12/29 - Weekly Economic Highlights

Treasury yields continued to consolidate with rates ending the week marginally lower across all major benchmark tenors as the ‘holiday trading’ backdrop contributed to reduced volatility. Economic data releases were sparse but continue to show evidence of the consumers ability to navigate more restrictive monetary policy over the course of 2023. The Chicago National Activity Index, a monthly report designed to measure overall economic activity and inflationary pressure, came in at 0.03 as of November, a large jump from the prior month -0.66 reading. The three-month moving average for the index is currently -0.20, which we believe syncs up well with our internal view of growth slowing to a below trend pace in the first half of 2024. The S&P Case Schiller 20 City Home price index was also released on Tuesday, and once again house prices continue to defy the implications of higher interest rates, as the index showed house prices up 4.87% on a year-over-year basis as of October 2023. Both consumers and corporations were able to ‘lock in’ attractive longer term interest rates during the low-rate environment of the pandemic, which has helped to insulate the economy from the implications of higher interest rates. Given the shorter tenor of existing corporate debt compared to mortgage debt, the low level of existing home sales turnover, as well as the need for additional capital in the aggregate corporate sector, Chandler forecasts conditions in the corporate market to face more meaningful headwinds in 2024. 

The subdued trading backdrop of the past week is poised to end in the first week of January. Multiple top-tier economic data will be released, including the ISM Manufacturing and ISM Services Indices, the Job Openings and Labor Turnover (JOLTS) report, and arguably most importantly the payrolls report on Friday, January 5th. The current three-month moving average on payroll growth is a robust 204k – we believe payroll growth will deteriorate over the course of 2024, but the decline is forecasted to be gradual, likely impacting the pace at which monetary policy will be adjusted in 2024. The Chandler team remains confident inflationary pressures will continue to moderate, and the Fed Funds rate will be adjusted lower in 2024, but the economic backdrop arguably needs to deteriorate more meaningfully for an aggressive monetary policy response from the Federal Reserve in the first half of 2024. 

The Chandler team wishes all our clients, colleagues, and peers a happy and prosperous 2024. 

ISM Manufacturing, JOLTS, ADP Employment, Payrolls, and ISM Services

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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. The Chicago Fed National Activity Index is a monthly index designed to gauge overall economic activity and related inflationary pressure. The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories. A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth. 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.