Beneath political clamor, economy quietly humming

Reports last week on retail sales and housing starts in October showed both activities surging.

While President-elect Donald Trump’s Cabinet choices and his leadership style attract plenty of attention, outside the spotlight consumers continue to drive U.S. economic growth forward at a steady pace.

Reports last week on retail sales and housing starts in October showed both activities surging, and at the end of the week The Conference Board’s Leading Economic Index, which rose for the second month in a row, pointed to moderate growth that probably will continue, at least in the short run.

“Although its six-month growth rate has moderated, the index still suggests that the economy will continue expanding into early 2017," Ataman Ozyildirim, director of business cycles and growth research at The Conference Board, said in a statement Friday after the board said its index rose 0.1 percent in October.

Earlier in the week the Commerce Department said retail sales rose 0.8 percent in October, and it revised September growth upward to 1 percent. Those were the best back-to-back months for the retail sector since the early part of 2014.

Bloomberg reported that healthy hiring, wage growth and limited inflation are providing Americans with the resources and incentive to spend.

“The consumer is in good shape,” Michael Gapen, chief U.S. economist at Barclays Plc in New York, told Bloomberg. “The pace of household spending is fairly solid. We expect a slight acceleration this quarter from the third-quarter rate.”

Relying on past trends in presidential election years and applying them to the rancorous campaign between Trump and Democrat Hillary Clinton, many experts feared that consumers would pull back in the months before the vote because of concern about the outcome of a race between two candidates who were considered widely unpopular.

Although the nasty contest apparently did not deter consumers from pre-election spending, U.S. News & World Report said some experts are concerned that Americans who are uneasy about Trump’s victory might delay big-ticket purchases to see how the 2017 economy fares under the new president’s leadership.

"Though Trump has been on the campaign trail for some two years, he still remains a staggeringly enigmatic person," Bernard Baumohl, chief global economist at The Economic Outlook Group, wrote in a research note last week that U.S. News & World Report cited.

"So our first conclusion is we will likely see a major retrenchment on spending by households and business. There are just too many profound questions that immediately bubble up with a Trump presidency."

Other observers, U.S. News said, are more optimistic because international investors appear to have interpreted Trump's victory and a Congress controlled by Republicans as good signs for business.

Housing market watchers were heartened last week to see housing starts and permits for new construction rise in October. Starts rose 25.5 percent, to a seasonally adjusted annual rate of 1.32 million, the Commerce Department said Thursday. It was the fastest pace since August 2007.

Larger-than-expected gains across all regions of the country “reaffirm our view that steady improvement in the housing market is likely to continue over the next two years,” Rob Martin, of Barclays Bank PLC, told the Wall Street Journal.

Building permits for privately owned housing rose 0.3 percent in October from the prior month, to a seasonally adjusted annual rate of 1.23 million. That was the highest pace in nearly a year.

Paralleling the housing activity, consumer inflation rose in October. The Bureau of Labor Statistics said the Consumer Price Index climbed 0.4 percent, the fastest rate in six months, although so-called core prices were up only 0.1 percent when the volatile costs of food and energy are excluded.

The “report provided further confirmation of strong energy base effects boosting headline CPI,” Barclays economist Blerina Uruçi told the Wall Street Journal. “Although core inflation rose less than expected, we still believe that domestic price pressures remain strong.”

The Federal Reserve has delayed raising rates because inflation has remained relatively tame. Bloomberg said the Fed’s preferred gauge of inflation — the Commerce Department’s personal consumption expenditures index — has not risen to the central bank’s 2 percent goal since April 2012.

Nonetheless, Fed chairman Janet Yellen said Thursday that a rate increase could be approved “relatively soon.”

Speaking before Congress’ Joint Economic Committee, Yellen said, “At our meeting earlier this month the [Federal Open Market] Committee judged that the case for an increase in the target range had continued to strengthen and that such an increase could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the committee’s objectives.”

“Yellen’s prepared remarks, followed by strong economic data for October (including the earlier released data on strong retail sales in October and September, supported by strong sales gains just reported by Target, Wal-Mart and Best Buy), all but guarantee a December funds rate hike by the FOMC,” Stuart Hoffman, chief economist of PNC, told MarketWatch.

This week’s economic calendar is relatively busy for a holiday-shortened period. Today economy watchers will see the National Association of Realtors’ report on existing-home sales for October. On Wednesday the Commerce Department will release the same month’s report on new-home sales, and the University of Michigan will release its final Consumer Sentiment Index for November.

Before Wednesday ends we also will get a look at the minutes of the Nov. 1-2 meeting of the Federal Open Market Committee. How close did the Fed come to raising rates?

Yellen’s remarks last week suggest it was a close call and that the committee is nearer to making a move now than it has been for months.

The policymakers’ final meeting of the year is set for Dec. 13-14.


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