6/23 - Weekly Economic Highlights

This week, investors digested housing data which surprised to the upside. Total Housing Starts rose 21.7% month-over-month in May to 1,631,000 units from a downwardly revised 1,340,000 in April and were up 5.7% compared to May 2022. Both single-family and multi-family construction increased as expectations for lower rates and greater availability of construction labor and materials drove the surge in starts. Permits jumped 5.2% to 1,491,000, with multifamily leading the gains due to greater affordability. Existing Home Sales rose 0.2% to 4,300,000 in May following a 3.2% decline in April as mortgage rates stabilized. The persistent lack of supply of existing homes is benefiting the new homebuilders who are assuming some of the demand.

Central banks delivered hawkish sentiments this week, lifting rates across the U.S. Treasury curve. In his semiannual monetary testimony (often referred to as the “Humphrey-Hawkins” testimony), Fed Chair Jerome Powell reiterated the Federal Open Market Committee’s focus on bringing inflation down to the 2% policy target and the potential need for further rate hikes this year. Additionally, the Bank of England raised the Bank Rate by 50 basis points to 5.00% in a surprise move and signaled possible future hikes to tackle persistently high services and wage inflation.

Broad economic indicators released this week supported our firm’s outlook for slower growth ahead. Weakness in production dragged the Chicago Fed National Activity Index down to -0.15 in May from 0.14 in April, and the three-month moving average remained negative at -0.14 in May, an improvement from -0.20 in April. The Conference Board’s Leading Economic Indicators fell -0.7% in May and -7.9% year-over-year for the fourteenth consecutive decline, indicating a greater probability for contraction in the future.

Next week’s data should provide additional clarity to the economic landscape, with Personal Consumption Expenditures, the third estimate for GDP growth, and the S&P Case Shiller Home Price Index at the forefront of information for market consideration.

Next Week:

Dallas Fed Manufacturing Activity, Durable Goods Orders, Conference Board Consumer Confidence, S&P Case Shiller Home Price Index, GDP, Personal Consumption Expenditures, University of Michigan Consumer Sentiment, New Home Sales, Richmond Fed Manufacturing 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 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.