The Week Ahead

On Friday, retail sales rose 0.4% in October, a tenth of a percentage point more than expected and following an upwardly revised 0.8% increase in September (revised up from a 0.4% gain initially reported). Year-over-year, retail sales increased 2.9% in October, the largest annual gain in three months.

?

Car sales rose 1.6% in October following a 0.2% increase the month prior, and gasoline stations sales ticked up 0.1% in October following two consecutive months of decline. Excluding autos, retail sales rose 0.1% at the start of Q4 and climbed 2.7% over the past 12 months. Excluding autos and gasoline, retail sales rose 0.1% in October and increased 3.8% year-over-year. Finally, excluding food, autos, building materials and gasoline station sales, control group sales fell 0.1% in October, down from the 1.2% gain in September and the first monthly decline since August. Over the past 12 months, however, control group sales rose 3.6% following a 4.1% annual gain in September.

?

In the details of the report, food and beverage sales rose 0.1%, and general merchandise sales increased 0.2%, despite a 0.2% decline in department store sales. Also, non-store retailer sales gained 0.3%, and building materials sales ticked up 0.5% at the start of the fourth quarter. Additionally, eating and drinking sales rose 0.7% following a 1.2% gain in September, and electronics sales jumped 2.3% in October following two consecutive months of decline.

On the other hand, clothing sales declined 0.2%, and health and personal care sales fell 1.1% in October, as did sporting goods sales. Also, furniture sales fell 1.3%, and miscellaneous sales slipped 1.6% in October.

?

Bottom Line: A stronger-than-expected showing in retail spending underscores the storyline of a persistently resilient consumer, perpetuating solid economic conditions. While broadly feeling the weight of higher prices and borrowing costs as well as near-term disruptions from the hurricanes, improvements in income as well as access to other supplemental factors, such as credit cards, continue to provide welcome support to consumer spending. Down from a more robust pace of 3.6% last year, at the current trend of 2.3%, this remains sufficient to signal ongoing support to broader economic activity. ?

?

Additionally, on Friday, the Empire Manufacturing Index jumped from -11.9 to +31.2 in November, the highest reading since December 2021. In the details of the report, prices received rose from +10.8 to +12.4, new orders increased from -10.2 to +28.0, and inventories climbed from a reading of -7.5 to +1.0 in November. On the other hand, prices paid ticked down from +29.0 to +27.8, and the number of employees decreased from +4.1 to +0.9. Additionally, the six-month general business conditions index declined from +38.7 to +33.2 in November, a two-month low.

?

Also, import prices unexpectedly rose 0.3% in October, the largest monthly increase since March and following two consecutive monthly declines. According to the median forecast, import prices were expected to decline 0.1%. Export prices, meanwhile, unexpectedly jumped 0.8% at the start of Q4, the largest monthly gain since August 2023 and following a 0.6% decline the month prior. According to the median forecast, export prices were also expected to decline 0.1%. Over the past 12 months, import prices rose 0.8%, while export prices dropped 0.1% in October, the third consecutive annual decline.

?

Finally, on Friday, industrial production declined 0.3% in October, a tenth of a percentage point less than expected and following a 0.5% decrease the month prior. Meanwhile, capacity utilization fell from 77.4% to 77.1% at the start of the fourth quarter, largely due to declining output in manufacturing activity as a result of the Boeing strike.

?

This morning, the NAHB Housing Market Index unexpectedly rose three points to a reading of 46 in November, a seven-month high. According to the median forecast, the index was expected to remain at a reading of 43 in November for the second consecutive month.

?

Tomorrow, housing starts and building permits data will be released. Last month, starts fell 0.5% in September and declined 0.7% year-over-year, while permits dropped 2.9% in September and decreased 5.7% on an annual basis, marking the eighth consecutive month of an annual decline. This month, starts are expected to again fall for the month, down 1.0% in October, potentially resulting in a 1.8% decline year-over-year. Permits, on the other hand, are expected to rise 0.5% in October, but still potentially mark an annual decline, off 6.5%.

?

On Wednesday, weekly mortgage applications will be released, along with the Philadelphia Fed Business Outlook Index for November.

?

Later in the week, on Thursday, weekly jobless claims, the October Leading Index, October existing home sales, and the November Kansas City Fed Manufacturing Index will be released.

?

On Friday, the final November S&P Global U.S. Manufacturing, Services, and Composite PMIs, along with the final University of Michigan Consumer Confidence Index, which is expected be revised down a point to a reading of 72.0 in the final November report.

?

Finally, on the Fed-speak front, we’ll hear from a number of Fed officials throughout this week including Chicago Fed President Austan Goolsbee and Cleveland Fed President Beth Hammack. As the Fed continues to highlight the strength of the economy and lingering risks to inflation, investors will be listening closely for any indications as to what Fed officials are forecasting for the final policy meeting of the year and further, looking out to 2025.

?

-Lindsey Piegza, Ph.D., Chief Economist?