12/30 - Weekly Economic Highlights

Although volume in financial markets was soft this holiday week, there were a few data releases that shed some light on the state of the housing and manufacturing sectors.

Recent data show the housing market continues to weaken. The Case-Shiller Index reflected that nationwide housing price levels fell by about 0.8% month-over-month in October, with all 20 cities’ home prices moving lower. Las Vegas (-1.76%,) San Francisco (-1.66%) and Phoenix (-1.55%) registered the largest monthly declines. The index is still up 8.6% year-over-year, however, easing from +10.4% year-over-year in September’s report. Pending home sales plummeted -4.0% month-over-month and -38.6% year-over-year for November as elevated mortgage rates and affordability took a toll on demand for home purchases. The 30-year mortgage rate edged up to 6.4% this week according to Freddie Mac but remains below recent highs which topped 7%.

The Dallas Fed Manufacturing Outlook Survey slumped to -18.8 for December, below expectations of -13.5 and the previous reading of -14.4 as the general outlook and orders weighed on the index. Wholesale and retail inventories ticked up by 1.0% and 0.1% month-over-month, respectively, for November, possibly indicating lower demand for goods. The Chicago Purchasing Managers Index (PMI) improved to 44.9 for December, exceeding both consensus expectations calling for 40.0 and the previous release of 37.2. While better than expected, the Chicago PMI remains below 50 in contraction territory.

2022 saw a dramatic shift in the Federal Reserve’s policy from highly accommodative to aggressive tightening, as they raised the fed funds target from near zero to a range of 4.25 – 4.50%. As a result, the 2-year US Treasury soared from a yield of 0.73% on 12/31/21 to 4.43%, up 370 basis points year to date as of this writing. The yield curve also inverted, with the difference between the 10-year and 2-year US Treasury dropping from +79 basis points at the end of last year to about -55 basis points today, setting the stage for an interesting 2023.

The Chandler team appreciates all your support as we navigated volatile financial markets in 2022. We wish all of you a Happy and Prosperous New Year!

Next Week:

S&P Global US Manufacturing PMI, MBA Mortgage Applications, Institute for Supply Management (ISM) Manufacturing, FOMC Meeting Minutes, ADP Employment Change, S&P Global US Services PMI, US Employment Report, ISM Services Index, Factory Orders, Durable Goods

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© 2022 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg, Federal Reserve. 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.