PUBLISHED: Dec 8, 2022
I know some people are past turkey season once Thanksgiving is over, but bear with me for a moment. Depending on your personality, I notice turkey chefs tend to fall into one of two camps:
Going on higher heat for a shorter period of time may get the bird cooked, but it’s a little more risky. Then there are people who go lower for longer and really try to give the turkey time. The Federal Reserve might fall into the latter camp. Indications are that officials might go for lower rate increases over a longer period of time.
As usual, this section of the report is supplemented by an analysis from our friends at Econoday.1
Prices rose 0.4% overall in October in the latest release from the Bureau of Labor Statistics. However, expectations had been for a 0.7% increase, so the pace of inflation is starting to slow. Prices have gone up 7.7% compared to the same time a year ago. Taking out food and energy, prices were up 0.3% in October and 6.3% compared to last year.
Turning to individual categories, energy prices were up 1.8%, including a 4% increase in gasoline prices, which are now up 17.5% on the year. Food prices were up 0.6% and have risen 10.9% since last October.
Shelter costs were up 0.8% in the largest monthly increase seen since August 1990. Rent was up 0.7% while the cost for homeowners to rent an equivalent space rose 0.6%. The cost of accommodations away from home was up over 4%. Overall shelter costs are up 6.9% for the year.
Let’s do a few quick-hit items. The cost of auto insurance, recreation, new vehicles and personal care went up. Meanwhile, used cars and trucks, medical care, apparel and airline fares all fell.
Prices for producers are important because they tend to be a leading indicator for consumer inflation. Many times, producer costs will be higher while they try to shield the consumer and avoid raising prices as long as possible.
Prices for producers were up 0.2% in October and they’ve gone up 8% on the year. When taking out food and energy, prices were flat and have risen 6.7%. Meanwhile, when further excluding purchases from retail and wholesale stores, costs were up 0.2% and have risen 5.4% in the last 12 months. Like CPI, everything came in below estimates.
Turning to individual categories, goods prices were down 0.1%. A big driver of the increase in the overall index was a 5.7% uptick in gas prices that pushed the cost of energy up.
Sales in retail were up 1.3% for the month and that number was the same when taking out vehicles. Sales in all areas not including vehicles or gas were up 0.5%.
Sales of motor vehicles and parts were also up 1.3%. Meanwhile, gasoline sales rose 4.1%. There was also a 1.4% uptick in spending at food and beverage stores, with a 1.6% rise at restaurants.
Sales also increased at building and garden stores, up 1.1%. Finally, there was a 1.2% increase in nonstore sales. This is likely due to an uptick in e-commerce as Amazon and its competitors tried to outdo each other during the company’s Prime sale.
Overall industrial production was down 0.1% in October despite manufacturing output rising by the same amount. Capacity utilization in factories was also down 0.2% to 79.9% of floor space.
Durable goods manufacturing was up 0.5% as the production of motor vehicles and parts were up 2%. Without that category, manufacturing is flat. In the nondurable category, manufacturing was down 0.3% as there was a 1.9% downturn in production of petroleum and coal.
In the utilities sector, a 2.4% downtick in electrical production was only partially made up by a 3% rise in natural gas usage.
Sentiment among builders is at a new low. If we take out the early portion of the pandemic as the anomaly it is, the November reading of 33 is the lowest it’s been since June 2012.
The index for present sales has fallen 6 points at 39. Expected sales over the next 6 months are down 4 points at 31. Meanwhile, traffic of potential buyers has fallen precipitously, down 5 points at 20.
The biggest impact on new housing inventory comes from homes just completed. Units Were down 6.4% in October to a seasonally adjusted annual rate of 1.339 million. This is 6.6% higher than a year ago. Single-family completions were down 8.3% at 961,000 annually while there were 362,000 completions in buildings with 5 units or more.
Meanwhile, housing starts, that is construction projects that had ground broken, were down 4.2% to 1.425 million. This is 8.8% lower than last year at the same time. On the single-family start side, these fell 6.1% in October. There were 362,000 multifamily buildings completed.
Building permits were down 2.4% at 1.526 million, 10.1% below a year ago at this time. Single-family authorizations fell 3.6% at 839,000. Meanwhile, there were 633,000 multifamily units authorized.
This is the tangible manifestation of builder attitudes toward higher rates.
Existing home sales were down 5.9% at 4.43 million on a seasonally adjusted annual basis in October. There’s been a full correction, because this is down 28.4% on the year. Single-family sales are down 6.4% at 3.95 million units.
If there’s good news, it’s that prices fell 1.1% to $383,500. This is good for affordability, although inventory remains tight at just 3.1 months.
Sales of multifamily homes are more shielded because people are more likely to want to rent in a rising rate environment, but this is still down 2% on the month and 30.4% on the year.
New orders for durable goods were up 1% in October. When transportation was taken out, they were up 0.5%. Looking at core categories, without defense orders, orders were up 0.7%. This portrays an economy that’s in much better shape when compared against expectations for this report. September numbers were revised downward, but still.
In particular, there was a 1.5% rise in machinery orders. Primary metals were the only category to decline, down 0.1%. There was a 2.1% rise in transportation orders.
Sales of newly constructed homes were up 7.5% to come in at 632,000 and a seasonally adjusted annual basis in October. This is down 5.8% compared to last year, but it’s still an encouraging sign. The supply of new homes is pretty strong at 8.9 months.
Meanwhile, the median price of a new home was up 8.2% at $493,000, up 15.4% compared to last year.
In September, home prices fell 1.2% across the 20-city index on a seasonally adjusted basis. When taking out the adjustment, they were down 1.5%. According to this, prices are still up 10.4% on the year.
This is a rolling 3-month average so it’s likely that you’ll see this for the next few months. Mortgage rates are higher, plus October numbers won’t have July included, which is a busier month during home buying season.
This index only looks at transactions backed by conventional loans from Fannie Mae and Freddie Mac and it’s not a 3-month average. In September, it showed that prices rose 0.1% and that they’ve gone up 11% since last year.
It’s also noted in the analysis that part of the reason for the disparity between the measurements might be a difference in how they handle seasonal adjustments.
Consumer confidence came in down 2 points at 100.2 in November. Inflation is still a primary concern. The present conditions index is down 1.3 points at 137.4. Meanwhile, expectations 6 months from now were also down, falling 2.5 points at 75.4.
Consumers were more pessimistic about personal income, expected employment and current business conditions. Meanwhile, expected business conditions and present employment conditions made up for some of the drop.
Economic growth was up 2.9%, 0.3% better than the initial estimate for the third quarter. Consumer spending also improved, up 0.3% to a growth rate of 1.7%. This contributed 1.18 points to GDP. Durable goods spending still decreased, but it was less than previously thought. It’s the same story for spending on nondurable goods.
There was also a smaller trade deficit in the second estimate, which added 2.93 points to GDP compared to 2.77 points prior. One big negative contribution is a 26.8% decline in residential investment, pointing to a serious slowdown in the housing market.
Pending home sales were down 4.6% at an index level of 77.1. Because this represents the number of homes under contract for sale, this doesn’t bode well for November existing home sales numbers.
Personal incomes were up 0.7% in October. Unfortunately, expenditures were up 0.8%. In a good sign, though, this doesn’t appear to be inflation driven because prices only increased 0.3% overall and 0.2% in core categories. For the last 12 months, prices are up 6% overall in 5% when taking out food and energy.
Goods prices were up 1.4% while services spending was up 0.5%. The personal income increase was the largest since October last year.
The manufacturing sector shrank in November, this data showed, falling 1.2 points to 49. The breakeven point is 50. This decline persisted in 12 of 18 sectors surveyed in manufacturing. New orders were down 2 points at 47.2. Meanwhile, net exports are shrinking, but at a slower pace than reported in October.
Employment also slipped 1.6 points to 48.4. There are faster deliveries happening, which is a sign that businesses don’t need as many employees to keep up with demand.
The number of jobs added to U.S. nonfarm payrolls greatly exceeded expectations, coming in at 263,000, while the unemployment rate remained unchanged at 3.7%.
On the downside, the labor force participation rate slipped from 62.2% to 62.1%. People are leaving the workforce. Average hourly wages were up 0.6% and 5.1% over the last 12 months. The length of the average workweek was 34 hours, 24 minutes.
There were 221,000 jobs added to private payrolls with the balance coming from the government. Looking at individual industries, there were 14,000 jobs added in manufacturing to go along with 20,000 in construction and 3,000 in mining and logging. There was a jump of 88,000 jobs in leisure and hospitality to go along with 82,000 in education and health services.
Especially now, everything Federal Reserve Chairman Jerome Powell says is watched very closely. Lately, analysts are taking his comments about moderating the pace of future interest rate increases to heart despite the fact that it was about 13 words in a much longer speech. It’s about reading the tea leaves.
If that comes to pass, there may be some relief in sight for mortgage rates, but if you see one you like don’t hesitate to lock it.
According to Freddie Mac, the average rate on a 30-year fixed was down 9 basis points last week to come in at 6.49%. This is still up from 3.11% last year at this time.
Meanwhile, the average rate on a shorter-term 15-year fixed mortgage was 5.76%, down 14 basis points and up from 2.39% last year.
Freddie Mac no longer publishes the number of points associated with a rate or rates for adjustable-rate mortgages. Have a great month!
1 Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2022 Econoday, Inc. All rights reserved.
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