Tag: Economic Performance/Indicators

U.S. factory orders plunge in July after four straight gains

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Orders for U.S. manufactured goods fell a sharp 2.1% in July, the Commerce Department said Tuesday. This is the first decline after four straight monthly gains.

Economists surveyed by the Wall Street Journal were expecting a 2.3% fall in July.

Excluding transportation, orders rose 0.8% in July after a 0.3% gain in the prior month.

Economists said that higher interest rates are putting pressure on business equipment spending.

Durable-goods orders fell 5.2 % in July, unrevised from the data that was released on Aug. 24. Non-durable goods orders rose 1.1%.

Orders for nondefense capital goods, excluding aircraft, rose 0.1% in July, also unrevised from prior estimate.

U.S. stocks
DJIA

SPX
were trading lower on Tuesday following the long holiday weekend.

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September 5, 2023
U.S. stock futures slide as sour news on global economy hits sentiment
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U.S. stock index futures slipped early Tuesday as rising bond yields defied dour economic news from China and Europe.

How are stock-index futures trading
- S&P 500 futures
  ES00,
  -0.19%
  dipped 20 points, or 0.4%, to 4502
- Dow Jones Industrial Average futures
  YM00,
  -0.07%
  fell 119 points, or 0.3%, to 34763
- Nasdaq 100 futures
  NQ00,
  -0.38%
  eased 95 points, or 0.6%, to 15421
On Friday, the Dow Jones Industrial Average
DJIA
rose 116 points, or 0.33%, to 34838, the S&P 500
SPX
increased 8 points, or 0.18%, to 4516, and the Nasdaq Composite
COMP
dropped 3 points, or 0.02%, to 14032. U.S. markets were closed on Monday for the Labor Day break.

What’s driving markets

U.S. traders returned from the Labor Day holiday with global markets in a generally risk-off mood after more disappointing news from the world’s second biggest economy.

A Caixin survey showed China’s service sector expanded in August at its slowest pace in eight months, providing further evidence that the country’s post-pandemic recovery is faltering.

Also, a eurozone survey showed output in the bloc contracting at its fastest pace in nearly three years.

Asian and European bourses mostly turned lower, affecting U.S. equity index futures.

“Sentiment has turned downbeat again on China as fresh brushstrokes are painted on the picture of its slowing economy,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“The data has overshadowed relief that the struggling property giant Country Garden
2007,
-0.98%
has managed to make key interest payments on its debt, reducing, for now, concerns about contagion in the financial sector. China appears to be taking one step forward, but two steps back, as optimism one day turns to pessimism the next,” Streeter added.

Concerns about economic growth might be expected to support sovereign debt markets, but here too the tone was grim, with Treasury yields rising amid concerns recent increases in oil prices
CL.1,
-0.35%
–though down a bit on Tuesday — may revive inflationary pressures.

“Oil prices have surged to reach new highs in 2023, a development poised to have significant repercussions on the upcoming August consumer price index reports…[which] presents a fresh challenge for central banks as they continue their diligent efforts to bring inflation levels back in line with their desired targets,” said Stephen Innes, managing partner at SPI Asset Management.

“This growing concern has notably impacted sovereign bonds, triggering a sell-off primarily driven by heightened inflation expectations. And, of course, stocks do not like the cut of that new inflation jib,” Innes added.

U.S. economic updates set for release on Tuesday include July factory orders, due at 10 a.m. Eastern.

Companies in focus

Blackstone Inc.
BX,
-1.77%
rose 4% in premarket trade, while shares of Airbnb Inc.
ABNB,
+0.87%
were up 5% after S&P Dow Jones Indices announced that both names would gain inclusion in the S&P 500 index. The changes take effect before the start of trading Sept. 18.
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September 5, 2023
Wall Street is raising quarterly profit forecasts for the first time in two years, and executives are relaxing about recession prospects

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After nearly two years of concerns about a recession, growing optimism about the economy is starting to filter down into Wall Street’s expectations for individual companies’ quarterly results, with analysts growing more upbeat about corporate profit in the months ahead

While expectations for those quarterly results usually trend lower as earnings season arrives, analysts over the past two months have actually nudged their profit forecasts higher for the first time in two years, according to a FactSet report released Friday….

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September 3, 2023
Fed rate hikes can end now that U.S. job gains are the size of an economy like Australia’s, says BlackRock

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The Federal Reserve can probably end its inflation fight now that the U.S. labor market is cooling after generating a historic 26 million jobs in roughly the past three years, according to BlackRock’s Rick Rieder.

“In fact, 26 million jobs is like adding an economy the size of Australia or Taiwan (including every man, woman, and child),” said Rieder, BlackRock’s chief investment officer in global fixed income, in emailed commentary following Friday’s monthly jobs report for August.

The August nonfarm-payrolls report showed the U.S. adding 187,000 jobs, slightly more than had been forecast, but also pointing to an uptick in the unemployment rate to 3.8% from 3.5%.

“Remarkably, 22 million people were hired between May 2020 and April 2022, and 11 million were added to the workforce from June 2021 to May 2023, as the economy has opened up massive amounts of roles for fulfillment,” said Rieder.

He expects wage pressures to ease, he said, and thinks the “economy may now have fulfilled many of its needs,” which should make the Fed feel more confident in “the permanence of lower levels of inflation,” so that it can slow or stop its interest-rate rises by year-end.

Hiring in the U.S. has slowed, except in education and in healthcare services, when looking at private payrolls based on a three-month moving average.

Payrolls are slowing in many sectors, expect education and healthcare

Bureau of Labor Statistics, BlackRock

The Fed has already raised interest rates in July to a 5.25%-to-5.5% range, a 22-year high, with traders in federal-funds futures on Friday pricing in only about a 7% chance of a Fed rate hike in September and favoring no hike again at the central bank’s November policy meeting.

Rieder of BlackRock, one of the world’s largest asset managers with $2.7 trillion in assets under management, said he thinks a Fed pause or outright end to rate hikes could calm markets, even if the Fed, as BlackRock expects, keeps rates high for a time.

U.S. closed mostly higher Friday ahead of the Labor Day holiday weekend, with the Dow Jones Industrial Average
DJIA
up 0.3%, the S&P 500 index
SPX
up 0.2% and the Nasdaq Composite Index
COMP
0.02% lower, according to FactSet.

The 10-year Treasury yield
BX:TMUBMUSD10Y
was at 4.173%, after hitting its highest level since 2007 in late August, adding to volatility that has wiped out earlier yearly gains in the roughly $25 trillion Treasury market.

Read on: This hadn’t happened on the U.S. Treasury market in 250 years. Now it has.

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September 1, 2023
Unemployment surge to 3.8% may be a summer-jobs mirage

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The U.S. unemployment rate jumped to an 18-month high of 3.8% in August. Does that mean the economy is tottering and layoffs are rising from near record lows? Ah, no.

The big increase in the jobless rate — from 3.5% in July — stemmed almost entirely from more people in the labor force.

People generally look for a job when they think it’s easy to find one and the pay is good. That’s a sign of a robust labor market, not a weakening one.

An estimated 736,000 people entered the labor force last month, but only about one-third found a job.

The other half million didn’t find a job right away, so they would be considered unemployed. The government includes anyone without a job who is actively searching for work in the unemployment rate.

Ergo, that’s why the jobless rate jumped three-tenths to 3.8%.

Digging a little deeper, the summer-jobs market for young people may have played an outsized role.

About 45% of the people who reportedly entered the labor force in August were between the ages of between 16 and 24 years old, noted Omair Sharif, president of Inflation Insights.

As it turns out, a similar 724,000 spike in the size of the labor force took place in August 2022. And once again it was driven by an increase in young jobseekers.

What’s going on? Young people working summer jobs may have simply stayed on a bit longer than the government’s employment survey could account for.

“This looks like an anomaly associated with the summer jobs market,” said chief economist Stephen Stanley of Santander Capital Markets.

What happened after August 2022? The size of the labor force fell or moved sideways for the next three months. The unemployment rate also declined.

If the same scenario plays out again this fall and the labor force shrinks, the unemployment rate could drop back down again in the next few months.

There also could be another, less positive, explanation for the large increase in the number of people seeking work in August. Maybe they need the spending money to keep their current standard of living in light of high inflation and the depletion of their Covid-era savings.

“This could also be a possible sign of stress, with households having to come back to the labor market to pay bills and maintain current spending habits,” said senior economist Sam Bullard of Wells Fargo.

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September 1, 2023
U.S. consumer confidence retreats markedly in August, close to levels signaling recession

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The numbers: The index of U.S. consumer confidence dipped to 106.1 in August from a revised 114 in the prior month, the Conference Board said Tuesday.

Economists polled by The Wall Street Journal had forecast a modest pullback to 116 from the initial reading of 117, which was the highest level in two years.

The revised July reading was the highest since December 2021.

Key details: Part of the survey that tracks how consumers feel about current economic conditions fell to 114.8 this month from 153 in July.

A gauge that assesses what Americans expect over the next six months dropped to 80.2 from 88. The August reading is just above to 80 level that historically signals a recession within the next year.

Big picture: The tight labor market had bolstered confidence in June and July. The decline in August reverses all of those gains. The index is still 10.8 points above the recent cycle low in July 2022.

Economists think that higher gasoline prices were behind some of the decline in August. The price of a gallon of unleaded gasoline is up 19.6% from the start of the year and over 2% from last month.

What the Conference Board said: The organization said it still expects a recession before the end of the year.

“Write-in responses showed that consumers were once again preoccupied with rising prices in general, and for groceries and gasoline in particular,” said Dana Peterson, chief economist at The Conference Board.

What are they saying? “The August drop does not definitively end the upward trend in place since last summer, and the expectations index still points to faster growth in real consumption spending. We are not convinced, however, in part because some of the strength in July retail sales was due to boost from Amazon Prime Day, which won’t continue, and because near-real-time indicators of discretionary services spending paint a much less upbeat picture,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Robert Frick, corporate economist with Navy Federal Credit Union, said he didn’t think confidence would rise significantly until inflation falls further.

Market reaction: Stocks
DJIA

SPX
were trading higher on Tuesday. The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
fell to 4.16%.

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August 29, 2023
German Consumer Sentiment to Worsen in September on Fears of Squeezed Incomes
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```
By Ed Frankl
```
Consumer confidence in Germany weakened in data for September, reversing August’s improvement, reflecting gloomier income expectations and prospects for the country’s economy.

Germany’s forward-looking consumer-sentiment index forecasts confidence to tick down to minus 25.5 in September, from a revised minus 24.6 in August, according to data from market-research group GfK published Tuesday.
The reading is a little weaker than expectations of minus 25.0, according to a consensus of economists polled by The Wall Street Journal.

The worsening consumer confidence follows a weaker reading of business sentiment from the closely watched Ifo business-climate indicator, which last week fell for the fourth month in a row.

GfK uses three sub-indexes for the current month–August–to derive a sentiment figure for the coming month. Two of them–falling income expectations and a declining propensity to buy–drove the overall figure downward, according to GfK consumer expert Rolf Buerkl.

The continuing sharp rise in food and energy prices is weighing on purchasing power, GfK said, with inflation in July still high at 6.2%.

The chances that consumer sentiment will recover from its low level before the end of the year are dwindling more and more, Buerkl said.

“Persistently high inflation rates, especially for food and energy supplies, ensure that the consumer sentiment is currently not making any progress,” he added.

Consumers are also much more pessimistic about economic development in Germany, the survey’s authors said, with the indicator measuring economic development also suffering in August, reaching its weakest point in 2023.

Overall, private consumption is unlikely to make a positive contribution to economic development in 2023, and will instead be a burden on growth prospects, GfK said.

Write to Ed Frankl at edward.frankl@wsj.com
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August 28, 2023
Consumer sentiment dips at end of August on more worries about the U.S. economy

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The numbers: A survey of consumer sentiment hung close a two-year high in August, but Americans expressed more worries about the future of the economy.

The final reading of the sentiment survey in August slipped to 69.5 from a preliminary 71.2, the University of Michigan said Friday. The index hit a 22-month high in July.

The consumer-sentiment survey reveals how consumers feel about their own finances as well as the broader economy.

Key details: A gauge that measures what consumers think about the current state of the economy registered 75.7 at the end of August vs. an initial 77.4

A measure that asks about expectations for the next six months dropped to 65.5 from an initial 67.3 in early August and 68.3 in July.

Americans think inflation will average 3.5% in the next year, a few ticks higher compared to several months ago.

The official rate of inflation is 3.2%, using the consumer price index, though other measures suggest prices are rising somewhat faster.

Big picture: Steady economic growth, ultra-low unemployment and slowing inflation have made Americans less worried about a recession.

Yet interest rates are high and likely to remain so through next year as the Federal Reserve aims return the inflation genie to the bottle. Higher borrowing costs are all but certain to depress the economy and perhaps increase unemployment

Looking ahead: “Consumers perceive that the rapid improvements in the economy from the past three months have moderated, particularly with inflation, and they are tentative about the outlook ahead,” said Joanne Hsu, director of the survey.

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.73%
and S&P 500
SPX,
+0.67%
rose in Friday trades.

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August 25, 2023
China Rolls Out New Mortgage Rules to Boost Home Sales, Xinhua Says
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Chinese regulators eased the nation’s mortgage requirements to let more home buyers enjoy favorable mortgage conditions that were previously limited to first-time home purchasers, the state-run Xinhua News Agency said on Friday.

China’s central bank, the Ministry of Housing and Urban-Rural Development and the National Financial Regulatory Administration jointly eased the requirements for home buyers who have already purchased homes to boost property sales as the real-estate slump continued, according to Xinhua.
Home buyers who don’t have family members with houses registered under their names can enjoy favorable terms that were previously limited to people buying their first homes, according to Xinhua.

First-home buyers are normally given cheaper mortgage rates than other buyers who have at least one apartment. First-home buyers are also required to make smaller down payments, as low as 20% of the total property value.

Write to Singapore editors at singaporeeditors@dowjones.com
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August 24, 2023
Durable-goods orders rise for third month in a row — if Boeing is taken out of the equation

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The numbers: Orders for long-lasting goods rose in July for the third month in a row if recent ups and downs at Boeing are set aside, suggesting the struggling industrial side of the U.S. economy may have stabilized.

Durable-goods orders increased 0.5% in July if transportation — automobiles and planes — are excluded. Boeing
BA,
-3.16%
orders often seesaw in the summer months and distort the true condition of U.S. manufacturing.

Headline orders, which include transportation, sank by 5.2% last month, the government said Thursday.

Economists polled by the Wall Street Journal had forecast a 4.1% drop in July following a 4.4% spike in June. The topsy-turvy results in the past two months are almost entirely due to Boeing.

A better measure of the health of U.S. manufacturing, known as core orders, edged up 0.1% in July. That figure omits defense and transportation and is a proxy for broader business investment.

Business investment is running slightly ahead of last year’s pace, but it has weakened considerably, and many manufacturers are treading water.

Key details: Orders for commercial planes soared 71% in June and sank 44% in July, explaining the wildly divergent headline numbers in the past two months.

Orders for new cars rose 0.8% in July.

The transportation segment is a large and volatile category that often exaggerates the ups and downs in manufacturing.

Outside the transportation sector, new orders rose in most major categories.

Business investment has tapered off since last year, however, and companies have become more cautious in the face of rising interest rates, still-high inflation and a shift in consumer spending toward services.

Durable goods are items like planes, cars, appliances and computers. Orders rise in an expanding economy and shrink in a contracting one.

Big picture: Maybe the industrial side of the economy has hit bottom, and maybe it hasn’t. Getting a clear picture might have to wait until interest rates stop rising.

Higher borrowing costs typically stunt the economy and discourage businesses from hiring, spending and investing.

Looking ahead: “Businesses are showing caution amidst the higher rate environment and what it means for demand down the line,” said economist Ali Jaffery at CIBC Economics.

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.28%
and S&P 500
SPX,
+0.24%
were set to open mixed in Thursday trades.

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August 24, 2023
Why this abstract concept could rattle stocks when Powell speaks at Jackson Hole

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There’s one big, but theoretical, concept that has the potential to shake up the stock market the most on Friday, when Federal Reserve Chairman Jerome Powell is scheduled to deliver a speech at an annual symposium held in Jackson Hole, Wyo.

It has to do with the neutral rate of interest. That’s the level of real short-term interest rates that’s expected to prevail when the U.S. economy is at full strength and inflation is stable. The real neutral rate — known alternatively as r* or r-star— is estimated to be around 0.5%, after subtracting the Fed’s 2% inflation target from policy makers’ latest forecasts for where the fed funds rates is likely to be in the long run. And that neutral rate may be moving higher, given how the economy is performing right now.

Read: Jackson Hole meeting: When is Jerome Powell’s speech? What investors need to know.

Settling on the right theoretical level for the neutral rate matters because the U.S. economy appears to be accelerating, even after the Fed has hiked rates by more than five full percentage points to a 22-year high of 5.25%-5.5%. The world’s largest economy grew at a solid 2% pace in the first quarter, followed by a 2.4% pace for the second quarter. Now, the Atlanta Fed’s GDPNow model is forecasting a third-quarter growth rate of 5.8% for real gross domestic product — a number that’s drawn plenty of skeptics, but underscores just how well the economy seems to be doing.

See: R-Star Is the New Buzzword. Listen for It at Jackson Hole.

“The notion of a higher r-star or neutral rate has crept its way into the marketplace and has been a hot topic lately,” said Thomas Urano, co-chief investment officer at fixed-income money manager Sage Advisory in Austin, Texas, which oversaw $23 billion as of July. “The market is trying to digest where the Fed views this neutral rate and is looking to get a little more clarity as Powell speaks in Jackson Hole.”

If the neutral rate is higher than previously thought, that means policy makers might need to hike the fed-funds rate target even further, in addition to holding borrowing costs higher for longer and delaying the timing of their first rate cut.

Traders and investors are well aware that the Fed is likely to keep interest rates higher for longer, and they’ve pushed out their expectations about the timing of the first rate cut next year, according to Dan Eye, chief investment officer for Pennsylvania-based Fort Pitt Capital Group, which manages $4.9 billion in assets.

However, the market is not yet fully positioned for the Fed to put rate hikes back on the table, Eye said via phone on Wednesday.

Dow industrials
DJIA,
the S&P 500
SPX,
and Nasdaq Composite
COMP
are respectively up so far this year by 4.1%, 15.6%, and 31.3% as investors and traders hold out hope for a soft- or no-landing scenario in which the U.S. economy can emerge relatively unscathed as inflation keeps falling.

As of Wednesday afternoon, all three major stock indexes were higher, led by a 1.8% advance in the Nasdaq Composite as investors await a fiscal second-quarter earnings announcement from chip maker Nvidia Corp.
NVDA,
+2.84%
that’s due after the close.

Any remarks by Powell on Friday that can be interpreted as suggesting that more rate hikes are likely to come will produce volatility and “a downdraft in stocks,” Eye said. The best possible outcome for stock investors would be if Powell “stresses data dependency and says that policy makers will continue to consider the cumulative impact of rate hikes that have been done already.”

The theme of the Kansas City Fed’s Jackson Hole symposium, being held Thursday-Saturday, is “Structural Shifts in the Global Economy,” a topic that’s led to the growing expectation that Powell will address where he and the Fed currently see the neutral rate.

In the run-up to Friday’s Jackson Hole speech, the Treasury market has already priced in a scenario of better-than-expected U.S. economic growth, with 10- and 30-year yields reaching multiyear highs on Monday and last week. Though both yields pulled back on Tuesday and Wednesday, they could bounce back again if investors sell off long-dated government debt in response to Powell’s remarks, investors said.

The recent rise in yields has been blamed, in part, for August’s decline in U.S. stocks, with the S&P 500 down more than 3% so far this month.

“Powell has to sound hawkish, he cannot afford not to do so” because “any signal that the hiking cycle is done will probably lead to such a bullish response in risk assets that it will loosen broader financial conditions,” said strategist Rikkert Scholten at Rotterdam-based Robeco, which oversees $194 billion.

Still, Robeco’s investment team also expects the Fed chairman to stress data dependence as a way of “credibly” keeping his options open.

Brad Conger, deputy chief investment officer at Hirtle Callaghan & Co. in West Conshohocken, Penn., which manages $18.5 billion in assets, said he believes the Fed is near the end of its rate-hiking cycle, which began in March 2022.

Nevertheless, “any discussion about a higher natural rate of interest due to the shifting structure of the economy would set off a bout of uncertainty,” he said. Natural rate is the phrase used to describe where the neutral rate may settle over the longer run.

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August 23, 2023
Home buyers flee the housing market as mortgage rates surge to the highest level since 2000

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The numbers: Mortgage rates rose for the fourth week in a row to the highest level since 2000, as the economy continues to show strength.

Rates surged as the U.S. economy continued to show signs of resilience, which signal to the market that the U.S. Federal Reserve may not be done with rate increases.

The 30-year was averaging at 7.31%, which in part dampened demand for home-purchase mortgages to the lowest level since April 1995.

Demand for both purchases and refinancing fell. That overall pushed down the market composite index, a measure of mortgage application volume, the Mortgage Bankers Association (M.B.A.) said on Wednesday.

The market index fell 4.2% to 184.8 for the week that ended Aug. 18, relative to a week earlier. A year ago, the index stood at 270.1.

Key details: High mortgage rates are weighing on home buyers’ budgets due to an increase in borrowing costs. Many buyers fled the market as a result of rates rising over the last week. The purchase index, which measures mortgage applications for the purchase of a home, fell 5% from last week.

Rates hold little allure for homeowners hoping to refinance. The refinance index fell 2.8%.

Rates rose across the board.

The average contract rate for the 30-year mortgage for homes sold for $726,200 or less was 7.31% for the week ending August 18. That’s up from 7.16% the week before, the M.B.A. said. The 30-year is at the highest level since December 2000.

The rate for jumbo loans, or the 30-year mortgage for homes sold for over $726,200, was 7.27%, up from 7.11% the previous week.

The average rate for a 30-year mortgage backed by the Federal Housing Administration rose to 7.09% from 6.93%.

The 15-year rose to 6.72%, up from last week’s 6.57%.

The rate for adjustable-rate mortgages rose to 6.5% from last week’s 6.2%. The share of adjustable-rate mortgages rose to 7.6%, the highest level in five months.

The big picture: The housing market continues to be hammered by good economic news, which is pushing rates up and depressing home sales. Higher rates also discourage homeowners from selling, as their purchasing power erodes when they look for homes to buy.

As a result, both home-buying demand and supply of home listings continues to fall, bringing the market to a standstill. Until the economy shows signs of slowing, it’s likely that the housing market will remain in the doldrums.

What the M.B.A. said: “Applications for home purchase mortgages dropped to their lowest level since April 1995, as home buyers withdrew from the market due to the elevated rate environment and the erosion of purchasing power,” Joel Kan, deputy chief economist and vice president at the M.B.A., said in a statement.

Kan added that there was an uptick in people using adjustable-rate mortgages. “Some home buyers are looking to lower their monthly payments by accepting some interest rate risk after the initial fixed period,” he said.

Market reaction: The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was above 4.3% in early morning trading Wednesday.

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August 23, 2023
Republican debate: Why you may hear big numbers like 19% inflation, and how to make sense of it all

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Economists don’t much like presidential-campaign seasons. For them, it’s a bit like seeing their manicured gardens getting trampled by schoolchildren having a water-balloon fight.

Robert Brusca, the president of consulting firm FAO Economics, predicted that the political discussion of the U.S. economy in the 2024 campaign would be “a farce.”

Talk of inflation is likely to dominate the Aug. 23 Republican debate, for example.

Republicans, eager to lay the blame for higher prices at the feet of President Joe Biden, are going to make the strongest case they can for that. For them, it is a happy coincidence that inflation started to pick up right when Biden was sworn into office.

Larry Kudlow, a former top economic adviser to President Donald Trump, put it succinctly. “I have numbers. The consumer-price index is up 16% since February 2021. Groceries are up 19%. Meat and poultry up 19%. New cars up 20%. Used cars up 34%,” Kudlow said in an interview on the Fox Business Network.

From last month: Mike Pence says inflation is 16%, but CPI is 3%. This is his logic.

Unlike Kudlow, the Federal Reserve doesn’t usually measure inflation over 29 months. Instead, the central bank favors using inflation data that looks at the past 12 months.

By that year-over-year measure, CPI is up 3.2%. Groceries are up 3.6%. Meat and poultry prices are up 0.5%. New-vehicle prices are up 3.5%, but prices of used cars and trucks are actually down 5.6%.

Economists, meanwhile, tend to like even shorter measures, such as the three-month annualized rate. They think the 12-month rate says more about the rate a year ago than it does about what is happening today.

“Looking at year-over-year [data], the only new piece of information is the current month. You are looking at 11 months that you already know,” said Omair Sharif, president and founder of research company Inflation Insights.

Using the shorter metric, headline CPI for the three months ending in July is up 1.9%, while food at home rose 1.1% and meat and poultry is down 4.5%, he said.

Trends have been favorable in recent months, but that might not last. “It’s been a good summer,” Sharif said. “But unfortunately, the winter data won’t be as pleasant.”

What caused the spike in inflation?

Economists tend not to blame one political party or the other for spikes in inflation.

In the 1970s, for example, the culprit was increases in oil prices by the Organization of Petroleum Exporting Countries.

This time, there was no one single factor. While the debate is not yet over, economists tend to focus on the pandemic, the war in Ukraine and the move to end reliance on fossil fuels in order to combat climate change.

Brian Bethune, an economics professor at Boston College, said prices started to rise when the healthcare industry had to adjust to a new, unforeseen risk. There were steep costs to dealing with the deadly coronavirus and developing vaccines.

People working in frontline industries were able to command higher wages. And demand outstripped supply for many things, as shelves were emptied by consumers and supply chains were strained.

Bethune also stressed recent moves toward renewable energy. The best way to explain inflation to your grandmother, he said, is to look at a chart of electricity prices.

Uncredited

The steady increase stems from efforts to move closer to a carbon-free economy, Bethune said. And those prices get passed along “right through the whole cost pressure of the economy,” including the price of refrigerated foods.

Inflation boomed and is now coming off its peak, said Brusca of FAO Economics. Prices are still rising, but not at the same rapid clip. And they won’t roll back to prepandemic levels.

“Consumers are caught in a trap,” he said. “If prices are going to come down, you have got to have deflation.”

Deflation comes with its own unique set of woes. It can make the cost of borrowed money, like mortgages, much more expensive. And it can lead to serious economic weakness.

“All of this is why the Fed targets price stability,” Brusca said.

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August 22, 2023

UK House Prices Fell at Fastest Rate on Month Since 2018

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By Joe Hoppe

The average house price in the U.K. fell 1.9%, or 7,012 pounds ($8,938) in the month to August 12–the biggest fall in asking prices in a month since 2018–according to new data from Rightmove released on Monday.

The average price of property coming to the market fell on month to GBP364,895, outpacing the usual summer slowdown of a drop of 0.9% for the month, the online property portal said. On an annual basis, house prices fell 0.1%, swinging from growth of 0.5% in July.

This bigger-than-average dip indicates some sellers are taking the initiative to price competitively, and tempt buyers that might be more preoccupied with holidays, inflation and the highest interest rates since 2008, Rightmove said.

“While a 1.9% drop in just one month seems dramatic, it’s in part an expected seasonal drop as sellers coming to market realise that they have to compromise on price due to the traditionally quieter summer holiday period,” Rightmove property-science director Tim Bannister said.

First-time buyer asking prices slipped 0.9% on month to GBP223,614, and were down 0.2% on year. Second-stepper prices fell 0.8% on month to GBP338,137, while top-of-the-ladder homes fell furthest, slipping 3.4% to GBP664,756.

Agreed sales were 15% behind levels seen in the more normal, prepandemic year of 2019, worse than the month before which was 12% below 2019’s figure. First-time buyer demand, however, is holding up better and is down just 10% compared with 2019, partly due to record rents and scarce rental properties.

“The lower level of agreed sales compared to this time in 2019 indicates the affordability challenges that many buyers currently face. However, with sales holding up more strongly in the typical first-time buyer sector, the prospect [of] owning your own home remains an appealing option for those that can afford it, with the alternative being an extremely frenzied rental market, where rents are at record levels,” Bannister said.

The portal measured 123,692 prices across the U.K. over the period of July 9 to Aug. 12.

Write to Joe Hoppe at joseph.hoppe@wsj.com

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August 20, 2023

Nvidia, Lowe’s, Dollar Tree, and More to Watch

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The majority of second-quarter earnings season is over, with a handful of major technology and retail names left to report this week. Economists will be focused on any news from an annual gathering of monetary policy thinkers and practitioners in Jackson Hole, Wyoming.

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August 20, 2023
Buying a Home Is Getting Out of Reach. Those 7% Mortgage Rates Are the Reason Why.

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Buying a Home Is Getting Out of Reach. How Much 7% Mortgage Rates Need to Fall.

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August 19, 2023
What recession? The labor market is sizzling in these states.

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Not so long ago, many economists and very smart people were predicting that an economic recession would take place in the summer of 2023. In reality, the unemployment rate fell in seven states between June and July, and in most other states, the labor market remained strong, according to Bureau of Labor Statistics data released Friday.

The state with the lowest unemployment rate was New Hampshire, with a rate of 1.7%. Thirty-six states are at or below the historically low national unemployment rate of 3.5%, while 14 states, along with Puerto Rico and Washington, D.C., are above that level.

In four states — Vermont, Hawaii, Florida and Indiana — employment rose from the previous month. Employment in 46 states and Washington, D.C., was essentially unchanged, with the absolute number of new jobs or job losses being statistically insignificant.

The data are drawn from two different surveys: The unemployment rate is from the Local Area Unemployment Statistics program, which is a household survey, while data on nonfarm-payroll employment is based on a survey of employers and establishments.

To get another glimpse of the employment situation, see MarketWatch’s interactive that breaks down nonfarm employment by industry.

Check out the full list of states and their unemployment rates and employment statistics below.

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August 18, 2023
UK Retail Sales Fell in July Amid Wet Weather
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By Ed Frankl
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U.K. retail sales fell more than expected in July, driven by both declining food and nonfood purchases, with clothes sales especially suffering amid unseasonably wet weather in the month.

Retail-sales volumes ticked down 1.2% on month, a swing from the 0.6% increase in June, data from the Office for National Statistics showed Friday.
The reading was compares with expectations of a 0.4% decline in volumes from a consensus of economists polled by The Wall Street Journal.

Write to Ed Frankl at edward.frankl@wsj.com
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August 17, 2023
Mortgage rates could hit 8%, economists say, citing a worrying sign not seen since the Great Recession

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With mortgage rates firmly above 7%, homeownership has become much more expensive. But will rates go even higher?

Three experts told MarketWatch that if the economy continues to show signs of strength, and the U.S. Federal Reserve hikes its benchmark interest rate once again, rates could go up to 8%.

High rates have already taken a toll on the U.S. housing market. Even home builders, who have in recent months experienced strong demand from homebuyers, are reporting a drop in buyer traffic as those rising rates rattle their customers.

But experts also stressed that the U.S. economy is showing early signs of cooling, and that the rate of inflation is easing. That could lead to a slowdown — or even a drop — in mortgage rates. But such forecasts are not a guarantee, as Tuesday’s stronger-than-expected U.S. retail sales figures suggested.

How high can rates go?

Even though the 30-year fixed mortgage rate was averaging 7.26% as of Tuesday evening, the highest level since November 2022, economists say rates could go up further.

The 30-year is “at a critical stage,” Lawrence Yun, chief economist at the National Association of Realtors, told MarketWatch.

“If the 30-year-fixed mortgage rate can hold at a high mark of 7.2% — and the 10-year yield holds at 4.2% — then this would be the high for mortgage rates before retreating,” Yun said. “If it breaks this line and easily goes above 7.2%, then the mortgage rate reaches 8%.”

As of Tuesday afternoon, the 10-year Treasury note
BX:TMUBMUSD10Y
was above 4.2%.

“Mortgage rates could rise significantly if global investors demand higher yields for fixed-income assets,” Cris deRitis, deputy chief economist at Moody’s Analytics, told MarketWatch.

Currently, the spread between the 30-year fixed-rate mortgage and a 10-year Treasury bond is around 300 basis points, which is “elevated and highly unusual,” he said.

“‘Historically, the mortgage-rate spread has only been around this level only during periods of financial crisis such as the Great Recession or the early 1980s recession.’”

— Cris deRitis, deputy chief economist at Moody’s Analytics

“Historically, the mortgage-rate spread has only been around this level only during periods of financial crisis such as the Great Recession or the early 1980s recession,” deRitis added. “The historical average is closer to 175 basis points.”

If the 10-year continues to rise — and the U.S. Federal Reserve chooses to interest rates once again — it could go beyond 5%. If the spread stays elevated at 300 basis points, deRitis added, “a mortgage rate of 8% or more is a distinct possibility in the near term.”

Consumers seem to be prepared for 8% rates. In February, households surveyed by the New York Federal Reserve as part of its Survey of Consumer Expectations, found that they expect mortgage rates to rise to 8.4% by the following year, and 8.8% in three years’ time. Yet few saw the moment as an opportunity to buy.

To be clear, rates have been far higher in the past. In 1981, the 30-year mortgage rate went up to 18%, according to Freddie Mac
FMCC,
+31.97%.
That year, the rate of inflation was 10.3%, according to the Minneapolis Fed.

“So in theory, mortgage rates can go up as much,” Selma Hepp, chief economist at CoreLogic, told MarketWatch. “But I don’t think they’re gonna go much beyond where they are right now.”

The yearly rate of inflation in July was just 3.2%. There was runaway inflation in the early 1980s. Though the year isn’t over yet, it is highly unlikely that the rate will suddenly surge, as economists expect the cost of housing — one of the biggest drivers of inflation — to ease in the coming months.

What happens to housing if rates surge?

If the 30-year mortgage interest rate reached 8%, there would be serious consequences for the housing market, Yun said. “At 8%, the housing market will re-freeze, with fewer buyers and far fewer sellers,” he added.

But don’t expect high rates to hurt home prices just yet, Yun added: “As long as the job market doesn’t turn negative, then home prices will be stable — though home sales will take another step downward. If there is a job-cutting recession, then home prices will fall as some will be forced to sell while there are few buyers.”

Other experts said that high rates have already taken a toll on the U.S. housing sector. “A mortgage rate in excess of 6% has already sidelined a large number of potential homebuyers, especially first-time home buyers,” deRitis said.

He noted that the monthly mortgage payment for a median-priced home at the prevailing 30-year mortgage rate has risen from close to $1,100 per month in January 2019 to over $2,100 today. “At 8%, the monthly payment would rise to over $2,300, excluding an even larger number of potential buyers with above-average incomes,” deRitis added.

High rates also discourage homeowners from selling, since they may have to surrender an ultra-low mortgage with a low monthly payment for a high rate. They may end up with a smaller budget to purchase a home, or worse, not find any listings at all, given an ongoing inventory crunch.

With high rates, many home buyers may be priced out of the market. Yet some buyers — particularly baby boomers — who have the means to put in all-cash offers on homes are keeping home prices elevated, Hepp said.

So who would be able to buy and sell? Cash buyers. “They tend to be older people like baby boomers who own their homes free and clear,” she added. “If they live in more expensive areas, like anywhere in California, they can sell their home and walk away with in excess of $500,000. And that in some markets buys them two homes.”

deRitis said that the ultimate fate of home prices falls on the strength of the job market. Even though rates are high for now, home prices may not fall significantly, as some buyers can still purchase homes with cash, he added.

But “if the labor market should weaken and unemployment rise, home foreclosures would rise,” deRitis added, “placing downward pressure on home prices.”

“So the housing market is definitely suffering from high rates,” Hepp said. “But I think even higher rates would be pretty devastating for the housing market.”

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August 17, 2023
Housing market has hit ‘rock bottom,’ says Redfin CEO Glenn Kelman

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Housing market has hit ‘rock bottom,’ says Redfin CEO

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August 16, 2023