Economic Data Tracker –
More mixed economic data

Trend watch and what’s new this week

The upcoming Thanksgiving holiday is skewing the activity-based data mostly to the upside (slides 5 and 6). Air passenger counts surged 6% WoW partway through the busiest travel week of the year. As an aside, 2022 passenger counts have closely tracked 2019 since mid-August. Also, dining reservations have improved. 

Meanwhile, seasonal hiring of temporary workers remains strong through mid-November. That said, temp staffing figures usually take a dive during Thanksgiving week, then quickly recover.

New home sales buck otherwise weak housing trend

On slide 7, new homes sales jumped 28.8% to an annualized rate of 632,000 in October, roughly in-line with the 20-year average. Still, sales have declined in 7 of the past 10 months. Meanwhile, prices rose to $493,000, which is a new all-time high and 52.6% above the October 2019 level. Although other data sources indicate that prices have softened in certain cities, overall prices have been supported by limited inventories of new and existing homes for sale.

Separately, the National Association of Home Builders said that 59% of builders reported using incentives to boost sales in November. Also, 37% of builders reduced prices in November, up from 26% in September, and cutting prices by 6% on average.

More mixed data

New orders for core capital goods (slide 8), which excludes the volatile aircraft and defense components, is one leading economic indicator that has remained solid. It’s hovering near the all-time high set in August and has increased in seven of the past eight months.

On slide 9, the preliminary November readings for S&P Global's U.S. Purchasing Managers Index (PMI) indices for manufacturing and services show that both are now contracting for the first time since the pandemic shutdown. A different set of PMI surveys from the Institute of Supply Management have also weakness considerably but haven’t contracted yet.

On slide 10, consumer sentiment, as measured by the University of Michigan Consumer Sentiment Survey, improved to 56.8 final November reading from the preliminary figure of 54.7. Still, that snapped a streak of four straight monthly increases and remains near the lowest level since the series began in 1978.

Meanwhile, within the survey, inflation expectations over the next 5-10 years rose to 3.0% in November from 2.7% in September and 4.9% over the next year, down from the preliminary figure of 5.1%. 

Our take

Prices jumped nearly universally in 2021 and the early part of 2022 with the rebound in demand. Interest rates have steadily increased this year, propelled by five rate increases by the Federal Reserve (Fed), including four supersized rate hikes of 0.75% since June.

Indeed, tightening financial conditions have caused the U.S. economy to slow significantly since the summer. Now, economic activity has cooled in nearly every sector of the economy. For instance, freight volumes have declined in four of the past five months. There are pockets of strength, such as core capital goods, but there are progressively fewer examples.

Housing activity, which is among the most interest sensitive, was the tip of the spear. It began to wobble almost immediately in the early spring as a result of the higher mortgage rates, which remain at their highest level in 20 years. Though new home sales jumped in October, it was thanks to heavy incentives and price cuts, which we view as builders attempting to clear inventory. Those aren’t the hallmarks of strong trends. Otherwise, housing is in freefall with most metrics down seven or eight months in a row.

On the other hand, inflation has clearly peaked in our view, aided by the decrease in demand seemingly across the board and improved production as supply chains continue to repair from pandemic-related issues. Additionally, crude oil prices have continued to recede due to a combination of softer demand and steady production. Even stable crude oil prices from here would be somewhat deflationary as we move through 2023.

Even labor markets, which have remained solid, have seen conditions cool of late. For instance, monthly job gains have steadily moderated recently. Moreover, the unemployment rate, one of the most “laggy” economic indicators, has begun to tick higher.

While the crosscurrents in the data will persist, the clear slowdown of economic activity should provide enough cover for the Fed to back down from its aggressive moves and hawkish rhetoric. That doesn’t mean stopping interest rates hikes, which is the so-called pivot some investors are clamoring about. Ultimately, we think that the Fed will hike by 0.50% at their meeting on December 14 based on how the data is trending currently. We also wouldn’t rule out a smaller 0.25% rate hike in December if labor market data weakens further.

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