1/13 - Weekly Economic Highlights

Market participants focused on December’s Consumer Price Index (CPI) report this week. Headline CPI fell 0.1% in December versus the +0.1% reading in November. Inflation rose 6.5% year-on-year, down from 7.1% in November. Core CPI edged up slightly to 0.3% in December, and to 5.7% on a year-on-year basis, from 6.0% in November. A key factor driving down inflationary pressure this month was a 4.5% drop in energy prices, led by falling gasoline prices. Core goods prices fell 0.3% for the month and in particular, used cars saw a substantial drop along with new-car prices which contracted for the first time in almost two years. Core services prices were up 0.5% for the month driven by increases in shelter and medical-care services. Overall, this was a constructive report on inflation and gives the Federal Reserve room to reduce the pace and magnitude of future federal funds rate hikes. The next meeting of the Federal Open Market Committee (FOMC) will be on February 1st.

Other economic data this week was mixed but roughly in line with the market consensus estimates. Optimism among U.S. small-business owners fell in December as expectations for the economy and earnings deteriorated, according to the National Federation of Independent Business (NFIB).  Overall, the optimism index dropped 2.1 points to 89.8 and eight out of the 10 components of the index showed a decrease. Inflation continues to be the most prominent issue impacting small businesses, with increased costs for labor and materials cited as the main reason for concern regarding future profitability. Meanwhile, the University of Michigan’s preliminary sentiment index for January improved to 64.6 from 59.7. Both the current conditions and expectations indices, subcomponents of the report, had their highest readings since April 2022. The survey also showed one year inflation expectations fell to 4.0% in January from 4.4%, but long-run inflation expectations increased to 3.0% from 2.9%. Long-run survey expectations have been within a narrow range between 2.9% and 3.1% for several months.

US Treasury rates declined this week as recent economic data showed signs of inflation continuing to ease. The 2-year declined approximately 0.08% to 4.21%, the 5-year fell about 0.12% to 3.55% and the 10-year dropped 8 basis points to 3.49%. (as of Friday morning). The yield curve inversion widened to approximately -0.72% between the 2-year and 10-year treasury. The average 30-year, fixed-rate mortgage was 6.33% for the week ending January 12, down from 6.48% in the previous week, according to Freddie Mac.  The stock markets rallied this week sending the S&P 500 index 4.4% higher for the week. Next week, market participants will receive additional data on inflation from Producer Price Index (PPI) along with fourth quarter earnings reports from corporations throughout the month of January.

Next Week:

Empire Manufacturing, Retail Sales, Producer Price Index (PPI), Industrial Production, Federal Reserve Releases Beige Book, Building Permits, Philadelphia Fed Business Outlook, Existing Home Sales

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