Recent data do not move the dial of economic expectations, remaining consistent with the view that conditions improved in the third quarter, relative to the second, and that moderate improvement is continuing into the early fourth quarter. Producer prices for September came in hotter than expected with the finished goods PPI gaining 1.1 percent. The finished goods energy index was up 4.7 percent in September after gaining 6.4 percent in August. Lower crude oil prices in October should cool off the energy component, even with some upside pressure from California markets due to refinery and pipeline problems. Excluding food and energy, core finished goods prices were unchanged for the month. Over the last year the finished goods PPI is up 2.1 percent. The U.S. trade gap widened moderately in August to -$44.2 billion. Imports were essentially unchanged for the month but exports eased by $1.9 billion. It now looks like trade will be a small drag on Q3 GDP growth, but not enough to thwart an improvement from the weak 1.3 percent real GDP growth rate from Q2. The University of Michigan consumer sentiment index jumped to 83.1 in early October, well above the previous 78.3. Improving consumer confidence is a positive for home and auto sales, as well as for the upcoming holiday shopping season. Initial claims for unemployment insurance fell sharply by 30,000 for the week ending October 6, to hit 339,000. The buzz behind the number is that there was a large drop concentrated in one state that may be more of a fly in the ointment rather than a downside break-out. In the October Beige Book most areas cited general economic expansion, with the exception of The New York and Kansas City Districts, which respectively cited flat and slowing activity. Consistent with recent housing reports, residential real estate remains a bright spot overall. Most Districts reported stronger home sales, increasing prices, declining inventories and more construction. Manufacturing activity was mixed, but improved since the last report. Employment conditions were indicated to be mostly flat, with Cleveland, Atlanta, Minneapolis and Dallas citing uncertainty related to the presidential election, U.S. fiscal issues and the European debt crises as hiring restraints. The Mortgage Bankers Association’s Applications Composite Index decreased by 1.2 percent the week ending October 5. Refis drove the decrease, down 2.0 percent, although volumes for refis are still near three-year highs. A surge in the MBA Purchase Index through September and into October is a positive indicator for upcoming September home sales numbers. Business inventories for August were up 0.5 percent compared to a month ago. The inventory-to-sales ratio ticked down slightly, to 1.20 percent. The Job Openings and Labor Turnover Survey (JOLTS) for August was roughly consistent with the declining rate of job growth seen in the payrolls numbers in Q3. Hiring was flat, while separations increased and job openings fell.
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