Mel's Blog

Hurricane's Holy Cow Batman!

September 11th, 2017 1:40 PM by Mel Samick

 

This is “H” as in “hurricanes", or in “Harvey.” As our thoughts are with those affected by these powerful acts of nature as they are still bracing for survival and recovery, there are already attempts underway to estimate the economic impact of the double natural disaster. The extent of damage from Hurricane Irma, which pounded Florida over the weekend, is not yet clear. However, its power, and the sole fact that it comes right after Harvey, which brought devastation to the fourth largest U.S. city, Houston, among other damages, creates expectations of a profound financial impact. In Florida, tourism and agriculture are expected to suffer the most. Air travel, energy, and gasoline distributors will reel mostly from the side effects of damaged infrastructure. Harvey is already forecasted to affect the broader economy and will be blamed for higher jobless claims, less new jobs created, higher inflation, lower consumer spending, and weakness in the housing market in the Houston area, that unto itself comprises a sizable share of the national market. The good news is that all of those issues are predicted to be short-lived and should reverse as recovery picks up later in the year and into next year.

The best news regarding July Factory Orders, reported last week, was an upward revision of the previous (June) growth report from 3 to 3.2 percent. Otherwise, the 3.3 percent decline in July was quite disappointing, even though it came in line with projections. The ISM Non-Manufacturing Index for August added some optimism when it posted at a solid 55.3 level, higher than the previous month’s reading and supportive of the consensus forecast. The PMI Services index was also very strong for August.

The Beige Book, an economic condition report ahead of the FOMC meeting, did not anticipate any significant rise in inflation despite gasoline price hikes due to tight supply. At the same time, the report highlights upcoming weakness in the key indicators of economic growth, based on the early assessments of hurricane Harvey impact, and does not prompt any urgency in withdrawing government support for the economy.

Jobless claims started picking up this week, as a result of Hurricane Harvey. Productivity increased in the second quarter, and pushed labor costs down. According to the Consumer Credit report, consumer debt increased mostly due to higher credit card balances. Mortgage interest rates kept sliding downwards this week, per Freddie Mac’s Primary Mortgage Market Survey, with the 30-year fixed mortgage national average at 3.78 percent and 5/1 ARMs at 3.15 percent.

The inflation measures will be posted this week – look out for the Producer Price Index on Wednesday and Consumer Price Index on Thursday. Industrial Production and Business Inventories, along with Consumer Sentiment and Retail Sales, will make Friday busy. As skies start clearing up after the hurricanes, let us enjoy the escaping summer at its best. Stay tuned.

Mel
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Posted in:General
Posted by Mel Samick on September 11th, 2017 1:40 PM

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