- Housing info released
- Microsoft announces layoffs
- Kinger Morgan reveals earnings and leadership changes
- China greenlight more Disney films
PPI and Retail Sales
This week had a number of government-provided data releases for the market to digest. The producer-price index (PPI), a measure of wholesale prices, rose 6.2% in December from a year earlier, the Labor Department said Wednesday. That was down from November’s revised 7.3% increase and well below the 11.7% rise in March 2022, the fastest pace since PPI records began in 2010. Core PPI, which excludes the often-volatile food, energy and supplier margin categories, rose 4.6% in December from a year earlier, down from 4.9% in November, the department said. On a monthly basis, the PPI declined 0.5% in December from November, the first monthly decline since August. Supply-level energy prices fell sharply last month while food prices decreased modestly providing some relief for consumers. Core PPI, excluding often-volatile food, energy and supplier margin categories, rose 0.1% last month compared with 0.3% in November. Last week, the consumer price index rose 6.5% on an annual basis according to the Labor Department. That marked the sixth consecutive month of disinflation after reaching a 9.1% peak last June.
The PPI can be a useful indicator of the future direction of consumer prices. It measures what suppliers are charging businesses and other customers. The measure generally reflects changes in costs that producers are facing combined with the pricing power they command. The picture which is emerging from PPI and last week’s CPI data is that the Fed’s aggressive rate hike policy is taking effect. It is often said that Fed policy works with “long and variable lags.” We are seeing in real time what that means. The Fed began raising rates from 0% in March of last year and it has taken to the later stages of 2022 and into this year to really feel the bite. That is starting to affect how individuals act day-to-day as exemplified by the latest retail sales figures.
The Commerce Department reported retail sales for December that fell a seasonally adjusted 1.1% versus the prior month. That was the biggest monthly decline in 2022 and marked the second consecutive month of declining sales. The main areas of decline last month were in once popular gift-giving areas: electronics and clothing. Dining out at bars and restaurants fell 0.9% and sales of furniture, and vehicles declined sharply in December. The only bright spots were home improvement, sporting goods stores and grocery stores. The report, however, is limited in its scope because it does not include spending on travel or housing. It will not be until next month that the large, national retail chains like Target, Walmart and Kohl’s report quarterly results which should give even more detail into how consumers are adjusting to the higher-priced environment.
The National Association of Home Builders/Wells Fargo gauge rose 4 points this month to 35, figures showed Wednesday. The median estimate in a Bloomberg survey of economists called for a reading to hold at 31. This was the first increase in this sentiment indicator since the end of 2021. Another positive note was that sales expectations for the next six months rose for a second consecutive month and sentiment rose in all four U.S. regions. It may be a bit premature to call December the low point for builder sentiment, but the trend is headed in the right direction.
The housing market, however, did get some bad news as new home starts fell 1.4% last month to a 1.4 million annualized rate, a five-month low, according to data released by the Commerce Department. This was the first decline in annual housing starts since 2009 wrapping up a disappointing 2022. About one million single-family homes were started last year, a drop of nearly 11% from 2021. New building permits, a proxy for future construction, fell by 1.6% last month to an annualized 1.3 million pace. It was the fewest applications to build since May 2020. New construction dropped in three of the four regions. Existing home sales fell in December to the slowest pace in over a decade. The National Association of Realtors released data today that showed closings for previously-owned homes fell 1.5% last month compared to the prior month to an annualized pace of 4.02 million. This was still above the median estimate in a Bloomberg survey of economists which called for a drop to a 3.95 million annualized pace. For all of last year, slightly more than five million existing homes were sold, a drop of 17.8% from 2021 for the biggest yearly slide since 2008. At the current pace, it would take 2.9 months to sell all the homes on the market, up from 1.7 months a year earlier. Realtors say anything below five months of supply is a sellers’ market, so the trend is moving to the buyers’ advantage. The median sales price was $366,900, up 2.3% from a year earlier. The price gain was the smallest since May 2020. Properties remained on the market 26 days on average compared with 19 days at the end of 2021 in a further sign that housing deals are grinding unambiguously lower.
Between now and the next Federal Open Market Committee meeting on February 1, there are a few notable releases. We will get the first look at fourth quarter GDP on January 26 from the Bureau of Economic Analysis. New home sales data will print on that same day from the Census Bureau. These numbers are seen as more timely than existing home sales because they are tabulated when the contract is signed rather than when the deal closes. Personal income and personal spending info will be released one day later on the 27th to provide more consumer-focused info. Key to that report will be the personal consumption expenditure figure which is closely watched by Fed officials. The core figure in November was 4.7% on an annual basis. Expectations for December are for it to show a disinflationary trend like many other price indicators. There will be no more labor market readings outside of weekly initial unemployment claims. This week’s figure of 190,000 filings was below expectations and last week’s figures, but, given weather extremes in some parts of the country and the holidays, the data can be twisted to the point of being wonky, so we will see what the next few weeks unveil. In the interim, Federal Reserve Vice Chair Lael Brainard said interest rates will need to stay elevated for a period to further cool inflation that’s showing signs of slowing but is still too high. “Even with the recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2% on a sustained basis,” Brainard said in prepared remarks yesterday for a University of Chicago Booth School of Business event. Meanwhile, we wish Fed Chairman Powell a speedy recovery from illness as he tested positive for Covid this week. Reports indicate that he will make a full recovery by February 1 and lead the post-meeting conference call in person.
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