Weekly Economic Review | January 22, 2024

Economic Review

The Labor Department reported that initial jobless claims increased last week, although still low by historical standards. Abnormally cold weather likely contributed to the uptick in seasonally adjusted claims. First time claims in regular state programs increased 25,000 to 214,000 from the prior week’s upwardly revised 189,000 for the week ending January 20^th. The four-week moving average dropped to 202,250 from 203,750 the prior week. Continuing claims, which include people who have received unemployment benefits for a week or more, climbed 27,000 to 1.833 million for the week ending January 13^th.

The Conference Board reported the index of leading economic indicators declined 0.1% in December, the smallest decline in fourteen months. The loss was led by a decline in ISM new orders, the interest rate spread and consumer expectations. The biggest positive contributor to the leading index was stock prices. The index of U.S. leading indicators is a gauge of the economic outlook for the next three to six months. The coincident index, a gauge of current economic activity, was 0.2% in December after climbing 0.2% in November.

The Federal Reserve Bank of Chicago reported the pace of U.S. economic activity declined in December. The Chicago Fed National index, which draws on 85 economic indicators, was negative 0.15 in December after reporting a downwardly revised positive 0.01 in November. 48 of the indicators affected the index negatively and 37 made positive contributions. A reading below zero indicates below-trend-growth in the national economy.

The initial estimate by the Commerce Department of the 4^th quarter gross domestic product indicated economic activity was much better than expected, fueled by robust consumer spending. The fourth quarter gain caps a surprisingly strong year that defied recession calls. Gross domestic product expanded at a 3.3% annualized rate in the 4^th quarter following an impressive 4.9% gain in the 3^rd quarter. Personal consumption, which accounts for about 70% of the economy, increased at a strong 2.8% annualized pace, down from 3.1% in the 3^rd quarter. Inventory spending and government investment were also stronger than expected. The core PCE deflator, which is closely watched by the Fed rose 2.0% for the second straight quarter, in line with the Fed’s target. The GDP price index gained 1.5% in the 4^th quarter after 3.3% in the 3^rd quarter, suggesting inflation is dropping to acceptable levels.

The Commerce Department reported the goods trade deficit narrowed slightly in December as exports climbed at a faster pace than imports. The deficit decreased 0.1% to $88.5 billion in December. Exports climbed 2.5% to $169.8 billion and imports increased 1.3% to $258.3 billion.

The Commerce Department reported wholesale inventories increased 0.4% in December after falling 0.4% in November. Year-on-year wholesale inventories are down 2.7%. Retail inventories increased 0.8% in December after climbing 0.1% in November and are up 5.3% year-on-year.

The Commerce Department reported durable goods orders, which are bookings for goods and materials meant to last at least three years, remained unchanged in December after jumping 5.5% in November. A large drop in transportation orders in December comes after a surge in transportation orders the prior month. Excluding transportation, durable orders climbed 0.6% in December after climbing 0.5% in November. The non-military capital goods orders excluding aircraft, a proxy for business investment, increased 0.3% in December after surging 1.0% in November. The ratio of inventory to shipments climbed to 1.87 in December from 1.85 the prior month.

The Commerce Department reported sales of new homes exceeded forecasts in December as a drop in mortgage rates entices new homebuyers. New housing inventory increased in December to 453,000 units, the most in more than a year. New home sales climbed 8.0% to a 664,000 annualized pace in December after reporting an upwardly revised 615,000 pace the prior month. New home sales, which account for about 10% of the residential market, are accounted for when contracts are signed, which makes this data a more timely indicator than existing home transactions.

The Commerce Department reported personal income climbed 0.3% in December after gaining 0.4% the prior month. Personal spending surged 0.7% in December, well above expectations after gaining 0.4% the prior month. The jump in spending caused the savings rate to drop to 3.7% in December from 4.1% the prior month, well below the average pre-pandemic saving rate of about 6.3%. Monthly PCE inflation climbed 0.2% in December after declining 0.1% in November and year-on-year PCE remained at 2.6%. The core PCE Deflator, the preferred inflation gauge by the Federal Reserve, climbed 0.2% in December, bringing the year-on-year gain to 2.9%. Disposable income, or the money left over after taxes, increased 0.3% in December.

The National Association of Realtors reported the index of pending home re-sales rebounded in December to a five-month high, suggesting the recent drop in mortgage rates is helping to bring back life in the resale market. The number of contract signings increased 8.3% in December after hitting a record low the month before. Pending home sales are down 14.1% from a year earlier on an unadjusted basis. A 30-year fixed mortgage rate has dropped below 7%, encouraging more homeowners to list homes that are financed at much lower levels. Pending home sales are based on houses under contract as reported by over 100 multiple listing services and 60 large real estate brokers. A sale is listed as pending when a seller accepts a sales contract on a property. Pending sales are a leading indicator in the housing sector as they reflect contracts signed, as opposed to actual closed and final sales.

The Mortgage Bankers Association reported the MBA index of mortgage applications climbed last week for the third straight week. The index increased 3.7% for the week ending January 19^thafter climbing 10.4% the prior week. Refinancing applications declined 7.0% to 438.4 from 471.2 the prior week. Home purchase mortgage applications increased 7.5% to 174.3. Refinancing made up 32.7% of applications with an average loan size of $278,400, while purchases average loan size was $425,100. The average contract rate on a 30-year fixed-rate mortgage increased to 6.78% from 6.75% last week.

BOND MARKET REVIEW

Rates were mixed last week as the market prepares for this week’s FOMC meeting. Friday’s yields for the 2-, 5-, 10- & 30-year Treasury benchmarks securities closed at 4.35%, 4.04%, 4.14% and 4.37%. The 2yr/5yr, 5yr/10yr, 10yr/30yr and 2yr/30yr spreads closed at -31, 10, 23, and 2 basis points respectively.

Economic/Events Calendar