Last week, Omicron, escalating prices, and the tightening of monetary policy by central banks in the United States and around the world took center stage. The prospect of higher interest rates in 2022 could make it less appealing to own riskier investments. All of the stock market indexes ended the week in the red, with the tech-heavy Nasdaq taking the biggest hit. Ten-year Treasury yields fell 8 basis points, and the price of gold increased, as some investors took a more defensive stance. The dollar rose and crude oil prices fell, albeit slightly.
Last Week’s Economic News
· Producer prices advanced 0.8% in November after climbing 0.6% in each of the previous three months. Producer prices have risen 9.6% over the past 12 months ended in November, the largest 12-month increase in the history of the index (November 2010).
· Import prices increased 0.7% last month following a 1.5% increase in October. Prices for U.S. exports rose 1.0% in November after a 1.6% advance in October.
· The Federal Reserve decided to keep the target range for the federal funds rate at 0%-0.25%. Inflation has exceeded 2% for some time, but the Committee expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment. In light of inflation developments and further improvement in the labor market, the Committee will reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities. Published projections showed that Fed officials believe economic conditions will call for three rate increases in 2022.
· The number of building permits for new residential construction rose 3.6% in November. Overall, the number of building permits issued for residential construction is 0.9% above the November 2020 rate. Housing starts surged 11.8% last month, along with single-family housing starts (11.3%). Housing completions rose 4.1% in November from the previous month and were 3.1% above the November 2020 pace. Single-family home completions were essentially unchanged.
· Industrial production rose 0.5% in November after rising 1.7% in October. Capacity utilization for the industrial sector improved 0.3 percentage point to 76.8%, but was still 2.8 percentage points below its long-run (1972-2020) average.
Eye on the Week Ahead
In consideration of the Christmas-New Year holidays next week, several important economic reports are available this week. The final report on third-quarter gross domestic product is available this week. The economy advanced at an annualized rate of 2.1%, according to the second estimate. November data on sales of new and existing homes is also out this week. October proved to be a good month for the housing sector, although residential sales may curtail a bit in November. The personal income and outlays report is also out, albeit a week earlier than normal. According to the previous report, prices at the consumer level have risen 5.0% for the 12 months ended in October.
Have a nice week!
Sincerely,
Robert G. Carpenter