Updated 11/18/2024

Equity markets tried to keep the post-election party going, but the fear of inflation reigniting sent prices lower for the week. The price change of select U.S. indexes for the week was: S&P 500 (-2.08%), Dow (-1.24%) and the Nasdaq (-3.15%). The 10yr. Treasury note yield rose 0.13 percentage points to 4.43%.

Cryptocurrencies surged to start the week with Bitcoin climbing above $87K on Monday, and $93K on Wednesday, driven by speculative optimism the Trump administration is going to be much more crypto friendly.

The Consumer Price Index (CPI) report released on Wednesday showed headline inflation increased by a modest 0.2% in October. On a monthly change basis, this was equal to the 0.2% monthly increase in September. However, the year-over-year change in the headline figure rose to 2.6%, compared to September's 2.4% y/y growth. Core CPI, which excludes volatile food and energy prices, increased by 0.3% m/m and 3.3% y/y, reflecting persistent underlying inflation pressures.

The shelter category, which rose 0.4% m/m and 4.9% y/y, continues to be a key contributor to inflation. Conversely, gasoline prices fell again and have declined -12.2% y/y, offering some relief. Prices of used cars and trucks, which have also seen a -3.4% y/y decline, rose 2.7% in October.

On Thursday, the "core" Producer Price Index (PPI) revealed prices domestic producers pay for goods and services increased from a 2.8% annual rate in September, to a 3.1% annual rate in October. This came in above economist expectations for a 3% increase.

The consumer isn’t slowing down either. Retail sales for October rose by 0.4% and receipts in September were even stronger than originally reported. The government revised September receipts up to a 0.8% gain, compared to the original estimate of up 0.4%.

Not surprisingly, sales of new cars and trucks jumped 1.6% in October (hence the price increases mentioned above) and account for one-fifth of all retail sales. If automobiles are omitted, retail sales rose a more modest 0.1%.

Another key economic read, restaurant sales, rose a rather hefty 0.7% during October. Receipts at food services and drinking places have risen 4.3% since October 2023, according to the government.

The October inflation and retail readings out over the week showed little progress toward the Fed's 2% inflation target, putting into question how deeply the Federal Reserve will cut interest rates in 2025. Probabilities for another 25-basis point cut next month have been slowly decreasing as well, and now stand at a 59% likelihood.

As depicted in the chart of market indexes below, equity prices were relatively unchanged through the first half of the week, before ultimately “rolling over” as investors digested the economic updates.

Looking Ahead:

The economic data flowing in this week will focus heavily on the state of the housing sector, but also includes updates on U.S. manufacturing and services conditions, consumer sentiment.

Earnings this week, while rather light in volume, pack a hefty punch. The S&P 500’s most valuable company and AI leader, NVIDIA, is set to report results after the market closes on Wednesday. Quarterly results from Walmart, Target, Lowe’s Companies, TJX, Palo Alto Networks, Deere & Company, and Intuit, will also be impactful.

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Probability of an interest rate change at next FOMC meeting:

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Select Economic Data Releases

*Colored icon denotes a new data release.
Gross Domestic Product

The economy grew at an estimated 2.8% annual pace in Q3, once again led by the strength of the consumer.  Q2 GDP grew at a 3.0% annual pace.  Q1 2024GDP grew at a 1.4% pace due largely to much slower growth in consumer spending.  The final revision of Q4 GDP rose to 3.4%.  U.S. GDP grew at 4.9% annual pace in the third quarter.  Q2 GDP grew at a 2.1% annualized rate but consumer spending turned out to be weaker than originally reported. The growth was driven by robust consumer and business spending.  U.S. GDP increased at a 2.0% growth rate during Q1.  GDP was trimmed again to a 2.6% pace during Q4.  The increase in consumer spending was reduced in the latest estimate to 1% from 1.4% last month and an original 2.1%.  The annual growth rate remained at 2.1% for 2022.

Employment Data

October U.S. nonfarm payrolls rose by a mere 12K, far less than the anticipated 125K gain. The unemployment rate held steady at 4.1%, as expected..  The September jobs report was revised down to 173K from 254K.  Employers added 111K jobs in August and the unemployment rate dropped to 4.2%.  The U.S. added a mild 114K new jobs in July and unemployment hit a nearly 3-year high of 4.3%.  The payrolls report showed a solid 206K new jobs in June, but also showed signs of deterioration as May and April job gains were reduced by 111K.  The unemployment rate rose to 4.1%.  U.S. nonfarm payrolls grew by 272K in May, up from 165K in April and well ahead of the analysts’ estimates for 190K.  The rate of unemployment rose to 4.0%.  According to the government, employers created 175K jobs in April, which was a six-month low. The rate of unemployment rose to 3.9%.  Employers added 303K jobs in March, blowing past the expected gain of 200K. The unemployment rate also fell a tick to 3.8% and stayed below 4% for the 26th month in a row, the longest stretch since the 1960s.  The February nonfarm payrolls grew a robust 275K but unemployment rose to 3.9%.  

Retail Data

Retail sales for October rose by 0.4% and receipts in September were revised higher to a 0.8% increase.  August retail sales grew by 0.1%.  July retail sales surged 1%, blowing past estimates for a 0.3% rise.  June retail sales were revised lower to -0.2% from the previous month, but that was still better than the forecasted decline of -0.4%. If you remove auto and gas sales from the figure, retail sales rose by 0.8% month-over-month.  Sales at U.S. retailers rose a mere 0.1% in May, suggesting Americans are feeling the weight of lingering inflation and high interest rates.  In addition, April retail sales were revised down to a -0.2% contraction.  The government reported retail sales were up 0.7% in March compared to February, and up 3.6% from the same period last year.  Retail sales rose +0.9% in February after falling a revised -1.1% in January.  Sales at retailers jumped +0.6% in December to cap off a fairly robust holiday-shopping season and underscore the resilience of a still-growing U.S. economy.  For 2023, retail sales grew by 5.6%.  Retail sales rose +0.3% in November marking a good start for U.S. holiday shopping season.  Sales at U.S. retailers slipped -0.1% in October, marking the first decline in seven months.  Auto dealers, which have 20% impact on the index, posted a -1% drop.  

Housing Data

Updates on the housing sector will come this week.  Sales of existing homes are still struggling while new homes sales remain strong. The annualized rate for sales of existing homes fell -1% to 3.84M in September, a 14-year low, but sales of newly built homes rose by 4.1% month-over-month.  Sales of newly built homes in the U.S. fell -4.7% to an annual rate of 716K in August, from an upwardly revised 751K in the prior month.  Pending-home sales also ticked up in August as a big drop in mortgage rates prompted some home buyers to act.  Construction of new homes rose 9.6% in August to a 1.36M annual pace. Building permits, a sign of future construction, rose 4.9% to a 1.48M rate.  Pending home sales fell -5.5% to all-time low in July.  Sales of previously owned homes rose 1.3% to an annual rate of 3.95M and sales of newly built homes surged 10.6% to an annual rate of 739K in July.  Construction of new homes fell -6.8% to a 1.24M pace in July, slowing to the lowest level since May 2020.  Permits for future construction also fell -4% to a 1.4M pace.  Sales of newly built homes in the U.S. fell -0.6% to an annual rate of 617K in June.  Construction of new homes rose 3% in June and permits for future building rose 3.4%.  Sales of newly built homes fell to an annualized rate of 621K, the lowest level since November, and pending home sales hit the lowest level on record in May.  According to the government, housing starts fell to a 1.28M annual pace from the 1.35M annualized pace in April.  Permits to start new builds fell -3.8% to a 1.39M rate.  Sales of new and existing homes slowed in April.  New home sales fell by -4.7% to an annualized rate of 634K from 665K in March, while the annualized rate of previously owned home (existing home) sales fell -1.9% to 4.14M.  

Leading Indicators

The October update of the index of leading economic indicators comes this week.  The leading indicators of the U.S. economy fell -0.5% in September because of weakness in a few key industries such as housing and manufacturing, but not enough to suggest any sign of major trouble.  The leading indicators for the U.S. economy dropped -0.2% in August, the sixth consecutive decline.  The leading index for the economy fell -0.6% in July, the fifth straight monthly decline.  The leading index for the economy fell again in June (-0.2%) for the fourth month in a row, reflecting a slowdown in U.S. growth since the beginning of the year.  The Conference Board said the index of leading indicators dropped -0.5% in May, “doesn’t currently signal a recession."  The leading indicators for the U.S. economy fell -0.6% in April, pointing to ”serious headwinds to growth.”  The index fell again in March.  The decline was -0.3%.  The +0.2% rise for index of leading indicators in February was the first increase in almost two years.  Leading indicators for the U.S. economy fell -0.4% in January, declining for a 22nd month in a row (the third-longest losing streak ever) but the U.S. still doesn’t appear to be heading toward a recession..  The index of leading economic indicators fell by -0.1% in December.  The leading indicators index continues to forecast a recession, falling -0.5% November to make it 20 straight.  With 19 straight monthly declines, the Index of Leading Economic Indicators is on its biggest losing streak since the Great Recession.  

Inflation

Headline CPI rose another 0.2% in October, while the core rate increased by 0.3%.  Producer inflation moved up at the same 0.2% headline and 0.3% core rates.  The October readings showed very little progress in the Fed's effort to achieve the annualized 2% target rate.  The PCE Price Index edged up 0.2% month-over-month in September, reflecting ongoing inflationary pressures.  Headline consumer inflation rose 0.2% in September while the core rate rose 0.3%.  While the annual rate of the headline CPI has slowed to 2.4%, the annual rate of core CPI ticked up to 3.3%. Wholesale prices (PPI) were unchanged in September, suggesting increase in core consumer prices is unlikely to last.  The PCE Index for August showed inflation pressures continue to modestly ease but remain above the Fed’s long-term target of 2%. Month-over-month, the PCE Index rose by just 0.1% from July and 2.2% over the past 12 monthsHeadline consumer and producer prices rose by 0.2% in August, but the core rate of change that strips out food and energy costs rose by a slightly higher 0.3% rate.  The core PCE index, which excludes food and energy prices changes, rose at an annual rate of 2.6% in July.  Consumer (CPI) and producer (PPI) price inflation continued to moderate in July as the annual rate of consumer price inflation slipped to 2.9% and producer inflation dropped to 2.2%.  The PCE inflation increase of 0.1% for June was desired and the 12-month change of 2.5% was 0.1 percentage point softer than the 12-month read in May.  

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