Weekly Update 01/03/2025: Happy New Year from All of US at SGK!!
- RTX Raytheon unit wins $946 million contract for Patriot Missile systems from Romania
- JP Morgan leads corporate bond underwriting tables for 2024
- IBM and GlobalFoundries settle dispute with an eye towards future collaboration
Domestic Economic News
This was a very light Holiday week for economic data and as is usual this time of year trading volumes were thin. We will provide our usual quarterly big picture update separately for you in the next couple of weeks. Here is our summary of interesting data out this week.
Home-price growth in the US slowed in October as buyers gained more bargaining power. A national gauge of prices rose 3.6% from a year earlier, according to data from S&P CoreLogic Case-Shiller. That was smaller than the 3.9% annual increase in September. The data measures a three-month period through October, when 30-year mortgage rates fell to a two-year low and then climbed back up. Despite the rise in borrowing costs, an increase in the supply of listings gave buyers more options and greater negotiating power in deals. Still, the national index hit a record high for the 17th consecutive month. “With the latest data covering the period prior to the election, our national index has shown continued improvement,” Brian Luke, head of commodities, real and digital assets at S&P Dow Jones Indices, said in a statement. “Removing the political uncertainly risk has led to an equity market rally. It will be telling should the similar sentiment occur among homeowners.” A measure of prices in 20 cities rose 4.2% in October from a year earlier, compared with a 4.6% annual increase in the previous month, the S&P CoreLogic Case-Shiller data show. New York remained in the top spot for annual gains, with a 7.3% jump.
Pending sales of US homes increased for a fourth month in November to the highest level since early 2023 as homebuyers gave up hopes for lower borrowing costs. A National Association of Realtors measure of contract signings rose 2.2% to 79, the highest since February 2023. The median estimate in a Bloomberg survey of economists called for a 0.8% increase. The report aligns with earlier data showing homebuyers pressed ahead with purchases of existing homes in November despite higher mortgage rates. Pending-homes sales tend to be a leading indicator for previously owned homes, as houses typically go under contract a month or two before they’re sold. “Consumers appeared to have recalibrated expectations regarding mortgage rates and are taking advantage of more available inventory,” NAR Chief Economist Lawrence Yun said in a statement. “Buyers are no longer waiting for or expecting mortgage rates to fall substantially.” Pending sales were led by a 5.2% monthly increase in the South, with smaller advances in the West and Midwest. Activity declined in the Northeast. Across the US, contract signings climbed 5.6% from a year earlier before adjusting for seasonality. Housing affordability in the US remains under strain amid high prices and elevated borrowing costs. Federal Reserve officials signaled after their Dec. 17-18 policy meeting that they anticipate a slower pace of interest-rate reductions in 2025, suggesting little respite for homebuyers in the near future.
Initial applications for US unemployment capped 2024 at an eight-month low, reflecting the relatively muted levels of job cuts in a labor market that has remained surprisingly resilient. New claims fell by 9,000 to 211,000 in the week ended Dec. 28, lower than all but one estimate in a Bloomberg survey. Meanwhile continuing applications, a proxy for the number of people receiving benefits, also fell to a three-month low of 1.84 million in the week ended Dec. 21, according to Labor Department data released Thursday. The current levels for initial claims are subdued — in line with their pre-pandemic levels — and consistent with a job market where companies are generally holding onto their workers. The US labor market is ending the year in what Federal Reserve Chair Jerome Powell described last month as a “solid shape.” A spike in the unemployment rate over the summer had raised alarms, prompting policymakers to cut interest rates by a half-percentage point in September to help support employment. More recent data have pointed to a labor market that is moderating but remains broadly solid. It is cooling, but not in a way that would raise concerns, Powell said at a press briefing mid-December following policymakers’ decision to lower rates for the third time in three months. Weekly data tend to be choppy, and even more so around holidays. The four-week moving average of new applications for unemployment insurance, a measure that helps smooth out volatility, fell to 223,250 — the lowest since the end of November. Before adjusting for seasonal factors, initial claims rose. Michigan, New Jersey and Pennsylvania registered the steepest increases, while Texas and California posted the largest declines.
Interest Rate Insight and the Fed
US mortgage rates climbed closer to 7%, threatening to squeeze buyers trying to crack into the housing market. The average on a 30-year mortgage rose to 6.91% as of Jan. 2, up from 6.85% a week earlier, according to Freddie Mac data released Thursday. A measure from the Mortgage Bankers Association advanced 8 basis points to 6.97% in the period ended Dec. 27, a nearly six-month high. High borrowing costs are weighing on affordability. They’ve also pressured demand recently, with the MBA’s index of home-purchase applications sliding nearly 7% to the lowest level since mid-November. While the figures are adjusted for seasonal effects, they are still prone to wide swings around the year-end holidays. “It’s not exactly a good way to start the new year,” said Odeta Kushi, deputy chief economist at First American Financial Corp. “Industry experts are coming to the consensus that 2025 is another year of higher for longer for the housing market. It’s not great news.” Mortgage rates tend to track Treasury yields, which continued to climb in late December after Federal Reserve policymakers projected a slower pace of interest-rate cuts in 2025 amid sticky inflation. “Compared to this time last year, rates are elevated and the market’s affordability headwinds persist,” Sam Khater, Freddie Mac’s chief economist, said Thursday in a statement. If mortgage rates stabilize, even at a high level, that could help kick-start a housing recovery, Kushi said. And if the Fed continues to cut its benchmark interest rate, that could help mortgage rates ease from current levels, she said. Despite the end-of-year rise in mortgage rates, separate data from the National Association of Realtors showed prospective homebuyers are growing more accustomed to a higher rate environment. In November, when rates averaged about 6.8%, a gauge of contract signings for purchases of previously owned homes advanced to the highest level since February 2023. Demand has been helped by an uptick in inventory. The MBA survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts. The data cover more than 75% of all retail residential mortgage applications in the US.
Impactful International News
China remains the second largest economy in the world and is an important market for many of our SGK Core Holdings so we thought we would report on some interesting developments this week designed to boost their economy.
China has awarded a range of civil servants across the nation their first significant pay raise in years, according to people familiar with the matter, as policymakers try to boost morale and spur spending. The basic salaries of many government employees have been bolstered by at least 500 yuan ($68.51) per month. That wage hike has been backdated to July, they said. The percentage increases varied depending on the base salary, with one of the people saying it amounted to a raise of roughly 5%. China last publicly hiked civil servants’ wages in 2015, when some 40 million staffers got an average lift of 300 yuan per month. Social media users suggested salaries were also boosted in 2018 and 2021, but the government never confirmed the hikes and the percentage increases are unclear. The Communist Party hasn’t published a public announcement on this month’s wage hikes, making it hard to determine the scope of the program or who will foot the bill. But the unexpected increase extends to teachers, policemen and bureaucrats from around the nation of 1.4 billion people, the people said. For some, the pay rises appeared without explanation. A police officer in southwestern China said he saw a 3,500 yuan lump sum in his December pay slip labeled “back payment,” though he wasn’t owed any money. His colleague said it was a raise going back to July, according to the officer.
President Xi Jinping has declared boosting domestic consumption the top priority for 2025, as his government ramps up efforts to bolster a slowing economy battling its longest deflationary streak since 1999. Officials so far have relied on rate cuts and housing sector support to encourage spending, refraining from nationwide cash handouts for consumers. Lump sum payments to government workers will put money in their pockets right before the New Year and Spring Festival holidays. Pay raises for civil servants alone, however, risk sparking a backlash from private sector workers struggling with wage declines. While the initial impact likely won’t be huge given the limited number of civil servants, it could raise hopes of authorities extending support to a broader population, said Eric Zhu of Bloomberg Economics. “If more households in the non-public sector — such as low- income groups or parents with children — can benefit from cash support, that would be a bigger boost to consumer confidence and spending,” he added. Officials are ramping up support for lower income groups to ensure social stability, after economic pressures coincided with a spate of fatal attacks this year. Shanghai announced Tuesday it will boost subsidies and housing support for families with multiple children, while the government recently urged local authorities to issue more handouts to those struggling with the cost of living.
Company Events
SGK writes additional weekly commentary for clients of the firm detailing recent events and earnings of core equity holdings.
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