The math looks bullish on single family housing:
But this math less so:
The average rate for a 30-year fixed mortgage was 3.94 percent, up from 3.57 percent last week and the highest since January, Freddie Mac said in a statement Thursday. The average 15-year rate rose to 3.14 percent from 2.88 percent, the McLean, Virginia-based mortgage-finance company said. (…)
With this week’s jump, the monthly payment on a $300,000 loan has climbed to $1,422 from $1,354 at the start of November. (…)
U.S. Jobless Claims Fall
Initial jobless claims, a proxy for layoffs, dropped 19,000 in the week ended Nov. 12 to a seasonally adjusted 235,000, the lowest level since November 1973, the Labor Department said Thursday.
The four-week moving average for continuing claims fell to 2,022,500, the lowest level since June 2000.
The Philly Fed manufacturing report showed signs of improvement. While factories are still apprehensive about hiring new workers (confidence remains soft), new orders have picked up. (The Daily Shot)
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2016 is 3.6 percent on November 17, up from 3.3 percent on November 15. The forecast of fourth-quarter real residential investment growth increased from 4.5 percent to 10.8 percent after this morning’s new residential construction report from the U.S. Census Bureau.
Yellen Says Rate Rise Could Come ‘Relatively Soon’ as Data Point to Stronger Economy President-elect Donald Trump is preparing to take office amid signs the U.S. economy is growing stronger as the year ends and the Federal Reserve is nearing its next increase in short-term interest rates.
(…) “At this stage, I do think that the economy is making very good progress toward our goals, and that the judgment the [Fed policy] committee reached in November still pertains,” she told Congress’s Joint Economic Committee. (…)
U.S. consumer prices rose in October from a year earlier at the fastest rate in two years, while the number of Americans filing new claims for unemployment insurance fell last week to its lowest level since 1973, the Labor Department reported Thursday. Housing starts were at their strongest pace since 2007, and permits for new construction rose in October. (…)
Fed funds futures, used by investors to bet on central-bank policy, showed a roughly 91% chance of a rate rise at the Fed’s meeting in December, according to CME Group. (…)
Trump Says Ford Called to Say It’s Keeping SUV Plant in Kentucky
UK retail sales rise at fastest rate for 14 years
UK retailers enjoyed a mini-boom in October. Sales volumes showed the largest annual gain for just over 14 years, but such spending is looking increasingly unsustainable as inflation is likely to rear its head in coming months and households are growing worried about their future finances.
Retail sales volumes rose 1.9% in October according to the Office for National Statistics, surging 7.4% higher than last year. You have to go all the way back to April 2002 to see a larger annual increase.
The ONS attributed the leap in sales to cold weather boosting seasonal clothing sales and the growing trend towards celebrating Halloween (!). However, even when we look at the trend on a three-month basis, annual sales growth has risen to 5.9%, its highest since June 2002.
Such strong growth is clearly unsustainable, and cracks are in fact already appearing. Survey data highlight how households are struggling to support existing spending due to weak income growth and rising prices, and how this negative trend is likely to intensify in coming months. Households’ worries about their personal finances over the coming year hit a three-year high in November amid concerns about weak pay growth, job security, higher interest rates and – most importantly – spending power being eroded by rising prices.
November saw the biggest drop in household savings for six months, with nest eggs broken into partly as a result of the desire to keep spending despite take home pay stagnating.
It therefore seems inevitable that the combination of higher prices and weak wage growth will curb consumer spending in coming months. Goods producers’ costs jumped by the largest extent on record in October, which, barring a major squeeze on retailers’ profits, will feed through to high street prices. Inflation is likely to easily breach 2% next year. At the same time, wage growth remains a relatively muted 2.3%.
Dollar charges to 14-year high, bonds in full swing
The Russell 2000 index hit a new high as investors bid up shares of smaller companies. (The Daily Shot)
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A stronger dollar: the corporate impact Donald Trump’s fiscal plans look set to help dollar earners but hit US exporters
(…) Multinationals make lots of profits from overseas, so they will find the strong dollar a burden. By contrast, US small-caps are relatively immune from dollar strength, and stand to benefit from Mr Trump’s proposed protectionist measures and infrastructure spending. (…)