The core PCE price index is the inflation indicator favored by the Fed. In September, core PCE was 3.6% higher than a year ago, matching the consensus forecast. This was the same annual rate of increase as last month, but up from levels below 2.0% during the first three months of the year, and the highest annual rate since 1991. Economists have differing views on whether higher inflation will be short-lived or persist for years.
With the spread of Covid and major supply chain disruptions in many sectors, it came as no surprise to investors that economic growth slowed last quarter. Third quarter gross domestic product (GDP), the broadest measure of economic activity, showed annualized growth of just 2.0%, below the consensus forecast of 2.7%, and down from 6.7% during the second quarter. The impact of the report was small, however, since investors believe that the consumer appetite for goods and services remains very strong. Growth is anticipated to accelerate as production issues are resolved and companies are able to catch up to meet the demand.
In September, sales of new homes jumped 14% from August to an annual rate of 800,000 units, well above the consensus forecast of 760,000, and the highest level since March. The median new home price of $408,800 was 19% higher than a year ago. In general, the pace of both new and previously owned sales is being dictated by the supply of homes available each month. Builders point to shortages of key materials and skilled labor as obstacles to faster construction.
Investors will closely watch Covid case counts around the world. Beyond that, the next Fed meeting will take place on Wednesday, and investors will be looking for guidance on the timing for tapering the bond purchase program and for future rate hikes. The key Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. The ISM national manufacturing index came out yesterday and the ISM national services sector index on Wednesday.