What I Saw Last Week

Inflation, as measured by the Consumer Price Index, exactly met my forecast for a 0.4% increase while core CPI (ex-food and energy) rose by 0.1% (I had forecast 0.2%).


The energy index increased 3.9% and accounted for about three-fourths of the increase in total CPI.

A 0.2% increase in the shelter index helped push up core CPI, but declines in the indexes for apparel, airline fares, and household furnishings helped keep core price pressures in check.

On a year-over-year basis, total CPI was up 2.2%, versus 2.0% for the 12 months ending in October. Core CPI, however, decelerated to 1.7% from 1.8% for the 12 months ending in October.

The takeaway from the report is that it didn’t signal any alarming consumer inflation pressures, which will leave market participants predisposed to think that the Federal Reserve is apt to continue following a gradual tightening path.

The Federal Reserve met last week and, as expected, raised the Fed Funds Rate by a quarter point.

One of the more notable developments came from the expectations Federal Open Market Committee members set for gross domestic product next year as they collectively raised their GDP estimate from 2.1% percent in September to 2.5%.

U.S. Retail Sales rose by 0.8% in November – well above my call for a 0.3% increase – on top of an upwardly revised 0.5% increase (from +0.2%) in October. Core sales (ex-auto) rose by 1% (above my forecast for a 0.6% increase) on top of an upwardly revised 0.4% increase (from +0.1%) for October.

Retail sales

Core retail sales, which exclude auto, building material, gasoline station, and food services sales, increased 0.8%, which will be a positive (and upbeat) input for Q-4 GDP forecasts.

The retail sales strength was widespread, led by sales increases at gasoline stations (+2.8%) and non-store retailers (+2.5%). The only pocket of weakness was motor vehicle and parts dealers’ sales (-0.2%).

The takeaway from the report is that there was healthy spending activity across discretionary categories, which is consistent with a consumer feeling pretty good about their income prospects.

What to Watch for This Week

The NAHB Housing Market Index came in at 70 in November and the December figure is likely to remain unchanged.

U.S. Building Permits and Housing Starts both rose in October and the November figures will show a pullback with permits coming in at 1.28M (from 1.297M) and starts dropping to 1.259M (from 1.29M).

U.S. Existing Home Sales in October were measured at an annual rate of 5.48M units. The November data should show sales rising to an annual rate of 5.56M units.

The third and final estimate for GDP in Q-3 will show that the U.S. economy grew by 3.3% – unchanged from the last estimate.

Income & Spending were both higher in October and the November numbers should show both up by 0.4%.

U.S. New Home Sales in November will likely be a drop from the annual rate of 685,000 units seen in October. Look for sales to come in at an annual rate of 652,000 units.

The final Consumer Sentiment figure for December will be up from the early moth number of 96.8. My call is for 97.3.

This will be the last forecast for 2017 – I hope that you have enjoyed reading my thoughts.

I wish you all a very merry Christmas and hope that 2018 is all you wish is to be.