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Most U.S. economic metrics released over the last week were well behaved, with one notable exception.

Comerica Economic Weekly, November 9, 2018

November 9, 2018
By Robert A. Dye, Ph.D., Daniel Sanabria

Most U.S economic metrics released over the last week were well behaved, with one notable exception.

The Producer Price Index for October, came in much warmer than expected, gaining 0.6 percent for the month. The hot October PPI data broke a string of three consecutive sedate months for producer inflation. The glaring headline brought fears of inflation to mind given the current mix of trade tariffs, rising wage rates and higher interest rates.

However, it was energy  that drove the headline PPI higher, counterintuitively since oil prices have been sliding recently. The energy sub-index for PPI Final Demand Goods was up by 2.7 percent in October after falling by 0.8 percent in September. Crude oil prices climbed  through late September into early October, with WTI crude briefly passing $76 per barrel on October 3. This lifted the monthly average oil price in October relative to September before oil prices began their recent slide. 

We expect oil prices to be a major drag on the PPI in November. As of November 9, WTI crude was down to  near $59 per barrel. Non-oil components of the PPI were sedate in October, as they have been in recent months.

Labor market indicators remain positive. Initial claims for unemployment insurance eased by 1,000 for the week ending November 3, to hit 214,000. Continuing claims dropped by 8,000 for the week ending October 27, to hit 1,623,000. 

The Job Openings and Labor Turnover Survey (JOLTS) for September showed a small tick down in the rate of job openings, to a still-strong 4.5 percent. Likewise, the hiring rate and the separations rate also ticked down slightly to still-strong rates.

The ISM Non-Manufacturing Index for October dipped from a very strong 61.6 in September to a still-strong 60.2 in October. All 17 reporting industries expanded in October. Anecdotal comments remains focused on uncertainty around international trade. 

Total mortgage applications dropped by 4.0 percent for the week ending November 2. Purchase apps lost another 5.0 percent after falling by 1.5 percent the week before. Refi apps give up 2.5 percent for the week. On a four-week moving average basis, refi apps were down 34.4 percent from a year ago, while purchase apps were down by 3.6 percent. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage climbed to 5.15 percent. 

Consumer credit levels remain well behaved. In September, revolving consumer credit was up by 3.8 percent over the previous 12 months. Non-revolving consumer credit was up by 5.2 percent over the year. 

The University of Michigan’s preliminary Consumer Sentiment Index for November eased by 0.3 to a still-positive 98.3. The index looks range-bound at a positive level over the course of 2018. We expect consumer sentiment to remain positive through the end of the year.

The Federal Open Market Committee meeting of November 7/8 was a nonevent for financial markets, as widely expected. We believe that the Fed remains on track to increase the fed funds rate range by 25 basis points at the next FOMC meeting over December 18/19. We look for the Fed to maintain “gradualism” by sitting out the January 29/30 FOMC meeting and then raising the fed funds rate range by another 25 basis points at the March 19/20 FOMC meeting. 


For a PDF version of this report, click here:  Comerica Economic Weekly, November 9, 2018 

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