5/19 - Weekly Economic Highlights

This week US Treasury yields rose as debt ceiling talks progressed and the bond market absorbed key datapoints regarding the consumer, manufacturing sector, and housing market. Advance retail sales increased 0.4% month-over-month, bouncing back from a dismal March report of -0.7%. Auto dealers, online sales, and restaurant spending contributed to the gain and the components that are used to calculate GDP advanced a robust 0.7% in the month of April. The report indicates that the consumer is still willing to spend despite higher prices and an increasing reliance on credit cards, but it’s important to note that the 1.6% year-over-year increase in retail sales is not adjusted for inflation.

The Federal Reserve Bank of New York’s Empire Manufacturing Survey plummeted to -31.8 as manufacturing activity in the region contracted sharply in May. Conversely, industrial production beat expectations for another flat reading in April, rebounding 0.5% month-over-month, driven by auto and parts manufacturing. Meanwhile, the Conference Board’s Leading Economic Index declined 0.6% month-over-month and 8.0% year-over-year in April on weakness in the US economic outlook.

Housing starts unexpectedly rose 2.2% month-over-month to 1.4 million units annualized, a partial recovery from the downwardly revised -4.5% reading for March. Both single and multi-family housing starts registered gains despite the Freddie Mac 30-year fixed rate mortgage rate ticking back up to 6.5%. Tight inventory levels and pent-up demand have been helping to stabilize the recent softening in the housing market, but affordability remains an issue. Existing home sales, which comprise approximately 90% of the housing market, fell 3.4% month-over-month for April.

Throughout the week representatives from both sides of the aisle worked to negotiate an agreement to raise the debt ceiling to avoid a US government default. The US Treasury could run out of cash as early as the first week of June if the debt ceiling isn’t raised by Congress. Talks were suspended on Friday and it is unclear when they will resume. Chandler’s view is that there is a high probability that a deal will be reached before the X-date when the US Treasury runs out of funds. Market participants are likely to continue to focus on the progress of debt ceiling negotiations along with an update on Personal Consumption Expenditures (PCE), the Fed’s preferred gauge of inflation, which is due out next week.

Next Week:

Philadelphia Fed Non-Manufacturing Activity, S&P Global US Manufacturing Purchasing Managers Index (PMI), S&P Global US Services PMI, New Home Sales, Chicago Fed National Activity Index, Personal Consumption Expenditures (PCE), Durable Goods Orders

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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 Conference Board Leading Economic Index® (LEI): The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The indexes are constructed to summarize and reveal common turning points in the economy in a clearer and more convincing manner than any individual component.