Personal income growth likely accelerated to a 0.5% rise in October, and personal spending likely rebounded 0.3%. We look for a stronger increase in October personal income based on accelerations in earnings and hours growth. Average weekly earnings of private industry workers rose 0.4% in October, while aggregate weekly hours rose 0.5%. We expect a pickup in personal spending as well. October ex-auto sales bounced back after a flat reading in September and rose 0.3%, suggesting spending on nondurable goods rebounded. Following a steep drop in September, durable goods spending also likely bounced back with a soft rise, in line with October light vehicle sales, which rose 0.2% to a 16.5 million unit annual rate. We expect stronger spending on services, which rose 0.2% in September, given the robust performance on consumer surveys and lower gasoline prices in October. The three expected increases translate to a 0.3% rebound in October spending from a 0.2% decline in September.
The October personal consumptions expenditures (PCE) deflator was likely flat on the month (+1.4% y/y), with the core (ex food and energy) deflator rising 0.2% (+1.5% y/y). We expect the PCE price index to remain unchanged and the core index to rise, in line with the October CPI. The ex-energy components in the October CPI rose more than expected, led by strong increases in airfare, medical care services, and furniture indexes as well as a robust 0.2% increase in the shelter price index. The energy price index fell at a deeper rate (-1.9%), as declines in gasoline prices accelerated in October. The CPI report suggests that the year-overyear PCE inflation rates remained unchanged in October. Moreover, we expect the core PCE index (the Fed’s gauge) to rest at +1.5% y/y. The October PCE index will likely confirm that the inflation picture remains weighed down by energy prices, while food and the core price components are showing sustained increases. This will help calm dovish Fed policymakers’ concerns over disinflationary pressures, but will stir the emotions of hawks.
October durable goods orders likely fell 0.5% led by a decline in transportation orders. We look for a drop in both non-defense aircraft and motor vehicle orders. Boeing reported 46 new aircraft orders in October, down by more than half than in the previous month. Production of motor vehicles and parts declined in October for the third consecutive month. Outside of transportation, durable goods manufacturing rose on balance, suggesting a rebound in ex-transportation orders from its 0.1% decline in September. The steep upward trajectory in the ISM manufacturing survey’s new orders component also points to growth in ex-transportation orders. Also released in the report are shipments and new orders of nondefense capital goods, excluding aircraft, which help gauge the outlook for Q4 business capex.
The final November University of Michigan consumer sentiment index likely increased a touch from its preliminary reading to 89.7— several points higher than the October index. The improvement in the preliminary November index to a new post-recession high reflected advances in both current economic conditions sentiment and expectations. Gasoline prices at four-year lows and stock market gains were likely to blame. Since early November, the data have only improved, with average gas prices declining to under $3/gallon and equity prices reaching new record highs. We thus expect the sentiment index to rise to 89.7 on further improvement in economic and financial conditions. Only a slight rise is anticipated given the large gain in the preliminary index.
We expect sales of new single-family homes to begin the fourth quarter on solid footing with a 1.2% rise to a 473K unit annual rate in October. The previous month’s 0.2% rise will likely be revised downward to a decline, as the 15.4% jump in sales in August is not sustainable. Assuming a decline in September, several pieces of data point to favourable sales conditions in October. Most importantly, conventional 30-year mortgage rates on average dropped considerably to 4.04% from 4.16% in September, and we find mortgage rates are a significant driver of sales growth. Additionally, housing starts posted a solid 3.3% increase in the third quarter, and the Housing Market Index of homebuilder sentiment, despite retracing in October, has been rising at a good clip since June. In addition, we expect a 0.6% rise in pending sales of existing homes, further reversing the 1.0% August drop. Pending sales rose just 0.3% in September and remain below July levels. Given the significant decline in mortgage rates in October, we expect sales growth to continue. However, we see downside risk to our estimate, as mortgage applications fell in October for the third straight month.