1/12 - Weekly Economic Highlights

Financial markets were focused on the release of inflation data this week inclusive of both the Consumer Price Index (CPI) and Producer Price Index (PPI). The CPI increased to 0.3% month-over-month and 3.4% year-over-year in December, increasing from 3.1% year-over-year in November. The Core CPI, which excludes volatile food and energy components, was up 0.3% month-over-month and 3.9% year-over-year, down from November but not as much as survey expectations. Although the increase in the headline inflation rate was modest, it was an unexpected development. Shelter costs remain elevated, contributing to more than half of the overall increase while motor-vehicle insurance costs jumped by over 20%, the most since 1976. In a positive inflation sign, the PPI decreased 0.1% month-over-month in December, for a 12-month increase of just 1.0%. Excluding food and energy, prices were also lower than anticipated, with the index unchanged on the month and up 1.8% year-over-year. Prices for services were flat for the third straight month. Fixed income markets reacted positively to the PPI release with Treasury yields trading lower after the report.

Weekly jobless claims were lower than forecast at 202,000, and the number of individuals continuing to claim unemployment benefits declined from the previous week as well. Consistent with last week’s strong jobs number, both the weekly jobless claims and continuing claims indicate that the labor market remains resilient.

According to Federal Reserve data released on Monday, consumer borrowing was up significantly in November. Total credit debt rose $23.8 billion exceeding forecasts by over $15 billion, and revolving credit, which is inclusive of credit cards, increased $19.1 billion, the largest increase since March of 2022.

After digesting this week’s inflation data, the 2-year US Treasury yield fell 22 basis points to 4.16%, and the 10-year dropped 8 basis points to 3.96% (as of this morning). The market will have a fair amount of data to digest next week inclusive of the health of the housing market, as well as the consumer. We continue to believe investors could be too optimistic about pricing in twice the amount of rate cuts when compared to the Fed’s projections. The Chandler view remains a loosening of monetary policy by mid-2024 as inflation and economic growth continue to moderate. 

Empire Manufacturing, New York Fed Services Business Activity, Retail Sales, Import Price Index, Industrial Production, and Capacity Utilization, Business Inventories, Federal Reserve Beige Book, Building Permits, Philadelphia Fed, Housing Starts, Jobless Claims/Continuing Claims, University of Michigan Sentiment, Existing Home Sales

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© 2024 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and the US Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk.