Succinct Summation of the Week's Events

Succinct Summation of the Week’s Events:

Positives,

1)Initial jobless claims fell to just 187k from 203k last week for the week ended 1/13. The estimate was 205k. I’m sure there was some MLK holiday related seasonal calculation issue but we’ll see next week for sure. Smoothing this out has the 4 week average at 203k vs 208k in the week before. Continuing claims fell for a 3^rd week to 1.806mm which is the least since mid October, though still holding above 1.8mm. 

2)Core retail sales in the big holiday month of December exceeded expectations, rising by .8% m/o/m, a large 6 tenths above expectations and November was revised up by one tenth to a 5 tenths increase. Vehicle sales increased by 1.1% m/o/m and higher by 7.2% y/o/y as supply is more plentiful and incentives lift a bit. Building materials rose .4% m/o/m but after falling by one tenth last month and are down almost 6% y/o/y.

3)The January UoM consumer confidence index jumped to 78.8 from 69.7 and that was well better than the estimate of 70.1 with both the Current Conditions and Expectations components higher m/o/m. It’s also the best since July 2021. One yr inflation expectations fell to 2.9% from 3.1% and the 5-10 yr guess slipped to 2.8% from 2.9% helped by lower expectations for gasoline prices. Employment and income expectations improved and there was a rise in the mean % of those who expect their family income to exceed inflation over the coming 5 yrs. The confidence rise mostly because of lower price expectations helped to lift spending intentions for a vehicle, home and major appliances. The bottom line from the UoM, “Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations…Like December, there was a broad consensus of improved sentiment across age, income, education, and geography.” Also helping to lift confidence is expectations that the Fed will cut interest rates. Here are the caveats from the UoM, “consumers are hardly sanguine about the economy. Consumers are split in their expectations of business conditions over the next year; 41% expect good times, while 48% expect bad times. High prices continue to weigh on consumers; about 37% blamed them for eroding their living standards, little changed from a year ago, despite a substantial slowdown in actual inflation during this time period.”

4)The NAHB home builder index for January lifted by 7 pts m/o/m to 44. Though still under 50 it was 5 pts above expectations. The Present Situation was higher by 7 pts to 48 while the Expectations component jumped back above 50 for the first time since August to 57, up 12 pts m/o/m. Still in the doldrums though is bodies walking the floor of homes as Prospective Buyers Traffic was just 29, though up 5 pts from December. Builders are still relying on discounting to drive sales. According to the NAHB, “In January, 31% of builders reported cutting home prices, down from 36% during the previous two months and the lowest rate since last August. The average price reduction in January remained at 6%, unchanged from the previous month. Meanwhile, 62% of builders provided sales incentives of all forms in January. This share has remained stable between 60% and 62% since October.”

5)With people back from holiday, mortgage applications rose by 10.4% w/o/w with a 10.8% jump in refi's and 9.2% increase in purchases as the dip in mortgage rates, though still high, are taken advantage of.

6)The December Cass Freight index was up 2.1% m/o/m seasonally adjusted "as volumes fell less than normal in the holiday shortened month." The y/o/y drop was 7.2% after an 8.9% fall in November. The thing of course to watch from here are freight rates with what is going on in the Red Sea and how that will trickle down, first to air after sea and we'll see otherwise. In December, before all this started, inferred rates fell 2% m/o/m and by 18% y/o/y. Bottom line from Cass, "US freight volumes have fallen for most of the past two years, similar to prior downcycles in both length and magnitude, except for the pandemic downturn."