8/19- Weekly Economic Highlights

Federal Reserve officials continue to reiterate their resolve to increase the federal funds rate at upcoming meetings of the Federal Open Market Committee (FOMC). James Bullard, President of the St. Louis Federal Reserve Bank, and Esther George, President of the Kansas City Federal Reserve Bank, both voting members of the FOMC, each commented on the need to increase the federal funds rate to combat inflation. Inflation remains elevated, not only here in the US, but across the globe. In Europe, inflation rates in Germany and the United Kingdom remain near multi-decade highs as food and energy prices continue trending higher. Global inflation is likely to be discussed at next week’s annual Jackson Hole Economic Symposium.

Global policy leaders will meet at the annual Jackson Hole Economic Symposium on August 25^th-27th. The annual symposium allows for an open discussion by policy makers of critical issues facing the economies of the world. Originally sponsored in 1978 by the Federal Reserve Bank of Kansas City, perennially about 120 attendees from different regions and backgrounds attend the conference. This year, Federal Reserve Chair Powell will speak at the conference on Friday, August 26^th, delivering comments about the economic outlook. His insights along with remarks from other policy makers are likely to be a focus of market participants.  

Meanwhile, US manufacturing data was mixed this week. Industrial production rose 0.6% month-over-month in July following no change in June. US factory output increased in July for the first time in three months. The increase was driven by motor vehicle output. The report revealed motor vehicle output rose 6.6%, the rise more than offset declines in home electronics, appliances, and furniture. The New York and Philadelphia Federal Reserve Bank manufacturing surveys showed varied results. The Federal Reserve Bank of New York’s August general business conditions index slumped more than 42 points to -31.3 in July, while the Federal Reserve Bank of Philadelphia index of manufacturers’ current assessment rose to 6.2 from -12.3 in June. The S&P Global US manufacturing index due next week will provide a clearer picture of the condition of manufacturing nationwide.

Housing starts fell in July to the slowest pace since early 2021 as this sector continues to soften after robust growth during the pandemic fueled by historically low mortgage rates. Residential housing starts fell to an annualized rate of 1.45 million from a revised 1.6 million pace in June. Prices for commodities such as lumber have eased in recent months, yet builders continue to struggle to find workers, especially for more skilled positions. US homebuilder sentiment fell for the eighth-straight month as the National Association of Home Buyers/Wells Fargo index decreased 6 points to 49 in August and was below the breakeven measure of 50 for the first time since May 2020. Builder confidence is falling as higher mortgage rates, along with higher costs of materials and labor, continue to plague affordability.

U.S stocks were mixed this week as investors continued to digest second quarter corporate earnings reports along with remarks from Federal Reserve officials that continue to reiterate the need for additional increases to the federal funds rate to combat inflationary pressures. Treasury yields trended higher, and the yield curve remains inverted, with the 2-year at 3.27%, 5-year at 3.11%, and 10-year at 2.98% as of Friday morning. According to Freddie Mac, the average interest rate for a 30-year fixed mortgage loan fell to 5.13% from 5.22% last week. Heightened financial market volatility remains as market participants weigh inflationary pressures against slower economic growth and the Federal Reserve’s path toward a higher federal funds rate.

Next week’s economic releases will provide a broad overview of the US economy with data related to manufacturing activity, housing sales, inflation, and the first revision to the second quarter Gross Domestic Product (GDP). 

Next Week:

Chicago Federal Reserve National Activity Index, S&P Global US Manufacturing and Services  Purchasing Manager’s Index , Richmond Federal Reserve Manufacturing Index, New Home Sales, Durable Goods Orders, Pending Home Sales, Initial Jobless Claims, Gross Domestic Product First Revision, Kansas City Federal Reserve Manufacturing Activity, Personal Consumption Expenditures, University of Michigan's Sentiment Index, Jackson Hole Economic Symposium

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