Housing starts likely rose in October as hurricane effects reverse
Hurricanes Harvey and Irma had both positive and negative effects on the economy in September, boosting car sales but hurting housing starts, for example. Those impacts likely reversed in October, which should amount to a net gain for an economy that’s been humming along.
Consumer prices got a lift from the storms in September as refinery disruptions caused gasoline prices to spike. Pump prices, in turn, fell nearly 1.5% last month, PNC Financial Services Group says, tempering inflation overall. Core prices, which strip out volatile food and energy items, rose just modestly in September, defying expectations that damaged homes and vehicles would push up rent and auto prices, says Nomura economist Lewis Alexander. But he says a bump in rent may show up with a lag in the October data. Alexander is also looking for a leap in prescription drug prices after a sharp drop in September.
All told, economists expect the Labor Department on Wednesday to report just a 0.1% rise in consumer prices in October, pushing down the annual gain to 2% from 2.2%. Core prices are expected to increase 0.2%, leaving the 12-month increase unchanged at 1.7%. The Federal Reserve has anticipated a pickup, especially in core inflation, to underpin its tentative plan to raise interest rates in December. Although that likely won’t be provided by Wednesday’s release, investors still expect the Fed to hike rates on the belief that low unemployment will soon juice wage growth.
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Retail sales were bolstered by the hurricanes in September as consumers in Texas and Florida bought new cars and flocked to building supply stores to begin repairs, while U.S. gas prices driven higher by the storms also pushed up sales totals. Those effects were probably offset in October, Alexander says. A core measure of sales — which excludes autos, gasoline, building materials and food services — was mixed in September. Sales online and at clothing stores rose smartly but traffic at furniture, electronics, sporting goods and health and personal care stores fell. Economists expect the Commerce Department to announce that overall retail sales edged up 0.1% in October while the core measure increased a solid 0.3%.
On Thursday, the Fed reports industrial production for October. Output generally has been strong on an improving global economy and sturdy U.S. job and income growth. Texas refinery outages triggered by Hurricane Harvey in late August were still dampening production in September, but a recovery in October should have bolstered the numbers, Alexander says. Economists expect the Fed to report a healthy 0.4% rise in industrial production last month.
Housing starts were pummeled by the hurricanes in September, falling 4.7%. Economists expect Commerce on Friday to report an October rebound, with starts rising 5.4%.
