Inflation Chills, GDP Thrills…

Those of you with kids and grandkids are probably all set for all sort of “trick-or-treat” adventures tonight…

That is, if you still have that kind of patience after trying to make sense of this all this new market volatility.

It is Halloween. But this is no time to get spooked.

Well, wait until Friday. That’s when we’ll see the monthly jobs report for October, and it could mean even more volatility…

Markets have posted a two-day mini-rally into Wednesday’s close, with momentum perhaps provided by a relatively tame inflation report on Monday.

The Personal Consumption Expenditure Index was up just 0.1% month over month and slowed to 2% from 2.2% on a year-over-year basis.

The “core” PCE Index reading – excluding volatile food and energy prices – was up 0.2%, exceeding the 0.1% consensus forecast. It’s safe to say it’s still “within trend,” however.

Core PCE maintained its 2% year-over-year pace from the prior month.

Personal incomes rose just 0.2%, and that’s half of the consensus forecast of 0.4%. At the same time, however, August income growth was revised up to 0.4% from 0.3%.

Spending growth outpaced income growth at 0.4%, and August’s pace was revised higher to 0.5% from 0.3%.

Buy, American, Buy…

Strong spending is actually the primary factor behind stronger-than-expected third-quarter gross domestic product (GDP) growth.

Indeed, the Commerce Department reported the U.S. economy expanded by an expectations-beating 3.5% during the third quarter.

It’s just the “advance” number, so it’s subject to revision…

But the consensus forecast was for 3.3%. And, along with 4.2% growth from April through June, this is the best back-to-back gross GDP growth we’ve seen in four years.

GDP is the broadest measure of our economy. But the most important part is consumer spending, which accounts for about 70% of all economic activity.

Consumer spending was strong in the third quarter, growing by 4% against a forecast of 3.3%. And it accelerated from 3.8% during the second quarter.

But here’s the thing: More recent data suggest consumer spending must slow. Wages simply aren’t rising fast enough to support the kind of growth we’ve seen.

This House Is on Fire

September new home sales were down 5.5% compared to August to an annualized rate of 553,000.

That’s below an expectation of 625,000. On top of the disappointing September sales, August and July sales were adjusted down, by 44,000 and 5,000, respectively.

Prices were up 0.3% on the month. But they’re down 3.5% from the same time in 2017. And sales are down 13.2% year over year. Prices, too, will start to come down.

This weakness is a major concernrn. New home sales drive a lot of economic activity, including purchases of new furnrniture and appliances and finishing touches such as landscaping and other improvements.

The U.S. housing market’s been showing signs of distress since early 2018.

And a home is usually the most valuable asset an American owns. It’s important; I’ll continue to watch it closely.