he October Empire State Manufacturing survey index likely remained solid but retraced a few points following a jump in September. The Empire State Manufacturing index of general business conditions likely declined to 21.0 in October after a nearly 13-point jump to 27.54 in September. In the previous month’s survey, future activity indexes for new orders, shipments and employment declined but all remained at solid levels. In addition, over the past two months manufacturing payroll employment has been weak, rising by only 4K in September after falling 4K in August. The almost 5-year high in September is likely unsustainable. Nevertheless, the September new order index (a forward-looking component) rose over 2 points to 16.86, suggesting the manufacturing survey will maintain its strong reading. We forecast about a 6-point drop to 22.0 in October. We expect retail sales to decline 0.3% in September, led by a reversal in light vehicle sales and lower gasoline prices. September retail sales likely fell 0.3% following a 0.6% increase in August. Light vehicle sales dropped 6.3% to a 16.4 million-unit annual rate, falling back down from August’s strong-than-expected 6.4% jump. Gasoline prices at the pump continued to decline in September, falling 2.3% and suggesting more downward pressure on gas station receipts. Outside of motor vehicle and gas station sales receipts, sales were likely solid. Retail surveys suggest stronger demand in September, particularly noted in the Dallas Fed retail outlook survey where the revenue index climbed almost 15 points to a post-crisis high of 35.5. Same-store sales likely had a sturdy month, with 9 out of 11 firms reporting stronger performance than in August. Some downside risk with regards to a stronger USD are seen in the coming months. We look for September ex-auto retail sales to rise 0.3%. The September final demand Producer Price Index (PPI) likely rose 0.1% on the month, with the core (ex food and energy) index rising 0.2%. As a result, top-line and core PPI both likely rose 1.8% YoY. The top-line PPI likely rose 0.1% in September, dragged down by lower energy and food prices but up from a flat reading in August. Gasoline pump prices fell 2.3% last month, while prices received by farmers fell 2.8%. Both suggest declines in energy and food price indexes. Excluding food and energy, the core index likely rose 0.2% following a 0.1% rise in August. Though the trade services index is volatile and thus difficult to predict, trade margins likely softened from the previous 0.3% rise as indicated by a more than 5 point decline in the ISM nonmanufacturing prices index over the prior two months. On the other hand, the rise in the prices paid component of the September ISM manufacturing survey suggests the core goods index likely picked up following a flat reading in August. Our forecast implies a 1.8% y/y rise in the top-line PPI with a 1.8 YoY rise in the core PPI – both unchanged from August. August inventories likely rose 0.4%. We expect total business inventories to rise 0.4% in August. Manufacturing inventories were softer than expected, rising 0.1%, while wholesale inventories rose 0.7%. Retail inventories, accounting for roughly the remaining 32% of total inventories, likely continued to see solid growth given steady increases in retail sales, which picked up in August. The Beige Book prepared for the October FOMC meeting likely will have a more upbeat tone with some global growth concerns noted. The Fed’s report on regional economic conditions likely noted that economic activity continued to expand. Growth in the manufacturing sector was likely mixed given the recent August decline in manufacturing production. Lending activity likely continued to increase throughout the nation in line with an easing in lending standards, though mortgage rates edged up slightly in September. Reports on real estate activity likely varied across Districts. Optimism on future growth was likely mixed in light of a worsening of global growth indicators. The employment trends likely improved since the last report as indicated by the strong September payrolls report and solid drop in the unemployment rate. Of particular interest will be the updated comments on skill labour shortages. Wage pressures likely remained modest, as wage growth continues to track just 2.0% YoY. Price pressures likely remained ‘largely contained’. We expect a 0.4% rebound in September industrial production following a 0.1% drop in August. Manufacturing likely rose 0.3%, reversing the previous 0.4% decline. We look for a solid 0.4% rise in industrial production in September with increased growth in all three production sectors. Manufacturing production likely rose 0.3% led by a rebound in motor vehicle production, which fell 9.5% in August. The auto sector added back slightly over 3K jobs in September after a 4.5K drop in the previous month, while overall manufacturing employment rose 4K. The factory workweek was flat on the month, but weekly overtime hours rose by 2.9%, more than reversing the previous decline. Despite somewhat weak labor figures, weekly production schedules suggest solid manufacturing growth on balance. For mining and utilities production, we expect strong increases. Warmer than normal temperatures in September raised the usage of cooling far above normal, boosting production in the utilities sector, and stronger increases in refinery production suggest a pickup in mining production. The September capacity utilization rate likely rose from 78.8% to 79.0%.. The October Philadelphia Fed survey index likely fell a touch but remained at a healthy reading. We expect the October Philadelphia Fed manufacturing index of general business conditions to edge down to 21.0 from 22.5 in September. In the previous survey, the overall future activity index fell over 10 points, led by declines in the new orders and shipments components. But all remained at strong readings above 50. The current activity indicator for new orders and employment also improved, with employment rising over 11 points. Both suggest solid forward momentum in manufacturing activity. Despite a slight downtick, we look for a strong reading of 21.0 on the Philly Fed survey. We expect an uptick in the NAHB Housing Market Index (HMI) in October. The October HMI—the homebuilder sentiment gauge of new single-family home sales conditions—continued to rise in October following a steady uptrend since May. The strong September employment figures likely bolstered sales sentiment. Job growth in residential construction has been rising at a good clip over the past several months and accelerated in September, indicating sales conditions of new homes remain firm. According to the September Fannie Mae housing survey, those who find it is a good time to buy rose 4 percentage points, while those who say it is a good time to sell rose 1 percentage point. This suggests HMI buyer traffic continued its upward trajectory toward the 50 index threshold (where levels above 50 indicate more respondents view sales conditions as ‘good’ than ‘poor’). After rising 5 points to a year-to-date high, the HMI component of present sales conditions likely rose at a slower pace. We look for the overall HMI to rise 1 point to 60 in October. September housing starts and building permits likely rebounded from their previous declines. We look for a 4.5% increase in housing starts to a 999K unit annual rate, with permits rising 2.4% to 927K unit annual rate. Housing starts, which plunged 14.4% in August, likely rose 4.5% in September. We expect the rebound to be led by starts in multifamily units, which sank 31.7% in August. As noted above, residential construction employment accelerated in September, rising by over 6K. The expected September rise in housing starts only partly reversed the previous decline, given a 5.1% decline in permits in August. However, in recent months, movements in permits and starts have been relatively more concurrent. We expect building permits to rise 2.4% in September driven by a rebound in multifamily permits which fell 11.7% in the prior month. Our September forecast would put housing starts above trend growth and at a solid Q3 level above the previous quarter’s level of 985K. The preliminary University of Michigan (UofM) consumer sentiment index likely slipped in October, largely related to the recent stock market correction and global growth concerns. The preliminary October reading on the UofM consumer survey likely showed a slip in sentiment. The S&P 500 has continued its decline from record highs in mid-September, touching a low of 1,928 in the second week of October. The recent fall partly reflects global growth concerns, particularly for Europe, as well as a self-correction. But in contrast to lagging growth abroad, US data has been positive. September payroll employment came in stronger than expected and the unemployment rate dropped by 0.2 percentage points. Gasoline prices at the pump fell even lower, hitting an 8-month low in the first week of October. A stronger job market and lower prices at the pump help to fatten consumers’ wallets and boost their willingness to spend. Other consumer surveys have been encouraging as well. The RBC consumer outlook survey, which gauges buying sentiment in particular, rose almost a point to 53.2 in October. Weekly Bloomberg consumer comfort surveys rebounded in the first week of October after hitting a 4-month low. All 3 gauges (economic outlook, buying climate and personal finances) improved, reflecting a strengthening job market and lower gas prices. Nonetheless, the index stands near its Q3 average. Falling equity prices likely explain the previous weekly drops in the comfort index, which fell from 37.2 to 34.8 during the last two weeks of September. We expect the October UofM sentiment index to fall less than a point to 84.0 from 84.6 in September, with current conditions sentiment getting a boost but expectations edging off slightly.
Posted on: Mon, 13 Oct 2014 04:06:04 +0000
Trending Topics
Recently Viewed Topics
© 2015