Data out of the factory sector indicated that strength continues to build. Regional data showed some signs of overheating; the Empire State Mfg. Survey indicated new orders at their fastest monthly growth rate in 8 years, backlog orders starting to pile up, and delivery delays due to supply chain issues, a result of the hurricanes. Hurricanes affected Industrial Production in August, with all three component reports having declined (utilities, mining and manufacturing). Hurricane effects are temporary but Irma’s effects will likely be priced in through September.

Business Inventories rose 0.2% in July, with wholesalers and manufacturers growth offsetting a slight pullback from retailers. Small Business Optimism in August beat consensus to match a 12-year high set in January. Particularly strong were plans for capital expenditures, a positive sign for sustained small business growth. Although unaffected by the hurricanes, the PPI missed expectations, edging just 0.2% higher in August vs. 0.3% expectations. The report speaks to the lack of price pressures in the economy.

Consumer data was largely positive. For the first time since February, CPI did not miss expectations, and rose 0.2% for August. At the core, housing posted a solid 0.4% gain, and energy costs spiked due to the hurricanes. The report adds conviction to the Fed’s balance-sheet unwinding plan. Data for Retail Sales was soft, August saw a -0.2% decline. Weak auto sales were a large detractor, and a lack of fundamental strength scales back consumer spending expectations, although it remains on course to contribute to Q3 GDP. Despite a slight decline from August, Consumer Sentiment remains elevated, and the current conditions component rose to its highest level in 17 years. Inflation expectations increased modestly. Volatility from the hurricanes is expected in the coming weeks, but Initial Jobless Claims for the week fell -14K to 284K.