Most U.S economic metrics continue to perform well heading into year end.
The marquis number for the week was retail sales. Nominal retail sales for October increased by 0.8 percent, after dipping by 0.1 percent in September. The headline number was boosted by higher gasoline prices for the month. Service stations sales increased by 3.5 percent in October. They will fall in November with lower petroleum prices. Also, auto sales helped the headline number. Unit auto sales increased to a 17.5 million unit pace in October, which we believe will not be sustained in the months ahead. The dollar value of retail auto and parts sales increased by 1.1 percent in October. When we look at retail sales minus gas stations and autos, the numbers are less impressive, up 0.3 percent for the month. Still, most categories were positive for the month. Consumer conditions are generally strong heading into the heart of the holiday shopping season.
Consumer prices were warm in October, according to the headline Consumer Price index, which increased by 0.3 percent for the month. This was the strongest monthly gain since last January. Energy was the culprit. The energy sub-index was up 2.4 percent for the month. We expect to see a sizeable decline in the energy price index in November, reflecting the fall in petroleum prices. Core CPI (all items less food and energy) was well behaved, gaining 0.2 percent in October. The 12-month gain in core CPI eased to 2.1 percent in October.
Industrial production in October was a little weaker than expected, increasing by just 0.1 percent, the smallest monthly gain since May. There was some drag from hurricanes in September and October, but it was minimal, according to the Federal Reserve. Manufacturing output increased by 0.3 percent in October, despite less activity by auto makers. Vehicle assemblies fell from an 11.58 million unit annual rate in September, to 11.08 in October. Mining output eased by 0.3 percent and utility output declined by 0.5 percent for the month. Overall capacity utilization slipped to 78.4 percent in October.
Initial claims for unemployment insurance bumped up by 2,000 for the week ending November 10, to hit a still-low 216,000. Continuing claims jumped up by 46,000 for the week ending November 3, to hit a still-very-low 1,676,000.
Mortgage applications continued to slide in the week ending November 9. The weekly composite index was down by 3.2 percent as refi apps fell by 4.3 percent and purchase apps fell by 2.3 percent. These numbers are not seasonally adjusted, and so we expect to see some seasonal losses as we head into the winter months. Also, rising interest rates should be expected to put a damper on refi apps. However, purchase apps, which correlate with home sales, are soft. On a four-week moving average basis, purchase apps are down 1 percent from this time last year.
Small business optimism remained high in October, according to the National Federation of Independent Businesses. Their business optimism index eased slightly to 107.4, still within the high range seen consistently over the last two years. Most indicators in the NFIB survey continue to be positive, including hiring plans and capital spending plans. Earnings expectations were slightly negative. Earnings and profits may see more pressure as wages and borrowing costs increase next year.
For a PDF version of this report, click here: Comerica Economic Weekly, November 16, 2018
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