Weekly Economic Review | December 16, 2024

Economic Review

The Labor Department reported that initial jobless claims rose last week to a two month high, with a large increase in claims from California, which was hit by wildfires in early December. Jobless claims could surge toward the end of the year after Boeing Co. presented measures to cut costs that includes a 10% reduction in the workforce. First time claims in regular state programs recorded 242,000 for the week ending December 7^th, after the prior week’s report of 225,000. The four-week moving average climbed to 224,250 from 218,500 the prior week. Continuing claims, which include people who have received unemployment benefits for a week or more, increased 15,000 to 1,886,000 for the week ending November 30^th. The insured unemployment rate, the number of people currently receiving unemployment insurance as a percentage of the labor force, dropped back to 1.2% after climbing to 1.3% two weeks earlier.

The Commerce Department reported wholesale inventories climbed 0.2% in October to $905.0 billion. Year-on-year wholesale inventories have climbed 0.9%. Wholesale trade sales declined 0.1% in October after gaining 0.5% in September, with year-on-year sales up 0.9%. The ratio of inventory to sales remained unchanged at 1.34.

The National Federation of Independent Business reported sentiment among small businesses surged in November to a more than three-year high in anticipation of more favorable economic policies after Donald Trump was reelected to the White House. The election results signal a major shift in economic policy, leading to a surge in optimism among small-business owners. The index climbed to 101.7 in November from a 93.7 reading in October.

Bureau of Labor Statistics reported unit labor costs in nonfarm businesses rose at a revised 0.8% in the 3^rd quarter, reported earlier as a gain of 1.9%. The previous quarter was revised to a decline of 1.1% in the 2^nd quarter. The adjustments to both periods reflect downward revisions to hourly compensation. On a year-over-year basis, unit labor costs were up 2.2%, the smallest annual advance since 2023. Productivity climbed at an annualized pace of 2.2% in the third quarter after rising 2.1% in the second quarter. Productivity for the year dropped to 2.0% from 2.4% in the second quarter. The slower productivity was due mostly to smaller acceleration in output growth.

The Labor Department reported the consumer price index climbed 0.3% in November after 0.2% gains the prior four months. A gain in commodity prices of 0.4% masked the good news that housing-rent inflation finally stepped down. Shelter costs, one of the most persistent sources of inflation, cooled from the previous month, but the category still accounted for nearly 40% of the overall advance. Consumer prices year-on-year climbed to 2.7% from last month’s 2.6%. Service prices, which make up 64.7% of the index, gained 0.3% in November after gaining 0.4% in October. Prices of commodity based manufactured goods climbed 0.4% in November after remaining unchanged the prior month. The core CPI, which excludes volatile food and energy prices, gained 0.3% in November after increasing 0.3% the prior month. The year-on-year change in core CPI remained at 3.3% in November.

The Treasury Department reported a budget deficit of $366.8 billion for the month of November with the government collecting $301.8 billion and spending $668.5 billion. This compares to a deficit of $314.0 billion a year earlier. November is the second month in the government’s fiscal year, with the year-to-date deficit at $624.2 billion, compared to $380.6 billion last year.

The Labor Department reported the producer price index grew at 0.4% in November after climbing an upwardly revised 0.3% in October. The pickup in wholesale prices was driven by price gains for goods. Year-on-year wholesale prices were up 3.0% in November after October’s report of 2.6% the previous month. Goods prices, which make up 30% of the weighting, climbed 0.7% in November after climbing 0.1% in October. Services, which make up 67% of the index, climbed 0.2% in November after increasing 0.3% in October. The core PPI, which excludes volatile food and energy prices, rose 0.2% in November, with a year-on-year gain of 3.4%. PPI ex food, energy and trade climbed 0.1% in November.

The Labor Department reported the import price index gained 0.1% in November after climbing a downwardly revised 0.1% the prior month. The report showed strong gains in the cost for food and beverages as well as petroleum. Import prices are 1.3% higher year-on-year. Import prices ex petroleum gained 0.2% in November for a year-on-year gain of 2.1%.

The Mortgage Bankers Association reported the MBA index of mortgage applications climbed 5.4% last week, prompted by declining mortgage rates. Refinancing applications jumped 27.2% to 634.0 from 498.5 the prior week. Home purchase mortgage applications decreased 4.1% to 154.9. Refinancing made up 46.8% of applications with an average loan size of $313,600, while purchases average loan size is $416,200. The average contract rate on a 30-year fixed-rate mortgage fell to 6.67% from 6.69% the prior week.

BOND MARKET REVIEW

Rates surged higher last week as the market adjusts to expectation of the next administration. Friday’s yields for the 2-, 5-, 10- & 30-year Treasury benchmarks securities closed at 4.24%, 4.25%, 4.40% and 4.60%. The 2yr/5yr, 5yr/10yr, 10yr/30yr and 2yr/30yr spreads closed at 1, 15, 20, and 36 basis points respectively.

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