Catalyst Strategic Solutions' website

Is it Enough to Make the Fed Move?

Learning Opportunities

Inflation is showing signs of normalizing, as the aftermath effects of the hurricanes begin to subside. The core wholesale price index, PPI, increased 2.4 percent year-over-year in October, a gain of 0.2 percent from September. This is the largest 12-month gain in core wholesale prices since 2012. Core consumer prices rose 1.8 percent from a year ago, the first increase in five months. While below the Fed’s target of two percent, the increase should be enough to convince the Federal Reserve to raise rates in December. Some of the sectors posting the largest price gains included shelter, medical care and used cars. Gasoline prices fell 2.4 percent, a significant correction after the storm-related price surges the past two months.

Other Key Indicators this Week:

Retail Sales – The sales figures for October point to resilient consumers, ready to spend as we approach the holiday season. Retail sales increased 0.2 percent last month with 10 of the 13 categories posting gains. In fact, five of the categories rose by more than 0.7 percent – autos, sporting goods, clothing, health care and restaurants. In particular, sales at food establishments were the highest since January. A 0.2 percent decline in new vehicle prices contributed to the rise in auto sales. Sales at gasoline stores fell 1.2 percent, reflecting normalizing prices after the hurricane-related spike.

Manufacturing – This week’s reports on manufacturing portray a sector that continues to improve. Factory output increased 1.3 percent in October, the largest gain since April. Production of consumer goods rose 0.9 percent, up 1.8 percent from a year ago. Post-storm demand for such items as furniture, appliances and auto parts certainly contributed to the heavier production activity, but demand for goods remains strong across all sectors. The New York Fed’s Empire State Manufacturing Index, the first look at November activity, reported an increase in new orders and the six-month outlook. Shipments fell, but remain firmly in expansionary territory. The decline of the index for general business conditions seems to be related to the uncertainty of passing a tax reform bill.

Housing – Construction on new homes surged in October, increasing 17.2 percent to the highest level in a year. The dramatic increase comes after three months of declines in activity. The rebound was largely due to a 36.8 percent spike in multi-housing activity, but also can be attributed to construction activity getting back on track after the late-summer hurricanes. Building in the south increased 17.2 percent, the most since January. Permits rose 5.9 percent, a good sign of continued construction activity.

Strategically for Credit Unions:

The yield curve continues to flatten, as the two-year note readies itself for another rate increase in December. At last count, the difference between the two- and 10-year Treasury notes is 65 basis points.

Note: Due to the Thanksgiving holiday weekend, there will be no Behind the Numbers next week. Behind the Numbers will resume on December 1. I want to wish everyone a very happy and healthy Thanksgiving Day

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.