The U.S. Federal Reserve has reported that, overall, U.S. industrial production has continued to grow thanks to increased manufacturing and mineral outputs, while utilities production has fallen sharply. IHS Markit’s U.S. Services index showed services output falling to a four-month low but staying in growth territory. Lastly, U.S. soybean exports to China have fallen dramatically from stable levels in August, likely due to the implementation of tariffs from China.
Last week, the National Association of Realtors announced that U.S. existing home sells fell dramatically year-over-year in December and that home-price inflation is slowing down to a seven-year low. Also, the Equipment Leasing and Finance Association revealed that American companies are borrowing and leasing slightly less for capital investment purposes than one year ago. Lastly, worldwide credit levels continue to rise to great heights, equivalent to 318% of global output, as of September.
Beige Book Shows Moderately Positive Economic Conditions While Consumer Sentiment Reveals Loss of Confidence
The Federal Reserve’s January 2019 Beige Book shows a general increase in economic activity, while the labor market remains tight and input costs are on the rise. The University of Michigan revealed that consumer sentiment fell to its lowest level in over two years, according to its Survey of Consumers. The ongoing government shutdown and market volatility were the leading factors. Also, the Labor Department released its import- and export-price indices for December, which both fell during the month. Year over year, import prices had their largest drop since September 2016.
The minutes from the Federal Open Market Committee’s December meeting were released, showing the board’s reluctance to increase interest rates amid weakening inflationary pressures and slowing global growth. The Bureau of Labor statistics furthered this point when releasing its December Consumer Price Index, which revealed the first monthly decrease in prices in nine months. The inflationary gauge did rise on an annualized basis, albeit slower than in prior months. Also, unemployment insurance claims fell unexpectedly in the first week of the new year.
Two surveys on U.S. manufacturing activity suggest a dramatic slowdown in the sector. HIS Markit’s manufacturing PMI revealed a subtle 1.5-point drop to a 15-month low, while the Institute for Supply Management’s PMI experienced a one-month decline of 5.2 points, the greatest in 10 years. Despite waning manufacturing activity, the job market experienced an unexpected surge as 312,000 jobs were added, 136,000 more than expected, while the unemployment rate rose slightly and wage gains posted a nine-year higher.
The stock market ended deeply negative in December, with the S&P 500, Dow Jones Industrial Average (DJIA), NASDAQ, and Russell 2000 each losing over 8%. The worst market performance in December since 1931 sent the S&P 500, DJIA, and NASDAQ into negative territory for the year, with the S&P 500 down 6.2%, the DJIA down 5.6%, and NASDAQ down 3.9%. The Russell 2000 was down 12.2% in 2018. The year accounted for the worst market performance since 2008.
According to CNN Business and Mastercard SpendingPulse, year-over-year U.S. holiday spending grew at its fastest rate in six years. From November through Christmas Eve, Americans spent just more than $850 million, a 5.1% increase from the 2017 holidays. E-commerce sales also surged, with 19.1% more sales than in 2017. In fact, within the last year, mobile e-commerce holiday sales grew 57% from 2017 and in-store pickup sales grew 47%.
Initial claims for unemployment benefits fell by a marginal amount last week, continuing a downward trend towards the 49-year low set in September. Chicago’s manufacturing activity slowed last month, although only slightly, due to slip-ups in new orders, employment and supplier deliveries indices. The Conference Board’s December consumer confidence index revealed a sharply lower measure from November, as market volatility and lower economic growth expectations alarm consumers.
Last Tuesday and Wednesday, the Federal Open Market Committee held their December meeting. The board elected to raise rates for the fourth time this year, although the median governor is anticipating one less rate hike in 2019. The Commerce Department made downward revisions to its third quarter GDP estimates, knocking a tenth of a percent off its previous estimates. Lastly, the Kansas City Federal Reserve released its December Manufacturing Survey and Index, showing a slowdown in manufacturing activity during the month due to declines in production, shipments and new orders for exports.
Last week, the Commerce Department’s retail spending report showed a notable gain in retail spending for the trailing twelve months through November, showing strong consumer demand heading into the holidays. Also, the Institute for Supply Management (ISM) released its semi-annual economic growth survey, revealing that although purchasing and supply managers expect revenue and investment growth, they believe 2019 will be a weaker year than 2018. Lastly, the Labor Department shared the November Consumer Price Index, which showed flat growth from October and a 2.2% annual increase. This week, the Federal Open Market Committee will meet on Tuesday and Wednesday to determine whether a rate hike is justified.