The hurricanes in late August and September are still affecting the economic data being released. Last week it was the inflation data, this week it will be the housing data. The Producer Price index was up 0.4% for the month of September. This increase was driven by higher energy prices as ports were closed and refining was reduced due to the storms. However, the core rate which excludes food and energy was also up 0.4% and is up 2.2% on a year-over-year basis through September. This was viewed as some indication inflation is beginning to surface. The Consumer Price Index was up 0.5% for the month, but the core rate was only up 0.1%. The YOY increase for the core rate now stands at 1.7%, which is still below the Fed’s target of 2%. The retail sales data for September (the last month of the quarter) was strong, but that was largely a function of auto sales. Auto sales jumped in September due to replacement demand from cars lost in the storms. However, excluding auto sales and higher gas prices, retail sales posted a strong gain of 0.5% for the month. This is better than we had been expecting and means Real GDP growth for the third quarter will come in above our current forecast of 2.3%.

The question remains as to whether the Fed will raise managed rates at their December FOMC meeting without clear evidence inflation has risen. The Fed Funds Futures are pricing in a 75% probability of another 25 basis point move at that meeting…

ProBank Austin Advisor – October 16, 2017