Oh Yeah, the Debt Ceiling?!

Now that President Biden’s infrastructure bill has been passed, focus is returning to the debt ceiling. With Congress kicking the can down the road, Treasury Secretary Janet Yellen warned yesterday that the U.S. Treasury may not be left with sufficient resources to keep financing the government beyond December 15. Speaking to congressional leaders, Yellen suggested a shutdown could come as soon as December 3. Previously, Yellen warned that a default would?"likely precipitate a historic financial crisis that would compound the damage of the continuing public health emergency, as well as triggering a spike in interest rates, a steep drop in stock prices and other financial turmoil."

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Recall, Congress approved an extension of the nation's debt limit back in October, and since then, the Treasury has been using extraordinary measures to help fund the government. However, the new infrastructure bill will complicate this process. According to reports, the Treasury is required to transfer $118B to the Highway Trust Fund within one month of the infrastructure law's enactment, which would be on December 15.

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While a government shutdown is nothing new, taking place 21 times since 1976, it does cause massive uncertainty, not to mention disruption to government programs and services in everything from the Smithsonian's National Zoo's Panda Cam to the IRS to air travel as TSA agents must work without pay.

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Meanwhile, Democrats continue negotiations over President Biden’s $1.75T soft infrastructure initiative. Moderates, including West Virginia’s Joe Manchin and Arizona’s Kyrsten Sinema, however, continue to push back against the massive spending initiative without further clarification on where the money will be spent and the impact on the economy.

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Yesterday, retail sales rose 1.7% in October, more than the 1.4% gain expected and the largest monthly increase since March. September sales, meanwhile, were revised up a tenth of a percentage point to a 0.8% gain. Year-over-year, retail sales rose 16.3% in October, the most in four months.

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Car sales rose 1.8% in October, following a 1.2% gain the month prior, and after four consecutive months of decline. Gasoline stations sales, meanwhile, rose 3.9% following a 3.2% increase the month prior. Year-over-year, gasoline sales are up 46.8%.?Excluding autos, retail sales rose 1.7% in October and rose 17.6% over the past 12 months. Excluding autos?and?gasoline, retail sales increased 1.4% and gained 14.9% year-over-year.

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In the details, sporting goods sales rose 1.5%, and general merchandise sales gained 0.8%, thanks to a 2.2% rise in department store sales. Also non-store retailer sales jumped 4.0%, a two-month high, furniture sales ticked up 0.4%, and building materials sales increased 2.8% in October. Additionally, food and beverage sales rose 0.9%, and miscellaneous sales increased 2.8% at the start of Q4. On the weaker side, eating and drinking sales were flat, while clothing sales fell 0.7%, a three-month low, and health and personal care sales dropped 0.6%, the second consecutive month of decline.

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Bottom Line:?A solid headline rise in October retail sales reflects organic support for consumer activity from higher wages and savings. At the same time, however, consumers are paying more for less with costs in some cases at multi-decade highs, boosting the topline sales numbers. In other words, consumers may be spending more but they’re getting less for those dollars spent.

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In good part, the recent activity, while seemingly positive, also reflects consumers’ growing trepidation of supply chain constrains and inflation. Many have adopted the?“buy now mentality:”?growing concerns that we better purchase what we can today because tomorrow it will be more expensive, that is if goods are available at all. This is not to say consumers are likely to fall off a cliff by year-end, but there are several factors working to pull forward more traditionally end of the year or holiday spending.?

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Also yesterday, import prices rose 1.2% in October, more than the 1.0% gain expected and the largest increase in five months. Year-over-year, import prices jumped 10.7%, the most in four months. Export prices, meanwhile, rose 1.5% in October and 18.0% over the past 12 months, the most on record.

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Additionally, industrial production jumped 1.6% in October, surpassing the 0.6% rise expected, according to?Bloomberg, and the largest increase since March. Year-over-year, production rose 5.18%, a two-month high.

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Capacity utilization, meanwhile, climbed from 75.2% to 76.4%, surpassing the increase to 75.9% expected and the highest since December 2019.

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Business inventories rose 0.7% in September, a tenth of a percentage point more than expected and following a 0.8% rise the month prior.

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Finally yesterday, the NAHB Housing Market Index unexpectedly rose three points to a reading of 83 in November, a six-month high. According to?Bloomberg, the index was expected to remain at a reading of 80 for a second consecutive month.

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This morning, housing starts unexpectedly fell 0.7% in October, pulling the annual pace down from 1,530k, revised down from 1,555k, to 1,520k, a six-month low. According to?Bloomberg, starts were expected to rise 1.5% at the start of Q4. Single family starts fell 3.9%, while multi-family starts rose 7.1%. Year-over-year, housing starts rose 0.4% in October, down from a 5.7% increase in September and the weakest pace in eight months.

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On a regional basis, starts fell in three of the four regions of the country in October: starts declined 0.8% in the Northeast, 1.0% in the South, and 3.3% in the West. Starts rose, however, 5.6% in the Midwest.

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Building permits, on the other hand, rose 4.0% in October from 1,586k, revised down from 1,589k, to a 1,650k unit pace, a two-month high. According to?Bloomberg, building permits were expected to rise 2.8%. Single family permits rose 2.7%, and multi-family permits increased 6.6% in October. Year-over-year, building permits rose 3.5% in October, a two-month high.

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Tomorrow, initial jobless claims are expected to decline from 267k to 260k in the week ending November 13, and the Leading Index is expected to rise 0.8% in October, up from the 0.2% increase reported in September. Also, the Kansas City Fed Manufacturing Activity Index is expected to decline from 31 to a reading of 28 in November, while the Philly Fed Index is expected to climb from 23.8 to a reading of 24.0 in November.

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-Lindsey Piegza, Ph.D., Chief Economist