Empire Manufacturing for November was 19.76 versus estimates of 20.60 and a reading of 17.43 in October. Readings above zero indicate expansion. Shipments of goods accelerated this month, while new orders and hiring slowed in the region. "For the moment, we're looking at an economy that is likely to achieve 3.5% growth next year, which is perfectly acceptable," said Joseph Abate, an economist at Lehman Brothers.
The Producer Price Index for October rose 1.7% versus expectations of a .6% increase and a .1% gain in September. The PPI Ex Food & Energy rose .3% in October versus estimates of a .1% increase and a .3% gain in September. Energy costs rose 6.8%, the most since February 2003. However, the increases may not stick because crude oil prices have retreated 15% since peaking Oct. 25, Bloomberg reported. As well, the 1.6% surge in food prices and 2.7% surge in costs for construction equipment also may have been temporary, after September's hurricanes in Florida, Bloomberg said. "Publicly the Fed is in a position of saying that inflation remains well-contained, and I don't think this report will change their stance," said John Ryding, chief U.S. economist at Bear Stearns.
The NAHB Housing Market Index for November was 71 versus estimates of 70 and a reading of 71 in October. The last time the group's index was higher was in October 2003. The index "indicated that housing activity is holding at high levels, supported by better labor markets and still low mortgage rates," said Robert Mellman, an economist at JP Morgan.
The Consumer Price Index for October rose .6% versus estimates of a .4% increase and a .2% gain in September. CPI Ex Food & Energy for October rose .2% versus estimates of a .1% gain and a .3% increase in September. Consumer prices for all goods and services were up 3.2% for the 12 months that ended in October, slightly higher than the long-term average of 3.0%, Bloomberg reported. As a result of the hurricanes, last month's increase in food costs was led by the biggest gain in prices for fruits since June 1984 and the biggest for vegetables since February 1997, Bloomberg reported.
Housing Starts for October were 2027K versus estimates of 1960K and 1905K in September. Building Permits for October were 1984K versus estimates of 2000K and 1998K in September. The 6.4% surge in housing starts was a high for the year, suggesting home construction is helping economic growth accelerate. Demand in the northeast was the strongest as starts surged 20%. Toll Brothers, one of the largest U.S. builders, last week said backlogs in its fiscal fourth quarter rose 68% to a record $4.4 billion. "Housing demand continues to remain quite healthy," said Elisabeth Denison, an economist at Dresdner Kleinwort Wasserstein. The National Assoc. of Realtors recently raised its estimate of sales on new and existing homes for this year to an all-time record of 6.55 million, Bloomberg reported.
Industrial Production for October rose .7% versus estimates of a .4% increase and a .1% gain in September. Capacity Utilization for October was 77.7% versus estimates of 77.4% and 77.3% in September. Manufacturing, restrained since July, rose with gains by carmakers and the biggest gain in home electronics since March, Bloomberg said. Mining, which includes oil and gas extraction, rebounded after four hurricanes in August and September curtailed production, Bloomberg reported. "It's a surprisingly good report on manufacturing, with broad-based gain in durable goods," said Chris Low, chief economist at FTN Financial.
Initial Jobless Claims for last week were 334K versus estimates of 330K and 337K the prior week. Continuing Claims were 2792K versus estimates of 2800K and 2808K prior. The decline brings the weekly average of claims this year to 344,109 versus 402,000 for all of 2003, a sign businesses are holding on to workers as demand improves. Lower oil prices, reduced terror concerns and the resolution of the presidential election may continue to boost hiring, Bloomberg said. As well, productivity gains slowed in the third quarter from an annualized rate of 3.9% to 1.9%, suggesting additional orders may need to be filled by more workers. "We are seeing more job opportunities," said Jeffrey Taylor, founder and CEO of Monster.com, the biggest Web site for hiring. Openings for finance, accounting, health-care, administrative support, sales and construction positions have increased in the last few months, he said.
Leading Indicators for October fell .3% versus estimates of a .1% decline and a .3% fall in September. The Philadelphia Fed. Index for November was 20.7 versus estimates of 23.1 and 28.5 in October. "The recent declines in the leading index have not been large enough, nor have they persisted for long enough, to signal an end to the current economic expansion," the Conference Board said in a statement. The leading indicators were also affected by record-high oil prices, slumping stocks and bitter political rhetoric in October. "I'm upbeat about the economy in general and the fourth quarter in particular," said Ron Sargent, CEO of Staples. While the Philly Fed declined in November, a measure of expectations for business 6 months from now soared to 52.1 from 27.6 in October. The jump in the outlook suggests the economy should accelerate shortly, economists said. The prices paid measure was 53.9 versus a reading of 57.1 in October. Finally, 90% of Philly Fed. survey respondents said wages and salaries would rise next year, Bloomberg reported.
Bottom Line: Overall, last week's economic data were mildly positive. Measures of manufacturing activity were pretty decent and show strong signs of acceleration. Inflation is currently showing a temporary spike as a result of the record-setting hurricanes. However, I expect inflation to decelerate into next year. The housing market remains exceptionally strong and should stay relatively healthy for the foreseeable future. While some markets still remain exuberant, many have downshifted to more sustainable levels. Signs the job market is continuing to improve are evident, thus I expect better jobs reports through year-end. The weakness in the Leading Indicators for October is not of concern as it was greatly affected by the election. Over the last 3 weeks, the Weekly Leading Index has climbed.
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