5/24/24 - Slowing Housing and Manufacturing, Yet Labor Market Strength Prevails

Economic releases this week indicated slowing in the housing market, and more slowing in manufacturing activity; meanwhile the labor market continues to show strength.

The long and variable lags of monetary policy potentially could be beginning to filter through the economy. Existing Home Sales fell -1.9% on a month-over-month basis in April; the data marked the second consecutive month of declines from -3.7% in March. New Home Sales declined as well, falling -4.7% month-over-month. Consumers seem to share the sentiment as the University of Michigan Buying Conditions for Houses Index is also at a 46-year low. The average US 30-Year fixed rate mortgage had been steadily rising through the month of April peaking at over 7.4% before reverting to near 7% in May. Perhaps the higher mortgage rates contributed to the soft data, however seasonal adjustments to the indexes were likely a large factor.

Economic activity showed more signs of slowing by other metrics as well. The Chicago Fed National Activity Index (CFNAI) came in negative for April at -0.23 reversing the two-month trend of positive monthly releases and bringing the 3-month moving average to 0.01. Regional Fed business surveys also point to modest slowing. The Philadelphia Fed Non-Manufacturing Activity Index, -0.6, and the Kansas City Fed Manufacturing Activity Index, -2, both indicated slowing in the economy in May.

On Wednesday, the Federal Open Markets Committee (FOMC) released the minutes to the May 1, 2024 meeting. Participants assessed policy was “well positioned” reenforcing the comments made by Chair Jerome Powell at the post FOMC meeting press conference. The committee continues to believe that monetary policy is sufficiently restrictive, yet they will need to see more progress in the slowing of inflation data to initiate rate reductions. Notably, a “few” participants did not agree with the decision to slow the pace of Fed balance sheet asset reduction and preferred the reduction “continued at the current pace or slightly higher". However, according to the minutes, officials expect "that GDP growth would slow from last year's strong pace." They also acknowledged the persistent strength in the labor market indicating that, "demand and supply in the labor market, on net, were continuing to come into better balance, though at a slower rate."

The tight labor market was, again, reflected in this week’s Jobless and Continuing Claims data. The Initial Jobless Claims survey reported 215,000 job losses this week, which was below the estimated 220,000. Continuing Claims also came in below 1.8 million at 1.794 million. Both weekly surveys continue to hover near historic lows. Consumer confidence showed signs of stabilizing as the University of Michigan Consumer Sentiment Index was revised higher to 69.1 in the final report for May from 67.4 in the initial release. Consumer confidence had been waning for the last two months and remains at the lowest level since November 2023 when it fell to 61.3. Recent improvements in the price of gas could also be influencing confidence.

Next Week:

House Price Purchase Index, FHFA House Price Index, S&P CoreLogic Case-Shiller 20-City Composite City Home Price Index, Conference Board Consumer Confidence, Dallas Fed Manufacturing Activity Index, Richmond Fed Manufacturing Index, Dallas Fed Services Activity Index, GDP 1^st Quarter Second Revision, Pending Home Sales, Personal Income, Personal Spending, PCE Deflator, PCE Core Deflator, Market News International Chicago PMI

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The Chicago Fed National Activity Index is a monthly index designed to gauge overall economic activity and related inflationary pressure. The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories. A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.