It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let’s take a look at this week’s big headlines:
FOMC Reveals Interest Rates Will Not Yet Be Raised
The biggest news this week happened on Wednesday, when the minutes from the last Federal Open Market Committee (FOMC) meeting were announced. The minutes revealed that the Fed was confident on a steadily improving job market, but was very uncertain about the inflation argument.
Specifically, the FOMC remained very wary about increasing interest rates in a deflationary environment. The Fed is clearly now worried that an interest rate hike might strengthen the U.S. dollar further, which would, in turn, drive commodity prices lower, since commodities are priced in U.S. dollars. The FOMC reiterated that it plans to keep interest rates ultralow for a “considerable period” and that any interest rate hikes would be “data dependent.” This last comment says it all. Since a surging U.S. dollar has squelched inflation and raised the probability of deflation, the FOMC apparently has no intention to raise interest rates anytime soon.
Industrial Production Falls In October
U.S. Industrial Production dipped 0.1% in October, following a revised 0.8% gain in September. Capacity utilization slipped to 78.9% from September’s revised rate of 79.2%. Economists were expecting a 0.2% increase and a utilization rate of 79.3%. The largest component of the report, manufacturing output, increased 0.2%. Total industrial production was up 4% compared to a year earlier.
Single Family Home Starts Increase in October
For a second straight month single family homes rose. The Commerce Department reported a 4.2% increase for single family homes to a seasonally adjusted 696,000-unit annual pace. Building permits for single- and multi-family homes also increased and are at a 6 1/2 year high of a 1.08 million-unit pace. Construction for new homes is now at its highest rate since last November, and building permits are at their highest level this year. So the housing market is showing more signs of recovery.
Inflation Rate Flat as Producer Prices Rise
The Labor Department announced that the Producer Price Index (PPI) rose 0.2% in October, which was a big surprise, since economists were expecting a 0.1% decline. The reason for the increase was a whopping 1.5% increase in “trade services,” which is a new component added to the PPI last year. Excluding food and energy, the core PPI rose 0.4% in October, which was much higher than economist’s consensus estimate of a 0.1% increase. The reason for the increase was mainly due to a technicality in the price of gas, since crude oil and gasoline prices have been falling but retail prices haven’t adjusted yet. So inflation remains relatively under control still.
Sales of Existing Homes Increase
In October, U.S. existing-home sales jumped 1.5% to a seasonally adjusted rate of 5.26 million in October. September’s sales numbers were revised up to an annualized pace of 5.18 million. This beat analysts’ expectations of a decline to 5.17 million pace. Housing inventory at the end of October dropped 2.6% to 2.22 million existing homes for sale, which is a 5.1-month supply at the current pace. Sales are at records highs for the first time since October last year. yet are still below prerecession levels.
Jobless Claims Continue to Fall to Record Lows
For the week ending November 15, jobless claims fell 2,000 to 291,000. The four-week moving average of jobless claims increased to 287,000. While it’s a little disappointing to see jobless claims increase last week, the number of new claims still remains below the 300,000 threshold—and they’ve been below that level for nine-straight weeks. In addition, jobless claims remain near a 14-year low.
Consumer Prices Flat in October
The Consumer Price Index (CPI) was unchanged at 0.0% in October. Gasoline prices declined 3% in October and helped to offset higher prices for housing, medical care and airline fares. Excluding food and energy, the core CPI rose 0.2% in October. In the past 12 months, the CPI and the core CPI have risen 1.7% and 1.8%, respectively.
Leading Indicators Beat Forecasts
The Conference Board’s leading economic index increased 0.9% in October—after no change in the month of August and a gain of 0.7% in September. Eight of the 10 indicators contributed to the jump last month, with short and long-term interest rates and factory orders leading the surge. This better than expected forecast is a nice surprise and supports continued growth in the economy through the holidays.
That’s all I have for you this week. I’ll be in touch with the latest Portfolio Grader changes and Stock of the Day on Monday.
Have a great weekend,