Winnie Tapasanun

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U.S. house prices rose 0.4% m/m in October after unrevised increases of 0.7% in September and 0.4% in August, according to the Federal Housing Finance Agency (FHFA) House Price Index. The October reading was the fifth straight m/m gain and the sixth in seven months. The October HPI at 432.32 was 11.7% above a low of 387.02 in August 2022 and 53.6% above a low of 281.41 in May 2020. The year-on-year rate of increase held at 4.5% for the third successive month, having remained lower than 6.5% in October 2023 and well below a high of 18.8% in February 2022.

House prices rose m/m in October (vs. September) in six of the nine census divisions. These included West South Central (1.0% vs. 0.2%), East North Central (0.9% vs. 0.3%), Middle Atlantic (0.5% vs. 1.4%), South Atlantic (0.5% vs. 0.5%), East South Central (0.3% vs. 1.1%), and New England (0.1% vs. 1.5%). To the downside, house prices fell m/m in three census divisions in October (vs. September): Pacific (-0.4% vs. 0.4%), Mountain (-0.1% vs. 1.6%), and West North Central (-0.1% vs. 0.8%).

Year-on-year house prices continued to gain in October, with the pace of advance accelerating (vs. September) in three of the nine census divisions. These were East North Central (6.7% vs. 6.5%), South Atlantic (3.7% vs. 3.5%), and West South Central (2.4% vs. 1.2%). Meanwhile, house price growth decelerated y/y in October (vs. September) in the following six census divisions: Pacific (2.3% vs. 3.2%), Mountain (3.9% vs. 4.1%), West North Central (4.6% vs. 5.5%), East South Central (5.6% vs. 6.1%), New England (5.9% vs. 6.5%), and Middle Atlantic (7.0% vs. 7.3%).

The FHFA house price index is a weighted purchase-only index that measures average price changes in repeat sales of the same property. An associated quarterly index includes refinancing the same kind of properties. The indexes are based on transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single-family properties are included.

The FHFA data are available in Haver’s **USECON** database.

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- FHFA HPI +0.4% (+4.5% y/y) in October vs. +0.7% (+4.5% y/y) in September.
- House prices up m/m in six of nine census divisions but down for the first time since June in Pacific (-0.4%), Mountain (-0.1%), and West North Central (-0.1%).
- House prices up y/y in all of the nine regions, w/ the highest rate in Middle Atlantic (7.0%).

U.S. FHFA House Prices Rise for the Fifth Consecutive Month in October

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The Pending Home Sales Index, a forward-looking measure of home sales based on contract signings, rose 2.2% m/m to 79.0 in November after a downwardly revised 1.8% increase to 77.3 in October (+2.0% & 77.4 initially) and a 7.5% gain in September (unrevised), according to the National Association of Realtors (NAR). The November reading was the fourth consecutive m/m rise and the highest PHSI level since February 2023. The year-on-year rate accelerated to 6.9% in November, the highest since May 2021, from 5.3% in October; thus, posting an improvement from a negative 4.6% in November 2023. Nevertheless, the PHSI had fallen 36.9% since its October 2021 high of 125.1 and 38.3% since its August 2020 peak of 128.0.

The m/m rise in November sales occurred as the average rate on a 30-year mortgage rose to 6.81% in November, the highest since July, after rising to 6.43% in October. These rates, while below their recent high of 7.62% in October 2023, had remained higher than a low of 5.22% in August 2022 and well above a record-low 2.68% in December 2020.

Pending home sales rose m/m in November in three of the four major regions. Sales in the South advanced 5.2% (8.5% y/y) in November, the third successive m/m gain, after a 0.7% increase in October. Sales in the West rose 0.5% (11.8% y/y), the third m/m rise in four months, following October’s no change. Sales in the Midwest grew 0.4% (1.6% y/y), the fourth straight m/m increase, on top of a 4.0% October rise. To the downside, sales in the Northeast fell 1.3% (+5.6% y/y) in November, the first m/m fall since August, following a 4.7% gain in October.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- PHSI +2.2% (+6.9% y/y) in November vs. +1.8% (+5.3% y/y) in October.
- Home sales up m/m in the South (5.2%), West (0.5%) and Midwest (0.4%) but down m/m in the Northeast (-1.3%).
- Home sales up y/y in all four regions, w/ the highest y/y rate in the West (11.8%).

U.S. Pending Home Sales Gain for the Fourth Straight Month in November

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The advance estimate of the U.S. international trade deficit in goods ballooned to $102.86 billion in November after narrowing to $98.26 billion in October, data from the U.S. Census Bureau showed. The November deficit was larger than an $88.60 billion shortfall in November 2023. A deficit of $101.0 billion for November had been expected by the Action Economics Forecast Survey. The deficit had reached a peak of $120.72 billion in March 2022. In Q3'24, the goods trade deficit widened to $305.80 billion, the largest since Q2'22, after rising to $293.74 billion in Q2'24. The trade deficit subtracted 0.44%-point from real GDP growth in Q3'24 after having subtracted 0.83%-point in Q2'24. The monthly deficit averaged $101.93 billion in Q3'24, the biggest since Q2'22, up from an average of $97.91 billion in Q2'24.

Total goods exports recovered 4.4% m/m (6.1% y/y) in November, the first monthly gain in three months, reversing a 3.1% decline in October. Nevertheless, exports had fallen 2.7% since a July 2022 high. The gain in exports in November reflected exports m/m increases of 15.8% (-4.4% y/y) in automotive vehicles & parts, 7.7% (5.4% y/y) in nonfood consumer goods excluding autos, 7.6% (4.2% y/y) in industrial supplies & materials, 7.3% (6.7% y/y) in foods, feeds & beverages, and 5.4% (6.7% y/y) in capital goods excluding autos. In contrast, exports of other goods were the only end-use category with a monthly drop in November; they plunged 30.1% (+40.7% y/y), the first m/m drop since June, following a record 68.3% October surge.

Total goods imports rose 4.5% m/m (9.6% y/y) in November, up for the second month in three, following a 5.5% decrease in October. However, imports had fallen 3.4% since a March 2022 high. The rise in imports in November reflected m/m increases in all imports end-use categories. These included m/m rises of 15.1% (12.7% y/y) in other goods, 7.4% (16.3% y/y) in foods, feeds & beverages, 6.9% (3.1% y/y) in industrial supplies & materials, 4.3% (14.0% y/y) in capital goods excluding autos, 3.2% (-0.8% y/y) in automotive vehicles & parts, and 1.1% (14.5% y/y) in nonfood consumer goods excluding autos.

The advance international trade data can be found in Haver's **USECON** database. The expectation figure is from the Action Economics Forecast Survey, which is in **AS1REPNA**.

- Larger-than-expected goods trade deficit after October’s narrowing.
- Exports rise 4.4%, the first m/m gain since August.
- Imports rebound 4.5%, the second m/m increase in three months.

U.S. Goods Trade Deficit Widens to $102.86 Billion in November

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance declined by 1,000 to 219,000, seasonally adjusted, in the week ended December 21, from the unrevised level of 220,000 in the week ended December 14.  The Action Economic Forecast Survey had expected claims to be 222,000. The 4-week moving average was 226,500 in the December 21 week, an increase of 1,000 from 225,500 in the December 14 week.

The total number of unemployment insurance beneficiaries was 1.910 million in the week ended December 14, up 46,000 from the December 7 week of 1.864 million, revised down by 10,000 from1.874 million. The December 14 level was the highest one for insured unemployment since November 13, 2021, when it was 1.974 million. This total number of beneficiaries is also known as “continuing claims.” The 4-week moving average was 1.881 million in the week ended December 14, up 3,250 from 1.878 million in the week ended December 7. The insured unemployment rate, that is, the total number of beneficiaries as a percent of covered employment, was 1.3% in the latest week, up from 1.2% in the week ended December 7.

Unemployment rates vary markedly across states. The Labor Department reports that for the week ended December 7, the insured unemployment rate was highest in New Jersey (2.38%), followed by California (2.16%), Alaska (2.05%), Minnesota (2.10%), and Washington (2.14%). The lowest rates were in Florida (0.33%), followed by Virginia (0.41%), Alabama (0.44%), South Dakota, Kentucky and New Hampshire (all 0.50%). Unemployment rates in other major states include Massachusetts (1.78%), Illinois and Pennsylvania (both 1.72%), New York (1.69%), Texas (1.06%), and Ohio (1.01%). These state rates are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial claims were lower than expected in the week ended December 21.
- Continuing claims rose to the highest level since November 2021.
- The insured unemployment rate rose to 1.3%.

U.S. Initial Unemployment Claims Edged Down in Most Recent Week

Tom Moeller

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The Conference Board's Index of Consumer Confidence fell 7.2% (-3.1% y/y) to 104.7 during December following a 2.9% November rise, revised from 1.9%. The level of confidence remains up from a low of 97.5 in April. The Action Economics Forecast Survey expected a reading of 112.8 in December. Consumer confidence has been fluctuating between 97.5 and 114.0 over the past two years.

Both components of the index fell this month. The present situation index eased 0.8% (-4.8% y/y) to 140.2 after rising 3.9% in November to 141.4. The expectations index dropped 13.4% (-1.0% y/y) in December to 81.1, after rising 2.0% in November.

The percentage of respondents assessing business conditions as “good” fell to 19.1% this month after declining to 21.6% in November. It was the lowest percentage in three months. The percentage assessing conditions as “bad” rose to 16.7% from 15.3% in November. The appraisal of labor market conditions improved in December as 37.0% of respondents thought jobs were plentiful, up from 33.6% in November. Jobs were viewed as hard to get by 14.8% of respondents this month following 15.2% in November. This measure has risen steadily this year from 11.0% in January. The labor market differential calculated by Haver Analytics (the percentage of consumers who think jobs are plentiful minus the percentage who believe that jobs are currently hard to get) rose m/m to 22.2%, but remained below a high of 47.1% in March 2022. This series has a 60% correlation with the unemployment rate over the last ten years.

Expectations for business conditions worsened in December. A lessened 21.7% of respondents expect conditions to improve over the next six months, down from 24.7% in November, while a higher 18.3% expect them to deteriorate, up from 15.9% in November. On employment, 19.1% expect the number of jobs to increase over the next six months versus 22.8% in November. A higher 21.3% respondents expect the number of jobs to decline versus 17.9% in November. A lessened 17.2% expect income to increase in six months versus 20.7% in November. That remained increased from 16.3% in February and compares to 14.3% who expect income to decrease.

The expected rate of price inflation over the next twelve months held at 5.0% in December. It was the lowest since March 2020. Interest rates are expected to rise over the year by 48.5% of respondents, up from 45.5% in November. The percentage of respondents expecting equity prices to increase over the next twelve months fell to 52.9% from 57.2% in November, while the percentage expecting a decline increased to 25.0% from 21.7%.

The percentage of respondents planning to buy a home in December fell to 4.9%, its lowest in four months, from 6.2% in November. Plans to purchase an automobile edged down this month to 11.4% from 13.1% in November.

The Consumer Confidence data are available in Haver’s **CBDB** database. The total indexes, which are indexed to 1985=100, appear in **USECON**, and market expectations are in **AS1REPNA**.

**Trends in Work from Home in the U.S.: Insights from Six Datasets** from the Federal Reserve Bank of St. Louis is available [here](https://www.stlouisfed.org/on-the-economy/2024/dec/trends-work-from-home-us-insights-six-datasets).

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- Confidence weakens to lowest level in three months.
- Present situations measure dips, while expectations fall sharply.
- Inflation expectations are unchanged, but interest rate expectations rise.


Consumer Confidence Declines in December; Inflation Expectations Steady

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New single-family home sales rose 5.9% m/m (8.7% y/y) to 664,000 units at an annual rate in November following a 14.8% plunge to 627,000 in October (-17.3%, 610,000 initially) and a 6.5% gain to 736,000 in September (+7.0%, 738,000 previously), data from the U.S. Census Bureau showed. The November level reading matched the forecast by the Action Economics Forecast Survey. New home sales, while up 27.9% from the 519,000 low in July 2022, had fallen 35.6% from their peak of 1.031 million in October 2020. The rise in November sales accompanied an increase in the average 30-year fixed-rate mortgage to 6.81% in November, the highest since July, from 6.43% in October. It had since registered 6.60% in the December 12 week and 6.72% in the December 19 week, according to Freddie Mac.

By region, month-on-month new home sales gained in November in two of four major regions. Sales in the Midwest jumped 17.3% (10.0% y/y) to 88,000 in November, the highest level since June 2021, after a 3.8% decline to 75,000 in October. Sales in the South rebounded 13.9% (13.6% y/y) to 417,000, the third m/m gain in four months, after a 22.5% October slump to 366,000. To the downside, sales in the Northeast plummeted 41.0% (-11.5% y/y) to 23,000 in November, the lowest level since August, reversing a 39.3% advance to 39,000 in October. Sales in the West fell 7.5% (-1.4% y/y) to 136,000, the fourth straight m/m fall to the lowest level since February 2023, on top of a 7.0% October decline to 147,000. Notably, the South continued to post the largest level figure (417,000) for new home sales among the four regions.

The median sales price of a new home fell 5.4% (-6.3% y/y) to $402,600 in November after a 1.8% increase to $425,600 in October, registering the first m/m fall since August and the lowest level since February 2022. The median sales price had fallen 12.5% since its October 2022 peak of $460,300. The average sales price of a new home dropped 7.7% (-0.9% y/y) to $484,800 in November, the lowest level since August, following a 4.9% rise to $525,400 in October. The average price was 10.4% below a high of $541,200 in July 2022. These sales price data are not seasonally adjusted.

The number of unsold new homes on the market rose 2.1% (8.9% y/y) to 490,000 in November, the highest level since December 2007, after a 1.9% increase to 480,000 in October. The latest figure was 5.2% above a high of 466,000 in October 2022. The seasonally adjusted months' supply of new homes for sale fell to 8.9 months in November after rising to 9.2 months in October (highest since November 2022). The latest reading, slightly up from 8.8 months in November 2023, remained above a low of 6.9 months in May 2023.

The median number of months a new home stayed on the market increased to 2.6 months in November, the highest since March, after slipping to 2.4 months in October. The latest number was up from the record low of 1.5 months in both September and October of 2022 but down from 2.7 months in November 2023 and a high of 5.1 months in March 2021. These figures date back to January 1975.

New home sales are recorded when the sales contract is signed. New home sales activity and prices are available in Haver's **USECON** database. The consensus expectation figure from Action Economics is available in the **AS1REPNA** database.

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- November sales +5.9% (+8.7% y/y) to 664,000 vs. -14.8% (-6.8% y/y) to 627,000 in October.
- Sales up m/m and y/y in the Midwest and South but down m/m and y/y in the Northeast and West.
- Median sales price drops to $402,600, the lowest since Feb. ’22; avg. sales price falls to a 3-month-low $484,800.
- Months' supply of new homes for sale drops to 8.9 mths. from October’s 2-year high.

U.S. New Home Sales Rebound in November Following October’s Plunge

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New orders for durable goods declined 1.1% (-5.2% y/y) in November following a 0.8% October rise and a 0.4% September decline, according to the U.S. Census Bureau. The Action Economics Forecast Survey had expected a 0.3% decline. The decline reflected a 2.9% drop (-16.1% y/y) in orders for transportation equipment which reversed a 1.8% October increase. Orders outside the transportation sector slipped 0.1% (+1.5% y/y) after rising 0.2% in October. Defense orders fell 12.5% (+11.5% y/y) after a 2.9% decline. Nondefense orders eased 0.3% (-6.1% y/y) after a 1.0% rise.

The decline in transportation equipment orders reflected a 6.0% m/m fall in orders for aircraft & parts and a 0.3% easing (+1.6% y/y) in orders for motor vehicles & parts after a 0.5% slip. Orders for electrical equipment & appliances rose 0.4% (4.1% y/y) after a 1.6% gain in October. Orders for computers & electronic products fell 0.7% (+1.4% y/y) after slipping 0.4%. Showing strength, machinery orders increased 1.0% (1.7% y/y) last month following a 0.5% October rise. “Other durable goods” orders held steady (+0.4% y/y) after three straight months of modest increase. Orders for fabricated metal products declined 1.6% (+1.7% y/y) following a 0.2% rise while orders for primary metals improved 0.7% (1.8% y/y) after a 0.4% easing.

Nondefense capital goods orders declined 0.6% (-18.9% y/y) following a 3.1% October increase. Nondefense capital goods orders excluding aircraft rose 0.7% (1.1% y/y), after slipping 0.1% in October.

Shipments from all manufacturing industries rose 0.2% (1.3% y/y) in November after three consecutive monthly declines. Shipments of durable goods slipped 0.1% (+1.0% y/y), also following three monthly declines. Transportation shipments fell 1.2% (+1.1% y/y) while machinery shipments held steady (-0.1% y/y). Shipments in most other durable goods series were little changed. Shipments of nondurable goods rose 0.5% (1.6% y/y) in November after a 0.2% rise in October.

Unfilled durable goods orders increased 0.3% (2.0% y/y) in November, the fifth consecutive monthly rise. Unfilled orders for nondefense capital goods rose 0.6% for a second month (3.1% y/y) while nondefense capital goods order backlogs edged 0.1% higher (-1.2% y/y) and have fallen sharply since the end of 2022.

Inventories of all manufacturing industries rose 0.3% (0.5% y/y) in November after rising 0.1% in October. Durable goods inventories rose 0.4% (1.1% y/y) after little change earlier in the year while nondurable goods inventories rose 0.2% (-0.5% y/y) after easing for two consecutive months.

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.


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- Total orders dragged lower by aircraft; excluding transportation, orders are little changed.
- Core capital goods orders improve.
- Unfilled orders & inventories rise.


U.S. Durable Goods Orders Decline Sharply in November

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**The PCE chain price index** edged 0.1% higher in November, following unrevised gains of 0.2% in both of the prior two months. The y/y rise moved up to 2.4% after deceleration in the prior three months. The price index excluding food and energy also inched up 0.1% last month, after two months of 0.3% gain. The y/y rise held at 2.8% in November, up from a 2.7% low throughout Q3. 

**Durable goods prices** held steady (-1.1% y/y) in November, after a 0.1% October uptick. Motor vehicle & prices jumped 0.7% (-1.4% y/y) following a 0.9% rise. Recreational product prices declined 0.6% (-1.4% y/y) last month, after declining in each of the prior three months, while home furnishings & appliance costs were unchanged (-1.4% y/y) as they were in October. 

**Prices of nondurable goods** were unchanged both m/m and y/y last month after declines in each of the prior three months. Clothing prices rose 0.1% (0.9% y/y) after falling 1.4%. Food prices rose 0.2% (1.4% y/y) following no change and gasoline & oil prices rose 0.5% (-8.6% y/y) after a 1.0% decline.  

**Services prices** increased 0.2% (3.8% y/y) in November, after rising 0.4% in the prior month. Housing & utility prices rose 0.2% (4.6% y/y) after 0.4% gains in the prior two months, and services prices excluding energy & healthcare increased 0.2% (4.2% y/y) in November after a 0.4% gain. Healthcare prices rose 0.2% (2.5% y/y) as did housing & utilities costs (4.6% y/y). Transportation prices declined 0.5% (+1.5% y/y) while hotel & restaurant prices strengthened 0.7% (3.5% y/y). Recreation services costs rose 0.3% (3.3% y/y) after a 0.6% rise.

**Personal consumption expenditures (PCE) **increased 0.4% (5.5% y/y) in November, after a 0.3% October rise, revised from 0.4%. A 0.5% increase had been expected in the Action Economics Forecast Survey. When adjusted for price changes, PCE increased 0.3% (2.9% y/y) last month, after edging 0.1% higher in October.

**Real spending on durable goods** strengthened 1.8% (5.7% y/y) in November, after a 0.2% October rise. Real spending on motor vehicles increased 2.4% (5.0% y/y), after easing 0.3% in October. Real outlays on furnishings & durable household equipment rose 0.6% (4.7% y/y) in November, following a 0.2% decline in September, while real spending on recreational goods & vehicles jumped 2.7% (7.7% y/y) last month, after a 0.4% rise in October. Spending on “other” durable goods eased 0.1% (4.5% y/y) after strengthening 1.3% in October.

**Nondurable goods** spending in real terms improved 0.2% (2.2% y/y) in November, after falling 0.2% during October. Real clothing and footwear purchases jumped 1.3% (2.4% y/y) last month, following a 0.9% gain (+0.6% y/y) in October. Real food & beverage purchases fell 0.3% (+1.2% y/y), after easing 0.1% in the prior month. Real outlays on gasoline & other energy products declined 0.6% (+0.4% y/y), after falling 0.5%. Real spending on “other” nondurable goods rose 0.4% (3.4% y/y) last month, following a 0.6% decline.

**Real spending** on services edged 0.1% higher (2.7% y/y) in November, following two months of 0.2% increase. Real spending on housing & utilities eased 0.1% (0.9% y/y) last month, after holding steady in October, while real healthcare spending rose 0.2% (5.3% y/y), after rising 0.3%. Real spending on food services & accommodations weakened 0.6% (-0.3% y/y) in November, and reversed the prior month’s rise. Real spending on financial services & insurance gained 0.4% (3.4% y/y) after a 0.1% uptick. Real spending on transportation services eased slightly (+2.1% y/y) in November, after a decline of 0.1% in October. Recreation spending strengthened 1.2% (2.1% y/y) after falling 0.5% in October. Spending on “other” services slipped 0.2% (+1.1% y/y) after rising 0.3% in the prior month.

**Personal income** rose 0.3% (5.3% y/y) in November, after a rise of 0.7% in October, revised from 0.6%. A 0.4% gain was expected. Wages & salaries rose 0.6% (5.8% y/y) last month, following a rise of 0.5% in October. Rental income improved 0.1% (5.2% y/y), after a 0.5% October rise. Proprietors’ income edged 0.1% higher (2.4% y/y), following a 0.4% gain in October. Income from assets eased 0.1% (+1.0% y/y), after strengthening 1.0%, and current transfer receipts slipped 0.1% (+8.7% y/y) in November, after rising 0.9% in October. Government social benefits eased 0.1% (+8.6% y/y) in November, after improving 1.0% in the prior month.

**Disposable personal income** increased 0.3% (5.1% y/y) in November, following a rise of 0.7% in October. After adjusting for price changes, disposable income improved 0.2% (2.6% y/y), after gaining 0.5% in October.

**The personal saving rate** slipped to 4.4% in November, after rising to 4.5% in October. The rate remained below a January high of 5.5%. Personal saving fell 1.7% (+0.2% y/y) in November, after rising 10.3% in October.

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.


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- Price index held back by steady goods costs and slower services price rise.
- Real spending growth concentrated in goods.
- Disposable income growth slows.


U.S. Core PCE Price Gain Cools in November; Real Spending Rise Picks Up

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

Resilient US economy is pushing up longer-term inflation expectations and interest rates

Positive US economic data surprises leading to upward adjustment of interest rate expectations

Recent aggressive policy easing in China has given a massive boost to equity prices

FOMC expects much more easing now than in June

US is clear world leader in business capital spending on artificial intelligence

Blue Chip forecasters expect US to lead aggressive policy rate cuts over coming year—apart from Japan

Ratio of job openings to the number unemployed in the US now below pre-pandemic level

U.S. layoffs not showing as much cooling in labor markets as unemployment rate

While goods prices have moderated, service price inflation remains elevated and sticky

Since Jan 2023, BCEI US outlook has improved, worsened for Japan and the euro area

Persistent negative US economic surprises leading to big rate-cut expectations

Germany is Euro area weakling

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Andrew Cates

**Energy and labour markets**
Chart 1 below highlights two key trends: the real consumer price of energy in the OECD economies (indexed to 1970) has shown significant volatility, with sharp spikes during periods of energy crises (e.g., 1970s oil shocks, 2008, and post-pandemic supply constraints) and declines following market adjustments or advances in energy production. Meanwhile, the US labour share of business output has experienced a steady decline since the 1980s, reflecting structural changes in the economy such as globalization, technological advances, a shift in bargaining power away from labour toward capital as well as higher real energy prices. These trends and the interplay between them will arguably form the basis of several policy choices that will be made (or already are being made) by a new US administration.

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**Electricity prices**
Energy prices, their level and their volatility, arguably play a much bigger role in broader macroeconomic fluctuations than they are given credit for. Chart 2 below shows electricity prices (a 2-year average) across six major developed economies. It shows that the US has faced the cheapest electricity at around $44/MWh. The UK and Germany, in contrast, have faced the most expensive electricity at respectively $106/MWh and $94/MWh. This disparity reflects a mix of factors: European countries, particularly the UK and Germany, face elevated prices due to heavy reliance on natural gas imports, exacerbated by geopolitical tensions (e.g., reduced Russian supply), higher renewable energy integration costs, and carbon pricing mechanisms. The US, in contrast, enjoys lower electricity costs due to more abundant domestic energy resources, particularly natural gas, and less exposure to international energy markets. Against this backdrop it is hardly a surprise that the US economy has flourished (relative to other advanced economies) while the UK and Germany have floundered.

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**The UK labour market**
This week’s labour market data additionally suggest that the UK will probably struggle to keep pace with the US economy in the period immediately ahead. The data specifically revealed that employment growth is slowing on all measures, and the PAYE measure of payrolls in particular (see chart 3 below). And while private sector pay growth has also slowed, the 6-month annualised rates of growth still stood at a relatively lofty 5.8% in December. Weaker employment growth will encourage the BoE to cut rates again before too long (probably in February) but weaker wage growth could also be necessary for a much looser policy stance to be enacted over the next few months.

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**Household savings and labour market activity**
At a broader global level, a key risk to the economic outlook at present concerns restrictive monetary policy and its impact on labour market activity and household spending. Chart 4 below shows that household saving rates in the world’s major economies have – on the whole – been rebounding over the past two years. Simultaneously, the unemployment rate in advanced economies has begun to climb. These trends align with the tightening of monetary policy that’s been enacted in recent years and economic uncertainty. But if that combination persists, it could place a bigger brake on the world economy this year than many analysts are anticipating.

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**China’s credit impulse**
Another big source of uncertainty, at present, concerns China. Chart 5 below compares the Citigroup Economic Surprise Index for emerging markets (EM) and Haver’s calculations for China’s credit impulse (the change in new credit as a percentage of GDP). The chart suggests that China's credit growth influences broader EM economic fluctuations. During periods of robust credit growth (e.g., 2020-2021), driven by stimulus measures, EM economies benefited from improved liquidity and demand from China. Conversely, periods of credit tightening (e.g., 2017 and 2023-2024) weighed on economic surprises, reflecting weaker support for growth. These dynamics underline China’s outsized role in shaping sentiment and economic conditions in emerging markets. That its credit impulse, moreover, remained negative in Q4 (of 2024) underscores how China might continue to exert downward pressure on the world economy in the period immediately ahead.

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**South Korean trade**
Another source of uncertainty for the world economy, at present, is the optimism surrounding AI. While proponents highlight its transformative potential to boost productivity, efficiency, and innovation across industries, sceptics question the timeline for a meaningful economic impact. With that in mind it would be inappropriate to draw strong conclusions from chart 6 below but it is certainly of note that South Korea – which has been heavily reliant on AI-fuelled trade – saw a big slowdown in export growth in the first 20 days of January. Much of that slowdown, moreover, could be traced to a big drop in semiconductor trade.

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Financial markets have enjoyed a notable lift in sentiment over recent days, driven by renewed optimism about the domestic economic policies of a new US administration. Investors have certainly been cheered by early signals of a pro-growth strategy, with the energy sector taking centre stage following a ceasefire between Israel and Gaza and the announcement of measures aimed at reducing US energy costs (see charts 1 and 2). Meanwhile, China’s stronger-than-expected growth figures last week and softer-than-expected inflation readings from both the US and the UK have fuelled gains across equity and bond markets, bolstering risk appetite in other markets. However, despite the prevailing optimism, several factors warrant caution. Chief among them is the global uncertainty that surrounds the policy choices of a new US administration. The policy choices of central banks will also be critical, particularly as labour market strength could keep inflation risks alive (charts 3 and 4). Questions also linger about China’s ability to sustain its growth momentum, especially as its property sector and consumer demand face ongoing challenges (chart 5). Finally, while artificial intelligence is increasingly seen as a driver of future growth and productivity, doubts persist over its near-term potential to meaningfully transform the world economy (chart 6). For now, investors appear content to ride the wave of positive sentiment, but vigilance over these risks will be critical as the economic landscape continues to evolve.

Charts of the Week: Trump Cards

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Initial claims for unemployment insurance rose to 223,000 in the third week of January from an unrevised 217,000 during the prior week. A 215,000 increase in initial claims had been expected in the Action Economics Forecast Survey. Initial claims have risen from a 203,000 low in the first week of January. During the last four weeks, initial claims averaged 213,500, down from 226,750 four weeks earlier.

Continuing claims for jobless insurance increased 46,000 (7.8% y/y) to 1.899 million in the week ended January 11 from 1.853 million in the prior week. Ongoing claims have risen from a low of 1.834 million in the third week of December. The four week moving average of continuing jobless insurance claims eased to 1.866 million, down from a 1.888 million high in the third week of November.

The insured rate of unemployment was 1.2% for the fourth straight week. This level was increased from a 2022 low of 0.9% and compares to the rise in the overall unemployment rate to 4.1% from 3.4% over the same period.

Unemployment rates vary widely across states. The Labor Department reports that for the week ended January 4, the insured unemployment rate was highest in Rhode Island (3.22%), New Jersey (3.07%), Minnesota (2.73%), Washington (2.52%) and Massachusetts (2.41%). The insured unemployment rates were lowest in Florida (0.33%), Virginia (0.43%), Tennessee (0.58%) and Alabama (0.52%) and the Virgin Islands (0.67%). Rates in other notable states include California (2.32%), Pennsylvania (2.24%), New York (2.08%) and Texas (1.13%). These state rates are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial jobless claims increase to highest level in six weeks. 
- Continuing claims approach four-week high.
- The insured unemployment rate remains low.

U.S. Unemployment Insurance Claims Rise in Latest Week

Robert Brusca

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EU order trends ‘improved’ slightly in January as the net diffusion reading rose from -40 to -34. Still, that improvement leaves orders below their 3-month, 6-month, or 12-month averages. The queue standard of January orders is in the lower 14th percentile of its historic queue of data. Obviously, it remains a historically weak reading. The order series is volatile as the chart shows. But it is still in a clear downtrend even with the uptick this month.

Export orders have approximately the same profile as for orders overall. But export orders weaken slightly in January compared to December. Export orders overall have a slightly weaker queue standing than total orders at a 13.4 percentile level.

The diffusion readings for stocks of finished goods weakened in January but even with its weaker January assessment, stocks have a firm-to-strong 72.5 percentile standing.

Looking ahead, the outlook for output volume over the next three months improved sharply from its stunning weak reading of -31 in December. However, the rise to -19 in January represents only a 4.8 percentile standing.

Unfortunately, average output prices for three months ahead has reading of +27 in January, up from +23 in December and +11 in November; the backtracking in prices expected, has brought the expectation level for the current reading to a high, 90-percentile standing. These rising inflation expectations are going to be a real problem for the Bank of England.

IP data lag the CBI survey responses. The manufacturing IP growth rate, year-on-year, has a 17.4 percentile standing as of its most recent observation in November 2024. That is also very weak. The CBI results are not giving a different message from the industrial production data, but they are timelier.

The ramp up in inflation expectation is not good new with CPI-H inflation at 3.5% year-over-year and with the core pace at 4.2%. Core inflation, sequentially, is looking stable around the 4.2% pace; for the headline, the pace has accelerated from 3.5% over 12 months to a pace of 5.4% over three months. These results, coupled with the rise in CBI expectations, are not good news for the U.K. or for the BOE.

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United Kingdom

U.K. Order Trends Are Still Eroding

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The Conference Board's Leading Economic Index fell 0.1% (-3.0% y/y) during December, following a 0.4% November rise, revised from 0.3%, and a 0.3% October decline, revised from -0.4%. A 0.1% easing in the December index had been expected in the Action Economics Forecast Survey. The Leading Index is comprised of 10 components which tend to precede changes in overall economic activity. The index has been trending lower since January 2022, contrasting with positive real economic growth.

During December, component changes amongst the leaders diverged. Series which contributed positively to the index change included a longer factory sector workweek, improved factory orders for consumer goods, an increase in orders for nondefense capital goods excluding aircraft, higher stock prices in the S&P 500 index and the leading credit index. Series contributing negatively were higher initial unemployment insurance claims, a lower ISM new orders index, falling building permits, the interest rate yield curve and consumer expectations for business/economic conditions.

The Coincident Economic Index rose 0.4% last month (1.6% y/y) after rising 0.2% in November and holding steady in October. Movement amongst the four components was uniformly positive in December. Industrial production jumped by the largest amount since February, real personal income strengthened steadily, payroll employment improved on prior two months’ increases while real manufacturing & trade sales rose steadily.

The Lagging Economic Index improved 0.1% last month (0.3% y/y) after rising 0.2% in November and remaining unchanged in October. The 6-month change in the services CPI, the 6-month change in unit labor costs and the ratio of consumer installment credit-to-personal income contributed positively to the index change. The business inventory-to-sales ratio contributed nothing to the index change. The duration of unemployment, the prime interest rate charged by banks and commercial & industrial loans outstanding contributed negatively to the index change.

The ratio of coincident-to-lagging indicators, considered another leading indicator, rose 0.3% last month after holding steady for two straight months.

The Conference Board figures are available in Haver's **BCI** database; the components are available there, and most are also in **USECON**. The expectations are in the **AS1REPNA** database. Visit the Conference Board's [website](https://www.conference-board.org/us/) for coverage of leading indicator series from around the world.

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- Movement in leading indicator components remains mixed.
- Coincident indicators strengthen.
- Lagging indicators edge higher.

U.S. Leading Indicators Ease

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Retail gasoline prices for all grades rose to an average $3.23 per gallon (1.5% y/y) in the week ending January 20 from $3.16 in the prior week. The all-time high of $5.11 was in the week ending June 13, 2022. The retail price for on-highway diesel fuel jumped	to $3.72 per gallon (-3.2% y/y) in the week of January 20, the highest level since early-August, from $3.60 in the prior week. The latest price was down from a high of $4.63 in the week ending September 18, 2023 and a peak of $5.81 in the week ending June 20, 2022.

The price of West Texas Intermediate crude oil rose to $78.58 per barrel (7.3% y/y) in the week ending January 17 after increasing to $74.32 in the prior week. It was the highest level in five months but still below the peak of $120.46 in the week of June 10, 2022. Yesterday, the price was $75.89 per barrel. The price of European Brent crude oil rose to $82.53 per barrel (3.0% y/y) in the week of January 17 from $78.14 in the prior week. Prices remained below a peak of $127.40 in the week of June 10, 2022. Yesterday’s price was $80.57 per barrel.

Natural gas prices surged to an average $5.47/mmbtu (87.3% y/y) in the week of January 17 from $3.93 in the prior week, posting the highest level since a high of $5.11/mmbtu in the week of January 12, 2024. Prices reached a low of $1.40/mmbtu in the week of March 15, 2024 and a peak of $9.56 in the week of August 26, 2022. Yesterday, the price was $4.40/mmbtu.

Gasoline demand rose 0.8% y/y in the four weeks ending January 10 on top of a 1.2% y/y gain in the prior four weeks. Demand for all petroleum products increased 1.1% y/y in the four weeks ending January 10. Crude oil input to refineries increased 1.2% y/y in the four weeks ending January 10 after a 1.5% y/y rise in the prior four weeks.

Gasoline inventories fell 1.8% y/y in the week ending January 10 after a 3.0% y/y decline in the prior week. In contrast, residual fuel oil inventories fell 12.1% y/y in the week of January 10 following a 5.7% y/y decrease in the prior week. Crude oil inventories rose 2.7% y/y in the week of January 10, the same as during the prior week.

Measured in days’ supply, gasoline inventories rose to 28.7 days in the week of January 10 from 27.5 days in the prior	 week, registering the highest reading since the end of February 2024. The recent low was 22.9 days in the week of November 8. The supply of crude oil was little changed at 24.6 days in the week of January 10, still near the lowest number since a low of 24.8 days in the week of September 20, 2024 and below a high of 31.9 days in the week of March 3, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

- Gasoline prices reach three-month high.
- Crude oil costs surge.
- Natural gas prices strengthen to two-year high.

Economy in Brief: 2024

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