1/19 - Weekly Economic Highlights

US retail sales delivered a positive surprise, marking the strongest growth in three months. This surge in retail activity not only signals consumer resilience entering the new year but also offers a glimmer of hope amid economic challenges. The Commerce Department reported a 0.6% month-over-month and 5.6% year-over-year increase in retail purchases for December, excluding inflation, with notable gains in categories like food and drinking places, clothing, general merchandise stores, and e-commerce. Motor-vehicle sales also rose by 1.1%, matching the highest increase since May. However, gas station sales continued to decline due to falling pump prices. This unexpected boost in retail sales underscores robust household spending, but market participants remain cautious that 2024 may see a slowdown due to lingering inflation, elevated borrowing costs, and decreased savings.

Meanwhile, the housing market is showing signs of improvement due to lower mortgage rates, contributing to a boost in confidence for homebuilders. The National Association of Home Builders Market Index increased from 39 to 44 in January, exceeding expectations, and indicated a positive trend in the housing market. However, it is important to note that new home construction declined in December, particularly in single-family homes. On a positive note, building permits increased, indicating potential future growth in the housing market, fueled by the recent drop in mortgage rates. According to Bankrate.com, the 30-year mortgage rate remained stable this week around 7.0%, significantly lower than its peak of 8.1% in October 2023. While the housing market appears to be stabilizing at these levels, affordability continues to be a significant issue.

Treasury yields rose this week due to the strong retail sales and University of Michigan Sentiment data. The 2-year US Treasury yield increased 0.27% to 4.41%, while the 10-year yield edged up 0.20% to 4.16% (as of this morning). Market participants are currently pricing in cuts to the federal funds rate of around 1.25% in 2024, from the current rate of 5.25-5.50%, commencing as early as the second quarter.

In the upcoming week, investors will cast their eyes toward the release of Personal Consumption Expenditures (PCE) data, providing insight into the current inflation trend. Additionally, the first estimate of Q4 Gross Domestic Product (GDP) will be unveiled, with a consensus estimate of 2.0% growth on an annualized basis. These data points will have a significant impact on the Federal Reserve's monetary policy decision, as the Federal Open Market Committee meets later this month, with an announcement expected on January 31st. Chandler's perspective maintains that there will be a loosening of monetary policy by mid-2024 as both inflation and economic growth continue to moderate.

Conference Board Leading Economic Indicators, S&P Global US Manufacturing and Services Purchasing Managers Indexes (PMI), Chicago Fed National Activity Index, Gross Domestic Product, Durable Goods Orders, New Home Sales, Personal Consumption Expenditures, Pending 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.