The big news this week was the Federal Reserve’s policy announcement and related information delivered on Wednesday. We got the 25 basis point rate hike as expected. We saw the dot plot shift down as expected. But the overall tone from the Fed on Wednesday was more hawkish than many financial analysts expected. Financial markets reacted negatively, reinforcing a stock market correction that is now well into its third month.
As it now stands, either the Federal Reserve is wrong in anticipating a strong economy over the next two years that will require three more 25 basis point rate hikes, or financial markets are collectively wrong in anticipating a weaker economy that will require only one more rate hike or no more rate hikes from this point forward.
The Trump Administration continues to threaten a Federal government shutdown if border wall funding is not included in a continuing resolution spending bill. A short-term shutdown (less than two weeks), beginning this weekend would impact some federal workers but have only a minor impact on the economy. A longer shutdown could sour business and consumer confidence.
Nominal personal income increased by 0.2 percent in November. Inflation was tepid, with the PCE Price Index gaining 0.1 percent, held in check by lower energy prices. After adjusting for inflation and taxes, real disposable income gained a moderate 0.2 percent for the month. Real consumer spending increased by a respectable 0.3 percent bringing the personal saving rate down a tenth, to 6.0 percent.
New orders for durable goods increased by 0.8 percent in November after dropping by 4.3 percent in October. Core orders were soft. New orders for non-defense capital goods excluding aircraft dipped by 0.6 percent.
Q3 real GDP growth was revised down slightly to 3.4 percent. Corporate profits increased in Q2 relative to Q3 on strength in non-financial corporation. The first estimate of Q4 GDP will come out at the end of January.
The Conference Board’s Leading Economic Index for November increased by 0.2 percent after falling by 0.3 percent in October. Both the Coincident and the Lagging Indexes increased in November as well.
Initial claims for unemployment insurance increased by 8,000, to hit 214,000 for the week ending December 15. Continuing claims gained 27,000 for the week ending December 8, to hit 1,688,000. The levels for both series are still very low.
Existing home sales increased by 1.9 percent in November, the second consecutive gain. Lower mortgage rates this fall appear to be helping. For the year ending in November, existing home sales are down 7.0 percent.
Housing starts increased in November by 3.2 percent, to a 1,256,000 unit annual rate, supported by a surge in multifamily construction. Single-family starts declined for the third consecutive month. Permits for new residential construction increased by 5.0 percent in November, pushed by multifamily projects.
Builder confidence dipped in December according to the National Association of Home Builders. Their index fell four points, to 56, the lowest reading since May 2015.
According to the Mortgage Bankers Association the rate for a 30-year fixed-rate mortgage fell for the fourth consecutive week to 4.94 percent, for the week ending December 14. This is down from 5.17 percent in early November.
For a PDF version of this report, click here: Comerica Economic Weekly, December 21, 2018
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