Durable goods orders (Nov): sharp increase mainly due to aircraft
PCE core deflator (Nov): approaching 2%, the upper end of the Fed’s comfort zone
The NAHB index rose again by 3 points in November, thus reaching the highest level since April 2008. All three subcomponents improved. This bodes well for December, but after two marked improvements in a row, the NAHB index could have remained unchanged at 20. Despite the improvement, that is still low, as any number under 50 indicates that more builders view conditions as poor than good.
At 628k, housing starts held fairly steady in October.
Given the recovery in the NAHB index and the higher level of building permits, we expect housing starts to have increased to about 640k in November. However, building permits, which had gone up by more than 10% mom in October, could have fallen back to 640k.
After having declined in September, existing home sales recovered somewhat in October. They are likely to have continued to rise in November, by 4.6% mom, given that forerunning pending home sales jumped by more than 10% mom in October. However, the November forecast for existing home sales is particularly uncertain, as the National Association of Realtors will also report revisions to sales and inventories for the years 2007 to 2011, which could show significant downward revisions. New home sales had increased by almost 5% in September and October, and we expect them to have remained virtually unchanged at around 310k in November.
In the week ending 10 December, initial jobless claims fell further by 19k to 366k. This is the lowest reading since May 2008 and thus an encouraging sign, which could point to some acceleration in payroll growth in the months ahead. After last week’s sharp decline, we expect initial jobless claims to have been around 370k in the week ending 17 December.
The University of Michigan’s (UMI) consumer sentiment has risen for four consecutive months, possibly as a result of the ongoing improvement in the labour market. Led by higher expectations, the preliminary December index increased by 3.6 points to 67.7. We forecast that UMI’s consumer sentiment will have remained around this level in the final December survey.
Leading indicators rose sharply by 0.9% mom in October. We expect them to have gone up again in November, albeit at a much slower pace of 0.3% mom. The yield curve has flattened considerably, but it could nevertheless have made the highest contribution, followed by consumer expectations. New orders, stock prices, jobless claims and real M2 will also have been positive factors, but manufacturing hours and supplier deliveries will have had a considerable negative impact. The annualised 6-month change is likely to fall back from 6.1% to 5.2%.
Durable goods orders were dragged down by a drop in aircraft orders in October. But according to Boeing data, orders for civilian planes jumped from 7 to 96 in November. In addition, the ISM new orders component increased from 52.4 to 56.7 – the highest level since April. However, a drop in car production suggests that vehicle orders could have fallen, after having risen sharply in October. We predict that durable goods orders will have gone up by 2.0% mom in November. Orders ex transportation might have risen by 0.7% mom, as in October. It will be particularly interesting to see whether nondefense capital goods orders ex aircraft will have rebounded, after having fallen by 0.8% mom in the previous month.
We forecast that personal income will only have risen by a modest 0.1% mom in November, as aggregate hours worked and average hourly earnings fell slightly. Retail sales only went up by 0.2% mom despite favourable reports about the start of the holiday shopping season.. We nevertheless expect growth in personal spending to have accelerated to 0.3% mom in November, after a mere 0.1% mom in October.
Just like core CPI, the PCE core deflator might have risen by 0.2% mom in November, partly due to higher medical care costs. The annual rate would thus climb to 1.8%. In December, it could edge closer to the upper end of the Fed’s comfort zone. However, the FOMC is not expecting the upward trend to continue, as its projection for the PCE core deflator at the end of next year is 1.5 to 2.0% yoy.