There were a few important reports on the U.S. economy released this morning. First, the Federal Housing Finance Agency’s (FHFA’s) national home price index (HPI) rose by 0.7 percent in August (lagged). That was above the 0.5 percent monthly gain economists had expected and enough to lift the annual pace of growth to 6.4 percent. The latter is the highest reading since 2014 and helps show that the rise in shelter costs continues to easily outpace both headline consumer inflation and wage growth in this country. Some economists like to compare the HPI to the owners' equivalent rent section of the monthly consumer price index (CPI) report from the U.S. Bureau of Labor Statistics to help spot price bubbles. As the second chart below shows, home values have increased significantly in recent years but remain below the extremes seen prior to the last recession. Regardless, low mortgage rates, tight supplies, and continued improvement in the labor market should all be supportive of higher home prices going forward.
Next, the consumer confidence index from The Conference Board fell to 98.6 in October, significantly worse than expected and the largest monthly decline in nearly a year. The sharp drop finally catches up with the other major sentiment indices that have been indicating for quite some time that overall consumer confidence has moderated ahead of the Presidential election. Optimism about current economic conditions deteriorated in October, with just 26.2 percent of consumer respondents stating that business conditions are “good,” and only 24.3 percent describing jobs as "plentiful." Americans’ outlooks for the near-future also softened in October, with just 13.1 percent of respondents expecting jobs to be more plentiful six months from now and 17.5 percent anticipating wage growth. However, Lynn Franco, Director of Economic Indicators at The Conference Board, stressed that “overall sentiment is that the economy will continue to expand in the near-term, but at a moderate pace.”
Elsewhere, a report from the Federal Reserve Bank of Richmond showed that manufacturing activity in the Mid-Atlantic region of the country rebounded this month, albeit just barely. Specifically, the composite index lifted from -8.0 to -4.0 in October, the second monthly improvement in a row following the 3-year low hit in August but still worse than expected and the 5th negative (contractionary) reading in the past six months. Under the hood, measures of shipments, order backlogs, capacity utilization, total employment, and wage growth all improved in October but the volume of new orders and the average employee workweek both declined. Looking ahead, surveyed managers’ expectations for general activity and capital expenditures six months from now firmed in October and projected hiring plans jumped, not surprising since many manufacturers are waiting until after the election to commit to new business investments.
Sources: Econoday, Twitter, Bloomberg, ZH, U.S. FHFA, The Conference Board, Advisor Perspectives, FRBR, FRBSLPost author: Charles Couch