11/10 - Weekly Economic Highlights

It was a light week for economic data. Nevertheless, the data reinforced the Chandler outlook of tighter financial conditions, a weakening consumer and, despite a few hawkish comments from Fed officials, we believe the Federal Reserve will be on hold at their meeting next month. At the start of the week, the Senior Loan Officer Survey on Bank Lending Practices was released, reflecting tighter credit standards and weaker loan demand for household residential real estate, auto, credit card and other consumer loans. The survey also reflected weak demand for business loans.

On Tuesday, the New York Fed released the Quarterly Report on Household Debt and Credit for the 3rd quarter. Total household debt grew by $228 billion across all types, with the largest increases in credit cards and student loans. Credit card balances grew substantially in the 3rd quarter with a $48 billion increase, and delinquencies have now surpassed pre-pandemic levels. The report reflected total US household debt at $17.29 trillion with credit cards representing $1.08 trillion. Although the increase in delinquencies is broad-based, they are disproportionally rising for millennials with both auto and student loans. Household balance sheets will be an important factor the Chandler team will monitor as we move into 2024.

The preliminary University of Michigan Consumer Sentiment index declined to 60.4 in November from 63.8 in October. Surprisingly, consumers’ one-year inflation expectations rose to 4.4% from 4.2% for the coming year. The 5-year measure, a closely watched indicator for the Fed, rose to 3.2%, the highest since 2011.

Bond market volatility has become the norm and was extensive again this week. A contributing factor was Fed Chair Powell’s remarks at the International Monetary Fund conference on Thursday. In contrast to his dovish tone following the FOMC meeting last week, the change to a somewhat hawkish stance caught many market participants by surprise even though much of the substance of his comments were unchanged. In his opening remarks, he stated “If it becomes appropriate to tighten policy further, we will not hesitate to do so.” In addition to the Chair’s comments, a weak auction for the 30-year notes on Thursday contributed to the upward movement in rates. For the week, the 2-year treasury is up 21 basis points to 5.05% and the 10-year is up 5 basis points to 4.62% after experiencing a 15-basis point swing during the week. The yield inversion between the 2-year and 10-year treasury widened, ending the week at approximately 43 basis points. Next week’s economic releases include data points related to inflationary trends including the Consumer Price Index (CPI) by the Bureau of Labor Statistics on Tuesday, followed by the Producer Price Index (PPI) on Wednesday, each of which will be a factor for the direction of monetary policy moving forward. Given recent market volatility and our outlook for a slowing economy, Chandler will focus on maintaining investment strategies at or near benchmark duration with a strong high-quality bias.

Consumer Price Index (CPI), Retail Sales, Producer Price Index (PPI), Empire Manufacturing, Import/Export Price Index, Philadelphia Fed, Industrial Production, Capacity Utilization.

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© 2023 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. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates.