Fed minutes to give a peek behind the pre-election curtain
Short of getting a certified pledge from Federal Reserve Chair Janet Yellen, investors don’t really need any more signals about the Fed’s interest rate plans next month. It’s almost certainly hiking rates for the first time this year. But minutes of the Fed’s Nov. 2 meeting could hammer home the message and perhaps provide some clues on what could possibly derail a rate increase. This week’s economic news also features reports on home sales and business investment.
Existing home sales have been on a bit of a roller coaster lately, rising in September after falling the previous two months. Demand isn’t the issue. Americans are enjoying healthy job and income growth, cheap gasoline and reduced debt. And at least some Millennials are growing weary of living in their parents’ basements. The problem: There aren’t enough homes for sale. Inventories edged up in September but are still 6.8% below year-ago levels, according to real estate research firm Trulia. And while pending home sales, a gauge of future contracts, rose in September, mortgage applications for home purchases fell sharply last month, says Nomura economist Lewis Alexander. Economists estimate the National Association of Realtors will announce Tuesday that existing-home sales dipped 0.6% in October to a seasonally adjusted annual rate of 5.4 million.
New-home sales, which make up about 10% of all sales, have followed a roughly similar pattern, rising in September after sliding the previous month. In October, builder sentiment on single-family sales was strong, but the drop in mortgage applications is worrisome, Alexander says. Economists forecast the Commerce Department will report Wednesday that new-home sales slipped 0.5% in October to a seasonally adjusted annual rate of 590,000.
Business investment, meanwhile, picked up a bit in the third quarter but generally has been anemic this year. Global economic troubles and a strong dollar have hurt U.S. exports, while the oil industry slump has dampened steel and equipment orders. Rising oil prices and a moderating greenback have helped stanch the bleeding, but demand has been choppy. And uncertainty about tax and regulatory policies leading up to the election probably caused some businesses to rein in spending. Orders for capital goods excluding aircraft and defense — a proxy for business investment — fell 1.2% in September. Economists reckon Commerce’s durable goods report will show that measure rose 0.3% in October.
At a congressional hearing last week, Yellen reiterated signals that a rate increase is likely next month. She also indicated that the surprise victory of Donald Trump in the presidential race has not thrown the Fed off course. But minutes of the Nov. 2 meeting could reveal if policymakers were concerned about the upcoming vote and if other shocks could prompt a delay.