Overview: The most significant economic report released over the past week showed that consumer spending remains surprisingly strong. In addition, Federal Reserve Chair Jerome Powell confirmed again that officials are in no rush to further loosen monetary policy. Despite this unfavorable news for bonds, however, mortgage rates ended the week with little change.
With higher prices and credit card rates, forecasters have long been predicting a slowdown in spending, but consumers continue to defy expectations. In October, retail sales rose 0.4% from September, just a little above the consensus forecast, but the results for the prior month were revised significantly higher from an increase of 0.4% to an enormous 0.8%. Looking at individual categories, particular strength was seen in autos, appliances, and electronics. Spending at bars and restaurants, an indicator of household finances, posted very strong results for a second straight month as well.
The headline figure for overall housing starts in October revealed a larger than expected decline from September, but the results for many regions were negatively impacted by hurricanes. Single-family housing starts fell 7% from September and were down slightly from a year ago. On a more positive note, single-family building permits, a leading indicator of future construction, increased a little from September to the highest level since April. In addition, a separate survey of home builder sentiment on housing market conditions from the National Association of Home Builders (NAHB) rose more than expected.
In a speech on Thursday, Fed Chair Powell said that the current strength in the economy means that officials are not “in a hurry” to lower the federal funds rate. Instead, they can take their time assessing incoming economic data and approach their decisions “carefully.” Powell again described the recent rate cuts as an easing of restrictive monetary policy that no longer needs to be focused primarily on bringing down inflation. While most investors still anticipate that the Fed will cut rates by another 25 basis points at the next meeting on December 18, the outlook for the pace of future reductions is now slower.
Retail Sales (% change)
Week Ahead
Nov. 21
Existing-Home Sales report
Nov. 26
New-Home Sales report
Nov. 27
Personal Income and Outlays
Personal Consumption Expenditures (PCE) Price Index