Economic Week in Review

ECRI Weekly Leading Index 131.60 +.46%

The NAHB Housing Market Index for October rose to 72, the highest in a year, versus estimates of 68 and a reading of 67 in September. The index of optimism among U.S. homebuilders soared in October as mortgage rates hovered near a four-decade low, increasing the likelihood that construction will bolster economic growth, Bloomberg said. Readings higher than 50 mean more builders view conditions as good than poor. The group's index has exceeded 60 for 17 months in a row, Bloomberg reported. A gauge of market expectations for the next six months rose to 84 from 75, the highest level in 5 years. The increase in expectations was the largest in 13 years.

The Consumer Price Index for September rose .2% versus estimates of a .2% increase and a .1% gain in August. The CPI Ex Food & Energy for September rose .3% versus estimates of a .2% rise and a .1% increase in August. A 2.7% jump in the cost of hotel stays and other lodging away from home accounted for about three-fourths of the September increase in the core, the Labor Dept. said. Alan Greenspan said that while high crude oil prices are having an effect on the economy, they aren't high enough to spark inflation and slow growth like the U.S. experienced in prior energy shocks, Bloomberg said. Prices for new automobiles fell .2% and clothing/food prices were unchanged.

Housing Starts for September were 1898K versus estimates of 1950K and 2020K in August. Building Permits for September were 2005K versus estimates of 1950K and 1969K in August. The larger-than-expected decrease suggest the market my have cooled a bit after a buying surge in recent months. However, the pace through September was rapid enough for this year to be the best for home construction since 1978, Bloomberg reported. Some of the dip "likely reflects the impact of hurricanes Frances, Ivan and Jeanne, and will not persist," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. Moreover, the 1.8% rise in building permits was the best showing in a few months, indicating construction will be sustained, Bloomberg said. Measured at an annual rate, construction grew 10.4% in the third quarter. "That implies the contribution of housing to GDP will be quite strong," said Gary Bigg, an economist at Bank of America Securities.

Initial Jobless Claims for last week were 329K versus estimates of 345K and 354K the prior week. Continuing Claims were 2798K versus estimates of 2840K and 2806K prior. "Employment is probably growing solidly," said James O'Sullivan, senior economist at UBS Securities. "The bottom line is that the claims numbers are pretty strong." "The job market is getting better and hiring is increasing the most in sales, accounting and healthcare," said Andrew McKelvey, chief executive of Monster Worldwide.

Leading Indicators for September fell .1% versus estimates of a .1% decline and a .3% decrease in August. "We have to get through this election cycle and then I think you will see the business community begin to make decisions on new capital investments and new hiring as we go into next year," said David Ratcliffe, CEO of Southern Co. and chairman of the Atlanta Federal Reserve Bank board. As well, hurricanes that struck the southeast during the month probably acted as a restraint on the leading indicators index because they limited hours worked and pushed up first-time jobless claims, economists said. "We do not view the recent declines in the LEI as signaling any sort of fundamental shift in economic activity," said David Resler, chief economist at Nomura Securities.

The Philadelphia Fed. Index rose to 28.5 in October versus estimates of 18.0 and a reading of 13.4 in September. The survey covers Delaware, eastern Pennsylvania and southern New Jersey. The index reached a 10-year high of 38.8 earlier this year and has exceeded 30 for four months this year, Bloomberg reported. Moreover, the percentage of firms reporting increases in business activity(40%) exceeded the percentage reporting decreases(11%) for the 17th straight month.

Bottom Line: Overall, last week's economic data were modestly positive. The better-than-expected readings for the Housing Market Index and Building Permits suggest housing, already strong, should accelerate into year-end. Core consumer prices continue to rise at a relatively moderate pace, keeping inflation in check. Declining prices for autos, electronics, phone services and clothing are mostly offsetting rising commodity and healthcare prices. Jobless claims are showing improvement in the labor market again after the temporary depressing effects from the record-setting hurricanes that ravaged Florida and other southern states. While the monthly Leading Indicators declined, the Weekly Leading Index rose and should begin heading higher during November as the negative effects from the U.S. election diminish. Measures of manufacturing activity remain high and should also show acceleration in November.