What I Saw Last Week

Income & Spending data for September was robust with incomes up by 0.4% (my forecast was for a 0.3% increase) and spending up by 1.0% (I had forecast a 0.8% increase.


Incomes were led by a 0.4% increase in wages and salaries. Real disposable personal income (income remaining after deducting personal income taxes) decreased less than 0.1% and is up 1.2% year-over-year for the third straight month.

Real personal consumption expenditures rose 0.6% in September and are up 2.7% year-over-year versus up 2.5% for the 12 months ending in August.

The takeaway is that the PCE price data won’t trigger any major inflation alarm, yet it also won’t be seen as something that will stop the Fed from raising the fed funds rate at its December meeting.

The Case Shiller Index report for August showed the 20-City Index up by 5.9% – I had forecast a 6.0% year-over-year increase.


Seattle, Las Vegas, and San Diego reported the highest year-over-year gains among the 20 cities. In August, Seattle led the way with a 13.2% year-over-year price increase, followed by Las Vegas (+8.6%), and San Diego (+7.8%). Nine cities reported greater price increases in the year ending August 2017 versus the year ending July 2017.


August saw the National Index annual rate tick up to 6.1%; all 20 cities followed in the report were up year-over-year while one, Atlanta, saw the seasonally adjusted monthly number slip 0.2%.

Most prices across the rest of the economy are barely moving compared to housing. For example, over the last year the consumer price index rose 2.2% but that was driven largely by energy costs. Aside from oil, the only other major item with price gains close to housing was hospital services, which were up 4.6%. Notably, wages have climbed 3.6% year-to-date.

The ongoing rise in home prices poses questions of why prices are climbing and whether they will continue to outpace most of the economy. Currently, low mortgage rates, combined with an improving economy, are supporting home prices. The price gains are not simply a rebound from the financial crisis; nationally and in nine of the 20 cities in the report, home prices have reached new all-time highs. However, home prices will not rise forever. Measures of affordability are beginning to slide, indicating that the pool of buyers is shrinking. The Federal Reserve is pushing short term interest rates upward and mortgage rates are likely to follow over time, removing a key factor supporting rising home values.

Consumer Confidence in October rose to 125.9, well above my forecast for an increase to 121.5 and up from an upwardly revised 120.6 (from 119.8) in September.


The Present Situation index increased from 146.9 to 151.1 while the Expectations Index increased from 103.0 to 109.1.

The takeaway from the report is that upbeat attitudes about the current job market factored prominently in the elevated reading, which is a hopeful indication for stronger consumer spending activity moving forward.

U.S. Construction Spending rose by 0.3% in September – I had forecast a 0.2% decline – after a downwardly revised 0.1% increase (from 0.5%) in August. Taking the revision into account, total spending was largely in-line with expectations.

Con Spend

On a year-over-year basis, total construction spending was up 2.0%, with public construction spending down 1.6% and private construction spending up 3.1%.

The September increase was driven by a surprising 2.6% increase in total public construction spending. Total private construction spending declined 0.4% with the effects of the hurricanes playing a part there.

The takeaway from the report is that overall construction spending remains modest and remains an inhibitor of stronger real GDP growth.

As I had anticipated, the Federal Reserve met and decided to leave the Fed Funds Rate at its current level.  I still anticipate that they will raise rates at their December meeting.

Non-Farm Payrolls in October marked a return to pre-hurricane form with the nation adding 261,000 jobs in the month (I had forecast 300,000) aided by a sharp rebound in food services and drinking places jobs (+89,000).


Over the past three months, job gains have averaged 162,000 per month. September non-farm payrolls were revised to 18,000 from -33,000 and August non-farm payrolls were also revised up to 208,000 from 169,000.

October private sector payrolls rose by 252,000 and September private sector payrolls were revised up to 15,000 from -40,000. August private sector payrolls were also revised higher – to 184,000 from 164,000.

The Unemployment Rate in October dropped to 4.1% – I had forecast it to have risen to 4.3%.

U RAte

Persons unemployed for 27 weeks or more accounted for 24.8% of the unemployed versus 25.5% in September. The U-6 unemployment rate, which accounts for both unemployed and underemployed workers, dropped to 7.9% from 8.3% in September and is now at a level not seen since December 2006.

The labor force participation rate was 62.7% in October versus 63.1% in September.

By and large, it is the type of report that the stock market should appreciate because it holds true to that “Goldilocks” analogy of being neither too hot nor too cold. It was just right to ensure that the Fed will stick to its own theme of raising interest rates gradually.

What to Watch for This Week

Consumer Credit rose by $13.1B in August and the September figure should show that credit grew by an additional $18.3B.

Consumer Sentiment in early November is likely to drop modestly from the final October figure of 100.7.  Look for a figure of around 100.5.