Hurricanes Still Buffeting Retail Sales and CPI
- Retail Sales for October increased by 0.2 percent as gasoline prices fell.
- The Consumer Price Index for September gained 0.1 percent with lower gasoline prices.
Retail sales for October were soft, as expected, increasing by just 0.2 percent for the month. Lower gasoline prices resulted in a 1.2 percent decline in service station sales. Even though unit auto sales fell for the month, from an 18.5 million unit sales rate in September, to an 18.1 million unit rate in October, the dollar value of retail sales of vehicles and parts increased by 0.7 percent in October. Building materials sales fell by 1.2 percent in October after gaining 3.0 in September as Hurricane Irma rolled over Florida. Other categories of retail sales were moderately positive for the month. Retail sales excluding autos gained 0.1 percent in October. We look for a good holiday shopping season this winter, supported by solid job growth, good house price appreciation and high consumer confidence. We expect real consumer spending to be supportive of near-3-percent real GDP growth in the fourth quarter.
The Consumer Price Index for October increased by just 0.1 percent, held down by lower energy prices. October consumer energy prices fell by 1.0 percent as gasoline dipped by 2.4 percent for the month. Most recently, gasoline prices have increased again. According to AAA, the national average price for unleaded regular gasoline was $2.56 yesterday, up about nine cents since the first of November. The food price index for October was unchanged. Excluding food and energy, core CPI was up 0.2 percent in October, and up 1.8 percent over the previous 12-month period. Headline CPI was up 2.0 percent over the previous 12 months.
With core CPI back up to 2.0 year-over-year growth, the Federal Reserve will find some justification for another fed funds rate hike on December 13. Regional Fed Presidents Kaplan of Dallas and Harker of Philadelphia have both made comments recently supportive of a Dec. 13 rate hike. The fed funds futures market shows an implied probability of 91.5 percent for a Dec. 13 rate hike.
The Federal Reserve Bank of New York’s Empire State Manufacturing Survey fell from a multiyear high in October to a still positive reading in November, indicating good conditions for New York area manufacturers.
Mortgage applications increased by 3.1 percent for the week ending November 10. Refi apps jumped by 6.3 percent while purchase apps ticked up by 0.4 percent. We expect to see flattish home sales in November.
Market Reaction: Equity markets opened with losses. The 10-Year Treasury bond yield is down to 2.35 percent. NYMEX crude oil is down to $55.38/barrel. Natural gas futures are up to $3.23/MMBtu.
For a PDF version of this report click here: CPI_11152017.
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