US
On the household front, retail sales started Q4 with a bang, rising 0.8% on top of an upwardly revised September reading. Strong auto and gasoline station sales provided a lift to the headline, but even excluding these components retail sales rose a solid 0.6% in October and 4.3% over the past year. The consumer appears well-positioned to make further gains in Q4, and real consumer spending growth is expected to settle in at around a 2.4% rate in the quarters ahead. Housing starts also surprised to the upside in October, surging 25.5%.
In the factory sector, industrial production was unchanged in October. The weakness was confined to the utilities sector, which fell 2.6% last month amid the warmest October since 1963. Output in the manufacturing and mining sectors, better bellwethers of production trends, increased over the month. Durables production was up 0.4%, aided by another strong month of production in the auto sector, while nondurable goods output was flat. Even with the gains of recent months, the trend in manufacturing remains largely sideways; total manufacturing production is only even with its year ago level.
Inflation continued its slow but steady rise toward the Fed’s 2% target in October. Although the Producer Price Index (PPI) missed in October, the Consumer Price Index (CPI) rose a strong 0.4% in the month, bringing the year-over-year pace to 1.6%. Rising energy and shelter prices contributed to the monthly gain, while prices for food at home fell for the sixth consecutive month, marking the largest year-ago decline since December 2009. Inflation expectations, an area which the Fed has closely monitored, have also shown recent signs of firming.
This week, the preliminary core capital goods orders for October will be released on Wednesday. The three-month average of core capital goods orders suggests that shipments should soon begin to rise and supports the view that business investment has bottomed out. Shipments rose in September, but more than one month of growth is needed to be sure that it is not due to noise. Business investment has likely bottomed out and orders and shipments of core capital goods are expected to rise in the coming months.
The preliminary Markit PMI manufacturing index for November, where it will be interesting to see if the positive signals for the manufacturing sector continue. In October, the index rose to a one-year high, which together with positive signals from the ISM manufacturing index, indicate that the manufacturing sector is recovering. The consensus for the Markit PMI index is an increase to 54.0 in November from 53.4 in October.
UK
UK Consumer price inflation surprised on the downside in October, but this was mainly due to unusual weather effects, which also had pulled up inflation in September. CPI inflation year-on-year fell to 0.9% in October from 1.1% in September. The consensus for October was 1.1%. Core inflation was also weaker than expected at 1.2% in October, down from 1.5% in September. The consensus was 1.4%. The decline in inflation in October was mainly due to unusually warm weather, which had distorted seasonal sales. For instance, clothing inflation fell to 0.7% in October from 1.1% in September. On the other hand, transport inflation increased as motor fuel prices rose in October and the very volatile airfare inflation picked up after falling sharply in September.
The UK unemployment rate decreased a little further in the latest update, but should soon start to pickup. The three-month average unemployment rate fell to 4.8% in September from 4.9% in August. The consensus expectation was 4.9%. The drop was due to an increase in the inactivity rate as employment increased by 49k but the labour force increased by only 12k. The claimant count rose by as many as 9.8k in October, and September numbers were revised upward to show an increase of 5.6k from previously 0.7k.
The strong October UK retail sales were pulled up by weather-related effects. Total retail sales in-creased by 1.9% in October, up from 0.1% in September and solidly beat the consensus expectation of 0.5%. The surge was largely due to a strong pick-up in clothing sales from weather-related weakness in September. Unusually warm weather this autumn had contributed to a postponement of purchases of winter clothing.
The second estimate of GDP growth in Q3 will be released on Friday. While no revision is expected to the first growth estimate of 0.5%, it is important to focus on the GDP subcomponents. Most interesting is how investment performed in the first quarter after the EU vote. Private consumption growth is expected to have continued at the same pace as before the EU vote.
EU
In the euro area, the consumer confidence figure for November is released on Tuesday. Consumer confidence improved to – 8 in October compared to August, but it is not certain that the positive trend will continue. Consumer confidence has so far been resilient to the UK’s vote to leave the EU and the still low oil price and continuing employment growth support consumer confidence. However, downside risk exists due to uncertainty following the election of Donald Trump and its possible consequences for EU skepticism in the euro area.
On Wednesday, the PMI figures are released for the euro area, Germany and France. The figures for October were strong and for the manufacturing PMIs a solid order-inventory balance, although not as strong as September, still signals an increase in the manufacturing PMI. For the service PMIs, the future business expectations index from October suggests an increase in the figure in November.
China
China’s IPI and retail sales prints came in short of consensus in October but prevailing trend in the past few months indicated that it was too soon to raise the alarm as the broader set of Chinese data continued to paint the picture of further stabilisation. IPI sustained a 6.10% year-on-year growth while retail sales moderated to 10.00% year-on-year (previous: 10.70% year-on-year) last month. Fixed assets investment growth was notably robust in the past ten months (+8.30%), underscoring the government’s effort to stem domestic slowdown as factories churned out goods at slower pace. Meanwhile in Hong Kong, the economy expanded 1.90% year-on-year in 3Q, building on the 1.70% year-on-year growth in 2Q.
Sources: Haendelsbank, Wells Fargo, HansLeong, TD Economics, Danske Bank.