US Preview: Consumption, Inflation Queue Up Next Week

The economy is over its labor-market woes (for now). Up next? Inflation worries.

by Vladimir Amrich
WBP Online correspondent in Washington

Worries over US labor market momentum have been put aside by the strong September payrolls report.

Attention next week yet again turns to a weakening of inflation momentum, especially as the next meeting of the Federal Reserve (Fed), which will mark the end of quantitative easing (QE) in the US, approaches.

While core inflation reached and stabilized within the year-end target range several months in advance, medium- to long-term inflation expectations have fallen markedly recently, owing to a weakening global economy and lower crude prices.

Through the volatility, inflation expectations remain "well anchored" and should limit the increase in inflation set in motion by faster growth and further reductions in slack, New York Fed President William Dudley said last week.

Investors' attention will be firmly focused on Friday morning when Chair Janet Yellen will address a conference at the Boston Fed with a speech focused on economic inequality.

Yellen is widely believed to be in the dovish camp, with her comments often touching upon the social costs of unemployment.

It seems unlikely she would present any landmark comments a mere two weeks before a meeting of the Federal Open Market Committee, especially since the minutes of the last gathering showed a big divide on the communication strategy.

Still, it will be her first public remarks since September's press conference, so the address will be closely scrutinized for her stance on the inflation outlook, the deteriorating outlook for the global economy and the dollar exchange rate, which have come to the forefront recently.

Pipeline price pressures

The Department of Labor in Washington will provide the September reading on inflation pressures at the production stage on Wednesday at 8:30am local time.

The headline Producer Price Index is expected to edge 0.1% higher from a month earlier to maintain a year-on-year pace of 1.8%.

Wholesale inflation is running at an average 1.7% in the eight months for which data are available, up from 1.4% last year.

The August data revealed that energy prices have decline in each of the past seven months except for June. Prices of goods other than foods and energy have also been hesitant to accelerate and services costs continued to show fairly steady growth below the 2% mark.

Shoppers in spotlight

At the same time, the Department of Commerce will release the September tally for retail receipts.

Economists are expecting to see a 0.2% decline in retail sales in September, which would be the first drop since January when extreme weather cut into customer traffic.

Purchases rose the most in four months in August on a surge in car demand.

Data showed unit vehicle purchases fell to a four-month low in September and will weigh on the headline. Sales other than autos are expected to post a modest 0.2% gain, which would also be an eight-month low.

Still, the crucial control reading on retail sales, which correlates more closely with household expenditures in the gross domestic product, are anticipated to come in a notch stronger at 0.3% in September. Nevertheless, that would be the weakest print of the third quarter after the measure rose 0.4% in both July and August.

Finalizing the trio of Wednesday morning macro-releases will be the so-called Empire State Manufacturing Index from the New York Fed. The September reading marked an almost five-year high for the gauge at 27.54 points.

Now economists expect to see a moderation to a still strong 20.0 points in October.

In the afternoon the Fed will release its Beige Book report which summarizes anecdotal economic data from across the twelve districts.

Thursday will bring the weekly update on the measure of layoffs - first-time applications for unemployment aid. Jobless claims have been consistently pointing to an acceleration in employment growth.

At the last measuring, the four-week average of claims fell to the lowest level in more than eight years.

Next up will be the Fed's report on industrial production, expected to rebound 0.4% in September from a month ago, and capacity utilization which is projection to edge up to 79%.

Even though the August reading revealed a surprising dip in output (the first since January), the data reflected only a payback from an excessive surge in motor vehicle production in the previous month. The previous dip in utilization should also be reversed in September.

The week will close with an update on new residential construction and a fresh look at consumer moods.

First, the Commerce Department will release the tally of housing starts and building permits at 8:30am.

The housing sector remains one of the main soft-spots of the US economy even though some improvements have been seen in the summer.

Construction of new single-family homes has been lackluster as demand for apartment buildings soared as tight mortgage standards forced many, especially young, buyers into the renting market.

For the upcoming September release, analysts are betting on a rebound in both housing starts and building permits to just over the 1 million mark. The previous reading saw an outsized slump in activity.

Then the University of Michigan will deliver the advance look on its gauge of household confidence with forecasters having penciled in a mild moderation to 84.2 from 84.6 in September, which was the second highest the gauge has climbed in the past seven years.

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