The Economics Team at Nomura expects the US data over the next several weeks, including the present one, to highlight continued momentum in economic growth to close out 2017.
NAHB housing market index (Monday): Home builders have shown high optimism so far in 2017. We expect them to remain optimistic in December and we forecast a reading of 71 for the NAHB housing market index, up 1.0pp from November. Structural factors such as a lack of developable lots, skilled labor shortages, and rising building material prices pose headwinds. However, we expect strong consumer demand against the backdrop of the solid labor market to boost home builders’ confidence.
Housing starts (Tuesday): We expect November housing starts to fall 5.0% m-o-m to an annualized rate of 1226k, from 1290k. Single-family housing starts in October rebounded as construction activity returned to its previous trend after weather-related disruptions. We expect a more gradual increase in November. For multi-family housing starts, we expect strong negative payback following a sharp 36.8% increase in October. We maintain that multifamily housing starts will likely remain subdued considering the ongoing high supply relative to demand. Further, despite high vacancy rates, the number of multi-family residential buildings under construction remains elevated and completions of these properties are on the rise. This suggests that the imbalances in rental housing markets will likely persist in the near term. For housing permits, we expect a decline of 2.0% to an annualized rate of 1290k as the series returns to its trend after increased volatility caused by the recent hurricanes.
Existing home sales (Wednesday): We expect November existing home sales to fall marginally by 0.6% m-o-m to an annualized pace of 5445k, from 5480k. We think a strong increase in October was transitory, reflecting pent-up demand following the recent hurricanes. Over the near and medium term, we think supply constraints will continue to dampen sales.
Initial jobless claims (Thursday): Considering healthy labor market conditions, we continue to expect initial and continuing unemployment insurance claims to remain low. The incoming data suggest a continued downtrend. For the week ending 9 December, initial jobless claims declined 11k to 225k, near the recent post-crisis low of 223k and consistent with sustained labor market momentum. The four-week moving average of this series was at 235k. We expect this trend to persist over the near to medium term as the labor market remains strong.
Philly Fed survey (Thursday): The manufacturing sector has improved solidly, contributing to the recent uptick in economic growth in 2017. We forecast a reading of 24.0 for December’s Philly Fed survey general business conditions index. In November, the index moderated but remained firmly in positive territory with strength in new orders and shipment indexes, reflecting elevated momentum. We expect this trend to continue in the near term.
Q3 GDP, third estimate (Thursday): The BEA’s second estimate of Q3 real GDP growth was 3.3%. We expect the BEA to maintain this estimate in its final report. Incoming data on manufacturers’ inventories were modestly weaker than the BEA’s assumptions, while wholesalers’ inventories were slightly stronger. Further, the final Quarterly Services Survey for Q3 implies slightly less investment in intellectual properties and PCE services. However, the upward revisions to core retail sales for prior months imply stronger non-auto PCE goods, which may have offset downward revisions to other GDP components.
Personal income and spending (Friday): We forecast a steady 0.4% m-o-m increase in personal income in November. As for spending, we expect a 0.5% increase. The recent strong pace of job creation and low unemployment have likely been supportive of continued growth in personal spending, translating to healthy increases in both goods and service spending. However, spending on autos likely fell in the month as incoming light vehicle sales data suggest waning replacement demand following the recent hurricanes.
PCE deflator (Friday): Incorporating November PPI and CPI data, our forecast for the core PCE price index is a modest 0.1% (0.117%) m-o-m increase. Most relevant components of the PPI, such as medical care, financial services and air transportation, increased only moderately. This suggests the detailed components of the PPI will likely make a modest contribution to core PCE inflation in November. If our forecast proves correct, on a 12-month basis, core PCE inflation would inch up to 1.5% (1.525%), from 1.4% (1.447%) previously. However, there remains a degree of residual seasonality in core PCE inflation which tends to be negative in November and December. This residual seasonality could push down core PCE m-o-m inflation by a few basis points. To that extent, the balance of risk to our forecast is tilted slightly to the downside.For noncore components, we expect PCE food prices to fall marginally in November, reflecting relevant November CPI data. PCE energy prices will likely jump sharply as did relevant indices in the CPI report. Altogether, our forecast for the aggregate PCE index is a 0.3% increase, which translates into a 1.8% y-o-y increase.
Durable goods orders (Friday): We forecast an increase of 0.5% m-o-m in durable goods orders excluding transportation equipment for November. The momentum in the manufacturing sector has remained elevated in recent months. The new orders index of the November ISM manufacturing survey improved further from October, consistent with elevated activity. We expect this healthy momentum to have continued in November. For aggregate durable goods orders, we expect a 2.0% increase. A sharp increase in civilian aircraft orders likely pushed up transportation equipment orders in the month. Considering the recent slowdown in light vehicle sales, we expect only a modest increase in orders of autos and auto parts.