Consumer Price Index
Consumer prices rose a noticeable and as expected 0.3 percent in September with two important areas of strength being: energy surging 2.9 percent on the month and owners’ equivalent rent up 0.4 percent. The year on year rate for the CPI is up 4 tenths to plus 1.5 percent which is the highest its been since October of 2014. However, when excluding energy and food, the price increase slows to only 0.1 percent which is below the economists’ low forecasts. The core’s year on year rate is down 1 tenth to 2.2 percent. Though the rate is about ½ percentage point above the Fed’s target rate, it’s the direction that matters and the dip does not point to a September increase for the Fed’s gauge. Weak areas in the September report include apparel down 0.7 percent on the month and communications down 0.8 percent.
Housing Market Index
The new home sector picked up steam in the third quarter and looks to end the second half of the year with strength. The housing market index held on to the bulk of its 6 point surge in September coming in at 63 for October, a two point slip. Home builders are optimistic about future sales, the leading component of the report which is up 1 point in the month to a level of 72. Current sales are down 2 points but are very strong at 69. Traffic continues to lag, down 1 point to 46 but with the trend still=l showing slight improvement. The lack of traffic is a concerning factor, it may perhaps reflect the lack of new homes coming on the market but also a lack of prospective first time buyers many of whom are content to rent.
Purchase applications for home mortgages erased the prior week’s decline and rose a seasonally adjusted 3.0 percent in the week of October 14th. Refinancing applications, however, continued to slow down and were off 1.0 percent after an 8.0 percent decline in the previous week. The unadjusted purchase index fell 7 percent from the previous week to a level that is still 13 percent higher than a year ago.
Starts are mixed but permits are up in what is a deceptively solid housing starts and permits report. Starts plunged a large 9.0 percent in September to a 1.047 million annualized rate. This drop is tied entirely to t5he volatile multifamily component of the report where starts fell a massive 38 percent in the month to a 264,000 rate. The more important single family component was up sharply rising 8.1 percent higher to a 783,000 rate. Permits for both of these components are up with single family 0.4 percent higher to a 739,000 rate and with multifamily in contrast to the big declines in starts are up 17 percent to 486,000. Together, permits are up 6.3 percent to a 1.225 million rate that far exceeds the top estimate of economists of 1.182 million.
The pace of economic growth remains modest to moderate which is also the general outlook. The October edition of the Beige Book does not highlight increases in wage pressure, it does however, describe labor conditions as remaining “tight” though wage growth is described as “modest.” The report continues to describe consumer spending as no better than mixed. It said residential real estate expanded further despite the low inventories and that commercial activity improved as well.
Initial jobless claims moved higher in the week of October 15th up 13,000 to 260,000. This is also the sample week for the October reemployment report and a comparison with the sSeptember sample week is mixed. The 260,000 level is up 9,000 from the September week but the four week average is 6,500 lower at 251,750 vs 258,250. Continuing claims are looking favorable at 2.057 million in data for the week of October 8th.
Existing home Sales
Existing home sales surged 3.2 percent in September to a 5.470 million annualized rate that exceeds the high end of estimates by economists. The key single family component leads the report up 4.1 percent to a 4.860 million rate while condos, where choices are limited and permits for new building are on the rise, fe4ll 3.2 percent to a 610,000 rate. Home owners are reluctant to put their home on the market though supply did rise in the month to 2.040 million from 2.010 million. But supply on a monthly basis fell to 4.5 months from 4.6 months. Prices have not been firm which helps explain both the lack of supply and also rise in sales. The median fell 2.4 percent in the month to $234,200 though year on year appr4eciation remains on trend at plus 5.6 percent. Other important details of the report include a record low for distr3esssed sales at 4 percent of all transaction and a solid 34 percent showing for first time buyers which point to rising traffic and likely reflect the rising cost of rentals.