What You Need To Know (Before You Go)

Before you head out for the holidays next week, I want to run down the latest economic news from the last week. Here’s the highlights:

Production Posts Strongest Gains in a Year

In November, U.S. industrial output increased 1.1% as auto production rebounded 3.4%. Economists were expecting industrial production to rise 0.5% last month, so this was strong news. Manufacturing output, which accounts for three quarters of industrial production, rose 0.6%, while gains in fabricated metals, textiles, furniture and electrical equipment and appliances added to the headline number. Meanwhile, industrial capacity utilization increased to 79.0% from 78.2% in the prior month.

This was the strongest report since November of last year, and represents the first time that manufacturing output topped its pre-recession peak. To put it simply, this was a very strong report as we continue to see the manufacturing sector recover from the sluggishness we saw earlier this year.

There’s Not Much Inflation Out There

In November, the Consumer Price Index (CPI) held even from the prior month. This was slightly lower than economists’ consensus estimate of a 0.1% rise. The decline was largely due to lower energy prices, and the core CPI, which excludes food and energy prices, rose 0.2% in November,

This is further confirmation that prices at the consumer level remain in check. Prices rose 1.2% in the 12 months to November after a 1% year-over-year advance in October, so we’re still in a below-2% inflation environment and under the Fed’s goal.

Housing Data is Mixed, but Improving

In November, housing starts jumped 22.7%, the biggest jump since January 1990, to a seasonally adjusted annual rate of 1.09 million units, the highest level since February 2008. This was a sharply higher from the consensus estimate, which called for a 950,000 annual pace. At the same time, building permits declined 3.1% in November to an annual rate of 1.01 million, which was also above economists’ estimates of a 983,000-unit pace.

However, existing home sales in November fell 4.3% to a seasonally adjusted annual rate of 4.90 million in November, down from 5.12 million in October. November’s inventory was 2.09 million existing homes for sale, a 5.1-month supply at the current sales pace.

This was the first time in more than two years that the pace of existing home sales was slower than the rate one year earlier, and is the lowest annual rate since December 2012. So it’s clear that the housing market is still a bit volatile, but because the existing home sales number is a bit behind compared to the housing starts figure, these lower numbers seem to reflect the lower consumer confidence likely caused by the government shutdown.

In fact, starts for single-family homes, a bigger and more stable segment of the market, rose to their highest level in nearly six years and it looks like the housing market has fully absorbed the hit from higher interest rates earlier this year. So I don’t take think the lower existing home sales are a sign that the housing market strength is anywhere near over.

GDP is Again Revised Higher for the Third Quarter

The Commerce Department revised its third-quarter GDP estimate up to a 4.1% pace, sharply higher from its previous upwards revision to 3.6% and its initial estimate of 2.8% growth. Analysts were looking for GDP to hold at 3.6% growth after 2.5% growth in the second quarter of the year, so this was much better than expected.

This was strong news, and the big reason for the upwards revision was because of the consumer–purchases increased 2% in the third quarter, more than the previously reported 1.4%. In addition, inventories increased at a $115.7 billion annualized pace in the third quarter, the most in three years, after a previously reported $116.5 billion annualized rate. As I’ve discussed, this type of inventory surge typically causes GDP growth to stall the following quarter, but this was still strong news for the economy.

Have a wonderful holiday next week!


Louis Navellier

Louis Navellier

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