12/1 - Weekly Economic Highlights

Economic data released this week presented a mixed picture. The U.S. economy grew at an annualized rate of 5.2% in the third quarter, revised up from the initial estimate of 4.9%, with the upward revisions driven by business investment and government spending. Meanwhile inflation data showed signs of easing in October, with monthly headline PCE inflation unchanged, due to a drop in energy prices, and year-over-year headline PCE declining to 3.0%. Core inflation also saw a reduction, with a monthly increase of 0.2% and an annual rate of 3.5%.

Housing data also provided a mixed picture as well, with the S&P CoreLogic Case-Shiller Home Price Index reporting a 3.9% year-over-year increase in September, led by Detroit, San Diego, and New York. However, U.S. new-home sales declined by 5.6% month-over-month in October to an annualized pace of 679,000 units, with the Midwest and West experiencing the sharpest drops. Despite this decline, sales have been rising over the past year, with builders offering financial incentives to offset higher borrowing costs.

U.S. consumer confidence increased for the first time in four months in November, reaching an index level of 102, up from 99.1 in October, despite concerns of rising prices and interest rates. However, the Institute for Supply Management's (ISM) manufacturing index remained at 46.7 in November, marking the 13th consecutive month of contraction in factory activity below a reading of 50. Higher interest rates have negatively impacted the goods-producing sector, resulting in a manufacturing slowdown. While business activity in Chicago improved, with the MNI Chicago Report indicating expansion at 55.8, manufacturing activity in Dallas and Richmond showed contraction, reflecting broader challenges in those regions.

Some Federal Reserve (Fed) officials are discussing the possibility of reducing interest rates due to a slowing economy and decreasing inflation. Governor Christopher Waller's comments this week on potential rate cuts have garnered attention from market participants. Fed Chair Jerome Powell, however, remained cautious, emphasizing a careful approach when he spoke at an event on Friday.

The prospect of rate cuts by the Fed in 2024, gained momentum this week, resulting in increased returns in both the stock and bond markets. The 2-year US Treasury yield decreased from 4.95% to 4.58%, while the 10-year US Treasury yield dropped from 4.47% to 4.25%. The Standard and Poor’s 500 index slightly increased by 0.54% to reach 4,580. The federal funds futures market currently indicates a low likelihood of any rate hike at the Fed’s upcoming meeting on December 13th, with approximately five quarter-point rate cuts priced in for 2024. Chandler's perspective is that the Federal Reserve has likely concluded its cycle of raising the federal funds rate, but it will continue to make future policy decisions based on incoming economic data, with an expectation of some cuts to the federal funds rate in 2024.

Factory Orders, Durable Goods Orders, S&P Global US Services Purchasing Managers Index (PMI), Job Openings and Labor Turnover Survey (JOLTS), Institute of Supply Managers Services Index, ADP Employment Change, Consumer Credit, Employment Situation Summary, University of Michigan Sentiment Index

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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. The S&P CoreLogic Case-Shiller home price index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the nation.