History suggests that import prices, especially for consumer goods, change by less than half as much as the dollar changes. In the current setting, dollar changes versus major trading partners over the past year have ranged from over 16% versus Japan (around 6% of U.S. imports) to under 1% versus China (almost a fifth of U.S. imports). Recently over the two months ending in October, imported consumer goods costs slipped by a cumulative 0.2%, which may overstate how much retail prices for such goods could change.
The continuing themes of above-trend growth and low inflation are likely to be evident in the economic data released next week. The plunge in gasoline prices will likely be reflected in declines in the PPI and the CPI in October; we also expect subdued readings for core prices. Manufacturing output likely began Q4 with another increase, and regional manufacturing surveys are likely to signal continued gains in output in early November. Housing measures were probably mixed, with modest gains in housing starts and permits, but a small decline in the existing home sales. The index of leading economic indicators is likely to post another healthy gain in October. On Thursday, the minutes from the October 28-29 FOMC meeting are scheduled to be released.
Q3 real GDP growth is on track to be trimmed to a 3.2-3.3% annual rate from the initially reported 3.5% pace, with drags from trade and construction data partially offset by retail sales, inventories, and factory shipments. Early indicators of Q4 have been positive, with a surge in confidence, reacceleration in retail sales, and continuing low levels of jobless claims.