Housing starts posted a double-digit gain in October, retail sales and inflation increased somewhat and indexes that attempt to capture the mood of small businesses and homebuilders showed improvement as 2017 winds down and the holiday shopping season ramps up.
The Commerce Department said Friday that housing starts rose 13.7 percent, to a seasonally adjusted annual rate of 1.3 million, from September. Building permits rose 5.9 percent from September, to a seasonally adjusted annual rate of 1.3 million.
“Homebuilders are building and that signals greater confidence in the economy ahead,” Chris Rupkey, chief economist at MUFG in New York, told Reuters. “Housing construction has been the missing link in the puzzle over why investment spending has lagged in this recovery.”
On Thursday the National Association of Home Builders/Wells Fargo Housing Market Index rose two points, to 70, for November, the highest since March and the second-highest since July of 2005. Any reading that is above 50 signals expansion.
“November’s builder confidence reading is close to a post-recession high — a strong indicator that the housing market continues to grow steadily,” NAHB chairman Granger MacDonald, a homebuilder and developer from Kerrville, Texas, said in a statement. “However, our members still face supply-side constraints, such as lot and labor shortages and ongoing building material price increases.”
“Demand for housing is increasing at a consistent pace, driven by job and economic growth, rising homeownership rates and limited housing inventory,” NAHB chief economist Robert Dietz said. “With these economic fundamentals in place, we should see continued upward movement of the single-family housing market as we close out 2017.”
Two of the association’s three HMI components registered gains in November. The component gauging current sales conditions rose two points, to 77, and the index measuring buyer traffic increased two points, to 50. The index that charts sales expectations for the next six months dropped a single point, to 77.
The Commerce Department said retail sales rose 0.2 percent in October and revised its September figures to show that sales rose 1.9 percent, rather than the 1.6 percent that it previously reported.
“Today’s retail sales numbers are encouraging for the U.S. economy, especially heading into the holiday shopping season,” Mike Loewengart, vice president for investment strategy at E*TRADE, was quoted as saying in a MarketWatch story. “It’s important to keep in mind that these numbers are coming off one of the worst hurricane seasons ever, so the fact that nine of 13 categories showed increases is a testament to the resiliency of the U.S. consumer.”
The Labor Department said the Consumer Price Index rose 0.1 percent. Core CPI, which removes the volatile food and energy categories, rose 0.2 percent. During the past year the core rate has risen 1.8 percent.
“The Fed has struggled this year in determining if the slowdown in core inflation has been due to a confluence of one-offs or more persistent disinflationary forces,” Sarah House, an economist at Wells Fargo Securities in Charlotte, told Reuters. “The pickup clears the way for a December rate hike and supports the case for continued tightening in the year ahead.”
The National Federation of Independent Business said its Index of Small Business Optimism rose in October, to 103.8, from 103.0 in September as more small business owners said they expect sales to rise and believe this is a good time to expand.
“Owners became much more positive about the economic environment last month, which suggests a longer-run view,” NFIB chief economist Bill Dunkelberg said in a statement. “In the nearer term they are more optimistic about real sales growth and improved business conditions through the end of the year.”
The NFIB said the outlook for expansion and sales expectations each jumped six points and job openings increased by five points.
“Consumer sentiment surged based on optimism about jobs and incomes, an encouraging development as consumers account for 70 percent of GDP,” Dunkelberg said. “We expect a pickup in auto spending as people in Texas and Florida continue to replace cars that were damaged in the hurricanes. We expect the same increase in home improvement spending, partly because of the hurricanes, but also because of the skyrocketing price of homes.”
Two regional manufacturing indexes declined in readings this month. The New York Fed said its Empire State index fell 10.8 points, to 19.4, but remained in positive territory. Any reading that is above zero indicates improving conditions.
The Federal Reserve Bank of Philadelphia said its manufacturing index fell to 22.7 in November from 27.9 in October. The Fed said the indexes for general activity and shipments fell from their October readings but remained positive; the survey’s index for new orders rose.
The Philadelphia Fed said nearly 57 percent of the manufacturers expect increases in activity during the next six months and only 6 percent expect declines. The Philadelphia Fed said the index has been positive for 16 months in a row. As with the New York Fed index, any reading above zero indicates growth.
This week is a slow period for economic reports because of Thanksgiving Day, but two important ones will be released ahead of the holiday.
Today the National Association of Realtors will issue its report on existing-home sales for October. On Wednesday the University of Michigan will release its final Index of Consumer Sentiment for November.