8/18 - Weekly Economic Highlights

This week’s data continued to demonstrate resilience of the US consumer as Retail Sales beat expectations and rose 0.7% in July after upward revisions to the prior two months.   Increases were broad-based across categories.  Nonstore retail sales were particularly notable with a 1.9% increase, which reflects a robust performance of Amazon's Prime Day sales event.  Control group sales, which are used to calculate GDP and exclude food services, auto dealers, building materials stores, and gasoline stations, increased 1%, the most since the start of this year.

Starts of new homes increased 3.9% to 1.452 million units at a seasonally adjusted annual rate in July after a downward revision to 1.398 million units in June. The gain was entirely attributable to a rise of 6.7% in single-family home starts.  Starts of multi-unit homes had been the main driver of homebuilding in the second half of 2022 and early 2023 but have begun to wane. Total starts of new homes are up 5.9% year-over-year.  Homebuilders continue to see demand while the supply of existing homes for sale remains limited.  The contract rate on a 30-year fixed mortgage rose 7 basis points to 7.16% in the week ending Aug. 11th, matching the highest since 2001 according to the Mortgage Bankers Association.  Mortgage rates continue to constrain affordability.

The market digested the July 25-26 FOMC Meeting Minutes this week, which were interpreted with a hawkish tilt.  The minutes reflected a resilient US economy and financial sector. The labor market was deemed "very tight" with supply and demand gradually coming back into balance. The minutes stated that inflation measures are moving in the right direction, but "most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy".  The minutes acknowledged risks becoming more “two sided”, but inflation remains the primary focus.  The Chandler team continues to believe economic growth will slow in the coming months and the FOMC will maintain restrictive policy for some time.

Also this week, the People's Bank of China announced an unscheduled adjustment in policy settings following the release of activity data showing weaker growth in July. Its rate on one-year medium-term lending facility loans was reduced by 15 basis points from 2.65% to 2.50%, which was the second reduction in three months. Officials requested state-owned banks to support the yuan and took steps to bolster equity markets as poor economic data, deflation fears, and a weak housing market have resulted in capital outflows.

The Conference Board’s Leading Economic Index (LEI) remained in negative territory for the sixteenth consecutive month at -0.4% in July due to weak manufacturing orders, high interest rates, and a dip in consumer expectations. The index continues to signal future “mild contraction” in the economy.

Treasury yields rose this week and the curve became less inverted.  The 2-year Treasury note rose 2 basis points to 4.92%, the 5-year increased 6 basis points to 4.36%, and the 10-year Treasury yield was up 8 basis points to 4.23%, as of this morning. Notably, the yield curve inversion between the 2-year and 10-year Treasury notes contracted to about 69 basis points from 75 basis points.

Philadelphia Fed Non-Manufacturing Activity, Existing Home Sales, Richmond Fed Manufacturing Index, MBA Mortgage Applications, S&P Global PMI, New Home Sales, Chicago Fed National Activity Index, Durable Goods Orders, Kansas City Fed Manufacturing Activity, University of Michigan Sentiment, Jobless Claims, Kansas City Fed Services Activity

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© 2023 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and the US Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates.