Wall Street reacted negatively to hotter-than-expected inflation data at the end of last week. All the benchmark indexes closed lower, with the Nasdaq falling more than 3.3%, while the remaining indexes suffered losses close to 3.0%. The S&P 500 endured its worst week in 2023, while Treasury yields climbed higher, as bond prices fell on weakened demand. The dollar advanced, gold prices sank, and crude oil prices ended last week marginally higher following a late-week surge. With the latest inflation data for January out, traders expect the Federal Reserve to ramp up interest rates in both amount and duration.
Last Week’s Economic News
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The second estimate of fourth-quarter gross domestic product showed the economy advanced at an annual rate of 2.7%. In the third quarter, GDP increased 3.2%. The initial estimate showed GDP advanced at a rate of 2.9%. The decrease in the estimates is largely attributable to a decrease in personal consumption expenditures, which advanced 1.4%, according to the second iteration. The initial estimate had personal consumption expenditures increasing 2.1%. Spending on durable goods fell 1.8% from the third quarter, nondurables increased 0.2%, while spending on services rose 2.4%. The increase in GDP in the fourth quarter reflected increases in private inventory investment, consumer spending, nonresidential fixed investment, federal government spending, and state and local government spending that were partly offset by decreases in residential fixed investment and exports. Imports, which are a negative in the calculation of GDP, decreased. The personal consumption expenditures price index, a measure of inflation, increased 3.7% in the fourth quarter, following a 4.3% increase in the third quarter.
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The Personal Consumption Expenditures (PCE) Price Index for January rose 0.6%, in line with other inflation data for that month. Excluding food and energy, the PCE price index also increased 0.6%. The PCE price index was 5.4% above the January 2022 rate, up 0.1 percentage point from the 12-months ended December 2021. Personal consumption expenditures increased 1.8% in January, after falling 0.2% and 0.1% in November and December, respectively. Personal income rose 0.6% in January, while disposable personal income increased 2.0%.
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Sales of existing homes fell for the 12th consecutive month in January, after declining 0.7% from December’s total. Since January 2022, existing home sales are down 36.9%. Total housing inventory sits at a supply of 2.9 months at the current sales pace, unchanged from the December pace. Rising mortgage rates and low inventory have contributed to the decline in existing home sales. According to the data from the National Association of Realtors®, the 30-year fixed-rate mortgage (Freddie Mac) averaged 6.50% as of February 23. That’s up from 6.32% from the previous week and 3.89% from one year ago. The median existing-home price in January was $359,000, down from $366,500 in December, but higher than the January 2022 price of $354,300. Sales of existing single-family homes also declined in January, down 0.8% from the previous month and 36.1% from January 2022. The median existing single-family home price in January was $363,100, lower than the December price of $372,000, but up from the January 2022 price of $360,700.
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While sales of existing homes continued to fall in January, sales of new single-family homes advanced for the second consecutive month, after advancing 7.2% from December. Unsold inventory was at a 7.9-month rate in January, well above the inventory of existing homes. New home prices declined in January. The median price for new single-family homes for sale was $427,500, down from the December price of $465,600, and under the January 2022 price of $430,500. The average price was $474,400, lower than the December price of $544,200, and less than the January 2022 price of $501,200.
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Average regular retail gas prices slid lower throughout much of the United States last week. The national average retail price for regular gasoline was $3.379 per gallon on February 20, $0.011 per gallon less than the prior week’s price and $0.151 less than a year ago. Residential heating oil prices averaged $4.266 per gallon on February 20, $0.122 below the previous week’s price, but $0.310 per gallon more than a year ago.
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For the week ended February 18, there were 192,000 new claims for unemployment insurance, a decrease of 3,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended February 1 was 1.1%, a decrease of 0.1 percentage point from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended February 11 was 1,654,000, a decrease of 37,000 from the previous week’s level, which was revised down by 5,000.
Eye on the Week Ahead
This week, most of the economic data will focus on the purchasing managers’ assessments of the manufacturing and services sectors in February. January saw both manufacturing and services contract from the previous month, primarily due to a decrease in new orders.
Have a nice week!
Sincerely,
Robert G. Carpenter