Based on solid job gains, moderate expansion in household spending, and growth in business fixed investment, the Federal Open Markets Committee (FOMC) determined that economic activity has been rising moderately so far this year, despite inflation lagging behind the FOMC’s +2.0% target rate. In view of past experience, the FOMC forecast that hurricane related disruptions and rebuilding would affect the economy in the near term but that those effects would not carry over to the medium term. Given current conditions, the FOMC voted to leave the target federal fund rate at 1.0% - 1.25% and to begin its “balance sheet normalization”, which will begin reducing the Federal Reserve’s $4.5 trillion in assets in October, starting at $10 billion/month.

The combined effects of Hurricane Harvey and a persistent shortage of available properties helped drop existing home sales by -1.7% in August to their lowest point in a year. Harvey caused sales in Houston to drop -25% Y/Y, and removing that data point would have caused M/M sales to be unchanged in August. Harvey and Irma’s effects are likely to continue into September and beyond for Texas and Florida, but the National Association of Realtors (NAR) projected that lost sales activity would show up in 2018.

Both the services and manufacturing components of IHS Markit’s Purchasing Managers’ Index for September were above 50, indicating continued growth, with the services component dropping from 56.0 in August to a two month low of 55.1 in September, and the manufacturing component rising from 52.8 to a two month high of 53.0. Service sector survey respondents noted rising consumer and business spending resulting in employment growth and increasing backlogs, but cited concerns regarding sales growth over the next year. Manufacturing respondents noted a slowing in the expansion of new orders, with new export sales unchanged M/M, and saw the steepest rise in input price inflation since December 2012, with some respondents attributing rising input prices to higher transportation costs and disruptions from Hurricane Harvey.