U.S. economic data was mostly positive this week as the partial federal government shutdown extended through its third week.
Recent commentary by Fed Chairman Jay Powell and his colleagues, and the minutes from the Federal Open Market Committee meeting of December 18/19 shows an important but subtle change in Fedspeak. Powell has used the word “patient” several times recently to describe the Fed’s attitude toward more rate hikes for 2019. “Patient” also shows up in the Fed minutes released this week.
Recall that former Fed Chairwoman Janet Yellen also used the word “patient” to describe her attitude toward eventual rate hikes in early 2015. When pressed, Yellen said that being patient meant waiting a couple of meetings. Pressed further, Yellen implied that a couple meant about two. We should not hold Powell to a strict definition of patient or of a couple, but his choice of language appears to be purposeful.
We expect the Fed to keep monetary policy unchanged at the upcoming FOMC meeting over January 29/30 after tightening in December. Being patient means that they would likely skip tightening over March 19/20 as well. If they raise the fed funds rate at the following meeting over April 30/May 1, that would allow them to break the cadence established over 2018 of one 25 basis point rate hike every other FOMC meeting. It would also re-activate the four “dead” meetings a year when the Fed Chair did not hold a press conference. Powell will have a press conference after all eight FOMC meetings this year, so we consider all eight meetings in 2019 to be “live”.
The Consumer Price Index for December fell by 0.1 percent, dragged down by lower petroleum prices. The energy sub-index dropped by 3.5 percent for the month. Core CPI (less food and energy) increased by 0.2 percent for the third consecutive month. For the year ending in December, headline CPI was up a moderate 1.9 percent, while core CPI gained 2.2 percent, both close to the Fed’s symmetrical 2 percent target.
Labor data was good. Initial claims for unemployment insurance dropped by 17,000 for the week ending January 5, to hit 216,000. Continuing claims fell by 28,000, to hit 1,722,000 for the week ending December 29. The Job Opening and Labor Turnover Survey for November showed a dip in the job openings rate, to a still high 4.4 percent. The hiring rate eased to 3.8 percent.
Business optimism was little changed in December, after falling in November according to the National Federation of Independent Businesses. The December survey says capital spending plans for 2019 have eased.
The ISM Non-Manufacturing Index dipped from a strong 60.7 in November, to a still-positive 57.6 in December. Recall that the ISM Manufacturing survey also showed a similar dip for the month. In the December Non-MF survey, which captures the bulk of the U.S. economy, all ten reported sub-indexes were in positive territory, above 50. Most anecdotal comments were positive. Only one industry, mining, reported contraction for the month.
According to the Mortgage Bankers Association, mortgage apps for purchase rose sharply in early January, up 16.5 percent, as mortgage rates eased.
Economic data from the Census Bureau is still MIA due to the federal government shutdown, so we have nothing to report about December international trade.
For a PDF version of this report, click here: Comerica Economic Weekly, January 11, 2019
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