Retail Sales Jumped 5.6% Last Year, Were Well Above Inflation at 3.4%… A strong holiday season ended the year with sales up 0.6%.
What it means— The good news is that while consumers have soured on the economy, they will still spend, which has kept us from falling into a recession. The bad news is, without the threat of a recession, Fed Chair Jay Powell and his merry band of bankers will hold rates where they are. Even if the bankers cut rates this year, resilient consumers would give the Fed the space to cut rates two or three times, not five or six times, which is what Wall Street wanted.
It’s past Christmas, but it looks like investors don’t like their present. Unless the economy significantly deteriorates over February and March, the Fed could wait until May to cut rates, which would put a damper on the equity markets. We’ll see what the Fed says at the end of January.
Empire State Index and Philadelphia Fed Index Showed Contraction This Month… The Empire Index fell from negative 14.5 to negative 43.7. The Philadelphia Fed Index improved from negative 12.8 to negative 10.6.
What it means— The Production Managers Index (PMI) from the national Institute for Supply Management (ISM) has been lower than 50 for the past few months, after one month of weak gains that followed nine months of contraction. Any reading above 50 implies growth, while readings under 50 imply contraction. The same goes for regional manufacturing indices, like those of New York (Empire) and Philly. While it would be easy to look at the PMI or some of the regional indices and forecast a recession, remember that federal government has promised to kick in about $1 trillion between the Infrastructure Act and the Inflation Reduction Act. The wheels of government turn slowly, but they do turn. Look for PMI and regional manufacturing indices to crawl higher as projects funded by the federal government get underway.
Housing Starts Fell 4.3% in December and Were Down 9.0% for the Year… Rising mortgage rates reduced the overall interest in buying homes, newly built or existing.
What it means— Home builders are thankful that potential home buyers don’t have much choice (because the inventory of existing homes for sale is low), but they’re not going crazy. With mortgage rates touching 8% before falling to 6.60% for the average buyer (less for well-qualified buyers), potential buyers respond to the Fed. With rates easing recently, builders are cautiously confident they can sell what they’ve got, but they’re keeping a tight lid on inventory, lest the central bankers surprise consumers in a bad way.
Existing Home Sales Fell 1% in December and Were Down 6.2% Over 2022… Inventory fell to one million units, or 3.2 months’ supply at the current pace.
What it means— It’s a strange world. Consumer real estate ended the year in the deep freeze, falling to the lowest annual sales rate since 1995 but also notching a record median price of $389,800. As with most everything financial, you can thank the Fed for both the lowest interest rates in history during the 2010s and, therefore, record low mortgage rates, and the blistering in rise in rates over the last two years that took mortgage rates from under 4% to 8%. There are some encouraging signs, such as lower mortgage rates, but if existing homeowners stick to their guns in terms of price, then rising prices will make homes less affordable than they already are. We won’t know the answer to this problem until the spring season kicks off in March.
Man Celebrates Getting his License by Opening a Beer and Speeding… A 25-year-old Canadian man was pretty stoked to pass his driver’s license exam. On the way home, he decided it would be great to drink a beer while behind the wheel, then zoomed in and out of traffic at about 30 mph over the speed limit. The traffic officer who eventually pulled him over was not amused. Constable Ian Michel said, “I can’t even begin to understand why someone would think that drinking a beer in their vehicle while driving is a smart idea….” Well, they are called novice drivers for a reason. The man was charged with stunt driving, careless driving, novice driver with blood-alcohol level above zero, driving with open liquor, and several other offenses. He’s probably not celebrating anymore. It’s unfortunate that they can’t charge him with stupidity.
Data supplied by HS Dent Research
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