A look behind at the December 30 week showed little to capture market attention with the exception of the ISM Manufacturing for December. There was little other first-tier data and nothing that was so far off expectations as to raise alarms. Fed policymakers returned to the public stage giving Fedwatchers an opportunity to assess whether there had been any significant changes in the outlook for policy. There weren’t. Mainly attention is shifting to the incoming voters at the January 28-29 meeting and away from those who had voting status in 2019.
The minutes of the December 10-11 FOMC meeting largely reiterated what was already known after the release of the Summary of Economic Projections (SEP) and Chair Powell’s press briefing. Three weeks ago the outlook for monetary policy was for a pause in cutting rates and probably a long one. There was a consciousness that risks remained while acknowledging that the situation had improved. The US economy had proven resilient and able to maintain a steady pace of growth. The effects of previous rate cuts were not yet visible and time was needed to ensure that further actions were appropriate within the context of the dual mandate.
The ISM Manufacturing Index for December fell to 47.2. It was broadly of a piece with the mild recession of the past five months. What was uncomfortable was that the reading was the lowest since the end of the recession in June 2009. Without a pickup in new orders, the outlook for the factory sector remains to the downside. This is not that bad while other sectors in the economy are keeping modest growth on track. Should there be softening elsewhere, the sense that risks are building could intensify.
The data for the housing sector was not as strong as expected, but it was sufficiently firm that it didn’t raise any alarms. The small uptick in mortgage interest rates and the exhaustion of demand after a few strong months probably contributed to somewhat lower readings than anticipated.
The NAR’s Pending Home Sales Index was essentially flat at 106.6 in November and pointed to possibly milder closings of sales for December. The FHFA House Price Index for October put the year-over-year pace of price increases at 5.0%, not bad, but also suggesting that homebuyers are demanding concessions to improve affordability. Construction spending rose in November, but in large part due to residential renovation and repair, and new construction of single-family homes.
Data on jobless claims for the week ended December 28 was settling down after the big jump early in the month and are running in line with normal end-of-year upticks. The insured rate of unemployment for the December 21 week maintained its 1.2% reading that has been in place since May 2018. Overall, layoffs are few and businesses are holding on to the workers they have in a taut labor market.
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