Tag: price indices

U.S. adds robust 223,000 jobs in December, but wage growth slows in sign of ebbing inflation pressures

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The numbers: The U.S. generated 223,000 new jobs in December to mark the smallest increase in two years, but the labor market still showed surprising vigor even as the economy faced rising headwinds.

The unemployment rate, meanwhile, slipped to 3.5% from 3.6%, the government said Friday.

The jobless rate has touched 3.5% several times since 2019. That matches the lowest rate since 1969.

One good sign for Wall Street and the Federal Reserve. Hourly pay rose a modest 0.3% last month, suggesting wages are coming off a boil.

The increase in wages over the past year also slowed to 4.6% from 4.8%, marking the smallest gain since the summer of 2021.

U.S. stocks
DJIA,
-1.02%

SPX,
-1.16%
rose in premarket trades and bond yields edged higher after the report.

Economists polled by The Wall Street Journal had forecast a smaller increase in new jobs of 200,000.

The resilient labor market is a double-edged sword for the Federal Reserve.

For one thing, a scarcity of workers has driven up wages and threatens to prolong a bout of high inflation. The Fed wants the labor market to cool off further to ease the upward pressure on prices.

Yet the strong labor market also offers the best hope for the Fed to avert a recession as it jacks up interest rates to the highest level in years. Higher rates reduce inflation by slowing the economy.

James Bullard, president of the St. Louis Federal Reserve, said on Thursday the odds of so-called soft landing have gone up in part because of the sturdy labor market. He was referring to a Goldilocks scenario in which the central bank vanquishes inflation without causing a recession.

Senior Fed officials still want to see the jobs market slacken some more, however. They are likely to keep raising rates — and keep them high — until demand for labor, goods and services ease up.

Big picture: The U.S. economy has shown more fragility, especially in segments like housing and manufacturing that are sensitive to high interest rates. Many economists predict a recession is likely this year due to the higher cost of borrowing.

The Fed, for its part, is trying to thread the needle: Bring down high inflation and keep the economy out of recession.

Whatever the outcome, one thing is virtually certain: The unemployment rate is expected to rise as U.S. growth wanes. Whether it’s enough to help the Fed achieve is far from clear.

Key details: Health care providers, hotels and restaurants accounted for most of the increase in employment last month. They added a combined 150,000-plus jobs.

Hiring was weaker in most other sectors, suggesting that the labor market is likely to soften further.

High-tech has been hit particularly hard and is experiencing a wave of layoffs.

Employment in so-called professional businesses, which includes some tech, fell by 6,000, largely reflecting fewer temps being hired. It was the only major category to post a decline.

The share of working-age people in the labor force — known as the participation rate — rose a tick to 62.3%.. A lack of people looking for work is a chief source of the labor shortage.

Hiring in November and October was little changed after government revisions. The economy added 256,000 jobs in November and 263,000 in October.

Market reaction: The Dow Jones Industrial Average DJIA and S&P 500 SPX were set to open higher in Friday trades.

Investors worry a strong labor market will push the Fed to take sterner measures to slow the economy. The slowdown in hiring and wage growth is likely to be seen in a positive light.

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January 6, 2023

Eurozone Inflation Sharply Slowed in December as Energy Prices Dropped

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By Xavier Fontdegloria

Eurozone inflation eased by more than expected in December, reaching a four-month low, driven by moderating energy prices and action from governments to cushion households from rising utility bills.

Consumer prices rose 9.2% on year in December, easing from a 10.1% increase in November and the lowest level since August, according to preliminary data from the European Union’s statistics agency Eurostat published Friday.

The reading is below economists’ forecasts, who expected a 9.7% inflation rate in a poll by The Wall Street Journal.

Inflation reached 10.6% in October, the highest level since records began in 1997, but has fallen since then driven by lower energy prices amid unusually warm weather in most of Europe. Moreover, some countries such as Germany implemented in December a one-off subsidy for household energy bills, pushing down headline inflation further.

Energy prices in the eurozone moderated significantly in December, but were still 25.7% higher than the same month a year earlier, compared with a 34.9% increase in November. Food, alcohol and tobacco price inflation accelerated slightly to 13.8% from 13.6% a month earlier.

However, there were signs that price pressures persisted at year-end. The core inflation rate–which strips out the more volatile categories of food and energy–rose to 5.2% from 5.0% in November.

The European Central Bank raised interest rates at an unprecedented pace in 2022 in order to tame high inflation. Despite the recent slowdown in inflation, the bank said it expects to increase rates further in 2023 to ensure inflation falls back to its 2% medium-term target.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

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January 6, 2023

No Fed official expects an interest-rate cut to be appropriate this year, meeting minutes show

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None of the 19 top Federal Reserve officials expect it will be appropriate to cut interest rates this year, according to the minutes of the central bank’s December policy meeting, which were released Wednesday.

Fed officials welcomed recent inflation data that showed reductions in the monthly pace of price increases but wanted to see a lot more evidence of progress to be convinced inflation was on a sustained downward path, the minutes indicated.

Investors who trade in the federal funds futures market expect the Fed to start reducing interest rates this summer.

Fed officials said that if markets start to ease financial conditions, especially if driven by a misperception of how the Fed was responding to the data, that “would complicate” the Fed effort to restore price stability.

Officials downshifted to a 50-basis-point rate increase at the Dec. 13-14 meeting, after four straight moves of 75 basis points. That puts their benchmark rate in a range between 4.25% to 4.5%. A number of Fed officials said it was important to stress that raising rates at a slower pace was not a sign of any “weakening” in the Fed’s resolve to bring inflation down to 2% or a judgement that inflation was already on a downward path.

Seventeen of 19 Fed officials said they expected rates to rise above 5% this year. Officials penciled in the high end of the interest-rate range at 5.25%, with seven officials penciling in even higher rates.

This is well above market-based measures of Fed policy-rate expectations.

Earlier on Wednesday. Minneapolis Fed President Neel Kashkari said he would like to see the Fed hike interest rates to 5.4% before pausing.

Read: Fed’s Kashkari backs more rate hikes at next few meetings

Investors see the high end of the Fed’s interest-rate range hitting 5.25% this summer and then retreating.

Fed officials said upside risks to inflation remained a “key factor” in shaping policy.

The market expects the Fed to downshift to a 25-basis-point hike at their next meeting, slated for Jan. 31- Feb.1.

Officials said they are trying to balance two risks — doing too little and adding fuel to inflation and raising rates too high and and lead to an “unnecessary reduction” in economic activity.

Stocks
SPX,
+0.75%

DJIA,
+0.40%
were higher on Wednesday. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.687%
slipped to 3.7%.

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January 4, 2023
Dow futures jump more than 300 points as traders start 2023 on a bullish note
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U.S. stock index futures rose Tuesday as investors returned from the festive break in a generally bullish mood.

How are stock-index futures trading
- S&P 500 futures
  ES00,
  +0.49%
  advanced 41 points, or 1.1%, to 3902
- Dow Jones Industrial Average futures
  YM00,
  +0.42%
  gained 332 points, or 1%, to 33617
- Nasdaq 100 futures
  NQ00,
  +0.67%
  climbed 122 points, or 1.1%, to 11144
On Friday, the Dow Jones Industrial Average
DJIA,
-0.22%
fell 74 points, or 0.22%, to 33147, the S&P 500
SPX,
-0.25%
declined 10 points, or 0.25%, to 3840, and the Nasdaq Composite
COMP,
-0.11%
dropped 12 points, or 0.11%, to 10466. The Nasdaq Composite fell 33.1% in 2022, the largest one year percentage decline since 2008.

What’s driving markets

After Wall Street’s S&P 500 benchmark dropped nearly 20% in 2022, equity investors appeared determined on Tuesday to start the new year of trading on a positive note.

Activity in index futures was choppy, however, with the S&P 500 contract wobbling in a 55 point range in early-hours action.

“The calendar year may have changed, but the themes remain the same as the U.S. and U.K. markets reopen for 2023,” said Richard Hunter, head of markets at Interactive Investor.

“Recessionary concerns will again top the agenda, underpinned by high inflation and rising interest rates. This in turn could point to a troubled January as investors search for positive indications that the tightening policies of the central banks may begin to ease given weakening economic data,” Hunter added.

Indeed, the International Monetary Fund greeted the new year with a warning that a third of the global economy will suffer recession in 2023, a downturn that will likely trim corporate profits.

In addition, a burst of fresh strength in the U.S. dollar
DXY,
+1.16%
on Tuesday – a common reaction to global economic slowdown worries – was likely to further crimp earnings of U.S. multinationals.

Still, Julian Emanuel , strategist at Evercore ISI, reckoned that such concerns don’t necessarily mean stocks can’t rally.

“Forecasting an earnings recession in 2023 to accompany the economic recession that now seems inevitable, along with a 2023 year end S&P 500 price target of 4,150, would seem impossible,” he said in a note to clients.

“Yet not only is there a long history of earnings down/stocks up years (1970, 1982 and 1985 stand out, but there is also the tendency for strong stock/bond return years to follow historically forceful tightening cycles (1982, 1985) particularly in years (1995) following ‘havoc being wreaked’ on a 60/40 portfolio such as 2022’s declines.” Emanuel added.

Source: Evercore ISI

U.S. economic updates set for release on Tuesday include the December S&P U.S. manufacturing PMI at 9:45 a.m. and the November reading of construction spending at 10 a.m., both times Eastern.
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January 3, 2023
‘Five days that killed the year’: These trading sessions accounted for 95% of the S&P 500’s losses in 2022

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Just five trading sessions accounted for more than 95% of S&P 500 index losses in 2022, according to an analysis by Datatrek co-founder Nicholas Colas in a note published Wednesday, as stocks headed for their worst year since 2008.

He described them in the note as the “five days that killed the year”: Two were caused by disappointing inflation data, while the others were triggered by weak corporate earnings and commentary from Federal Reserve Chairman Jerome Powell.

September 13 (-4.3%)

On the worst day for stocks since 2020, the release of the August U.S. consumer price index report sent traders into a panic when the data showed annual headline and core inflation running hotter than expected.

The headline number came in at 8.3% for the 12 months through August, while core inflation — which strips out volatile food and energy prices — accelerated at 6.3%.

Economists and analysts were particularly rattled by the monthly core inflation number, which came in at 0.6%, double the expected rate of 0.3%, stoking concerns about stubbornly high housing costs as energy prices began to decline after earlier being the biggest driver of this year’s inflation.

May 18th (-4.0%).

Retail giant Target Corp.
TGT,
+0.04%
missed first quarter earnings expectations by a wide margin, elevating worries about the U.S. consumer’s ability to cope with inflation into a full-blown panic one day after Walmart Inc.
WMT,
-1.64%
highlighted similar concerns.

Adding to the pressure on the market, during an event hosted by the Wall Street Journal Powell acknowledged that “there could be some pain involved” as the FOMC raised interest rates.

June 13 (-3.9%)

This day’s punishing selloff was also triggered by the release of CPI data, as the numbers for the month of May came in higher than expectations. The S&P 500 finished the session in bear-market territory for the first time in 2022, down 21.8% from the record highs reached in early January.

April 29 (-3.6%)

The market’s decline on this day was also triggered by a corporate earnings disappointment. However, this time, the focus was on e-commerce, and the ripple effects sent many of the megacap technology stocks reeling.

Amazon.com Inc.
AMZN,
-1.16%
— which like both Target and Walmart is a member of the consumer discretionary sector of the S&P 500 — missed earnings expectations for the first quarter while reducing its guidance. The stock ended the day down 14%, its biggest single-session decline since 2006. Apple Inc.
AAPL,
-2.94%,
Microsoft Corp.
MSFT,
-0.68%
and Google owner Alphabet Inc.
GOOGL,
-1.48%
were also down sharply.

May 5 (-3.6%)

Markets tumbled one day after Powell assured investors during a post-meeting press conference that the Fed wasn’t considering interest-rate hikes of greater than 50 basis points. Of course, this statement didn’t age well, as the central bank went on to hike interest rates by 75 basis points at the following four consecutive meetings.

According to Colas, investors can glean some helpful insights about the root causes of this year’s market misery from these five sessions.

To wit, investors had clearly realized by the spring that stubbornly high inflation would force the Fed to raise its benchmark interest rate more aggressively than it was letting on. Also, inflated expectations for corporate earnings helped contribute to the pain as U.S. consumer spending waned.

U.S. stocks sold off far more often than they traded higher this year, a deviation from the historic pattern since World War II whereby stocks typically climb far more often than they fall. Through Tuesday’s session, the index fell during 141 trading days (including Tuesday), while finishing higher during 107 up days.

The S&P 500 was on track to finish 2022 down more than 20% as of midday on Wednesday as all three of the main indexes were trading in the red, with the S&P 500
SPX,
-1.03%,
Nasdaq Composite
COMP,
-1.20%
and Dow Jones Industrial Average
DJIA,
-0.88%
adding to their losses with just two more trading days left in the year.

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December 28, 2022
High U.S. inflation is on the wane, PCE price gauge shows

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The numbers: A key gauge of U.S. prices rose just 0.1% in November, marking the fifth month in a row in which inflation eased after peaking at a 40-year high over the summer.

The yearly rate of inflation, meanwhile, slowed to 5.5% in November from 6.1% in the prior month, based on the personal consumption expenditures index. That’s the smallest increase since October 2021.

Key details: The PCE index is viewed by the Federal Reserve as the best measure of inflation, especially the core gauge that strips out volatile food and energy costs.

The core index rose 0.2% last month, matching Wall Street’s forecast.

The increase in the core rate of inflation in the past 12 months relaxed to 4.7% from 5%. That’s also the lowest level since October 2021..

Unlike it’s better-known cousin, the consumer price index, the PCE gauge takes into account how consumers change their buying habits due to rising prices.

They might substitute cheaper goods such as ground beef for more expensive ones like ribeye to keep costs down. Or buy no-name denims instead of more fashionable jeans.

The CPI showed inflation rising at a 7.1% yearly rate in November.

Big picture: The rate of inflation is coming down, but not fast enough for the Fed.

The central bank is worried a prolonged bout of high inflation could spur workers to keep asking for higher and higher wages, making it harder to get prices back under control. The cost of labor is the biggest expense for most companies.

The Fed plans to raise interest rates even higher to slow the economy enough to alleviate upward wage pressures, a strategy that’s bound to raise unemployment and potentially trigger a recession.

Looking ahead: “The economy is moving in the right direction from the Federal Reserve’s perspective at the end of 2022, but not quickly enough,” said chief economist Gus Faucher of PNC Financial Services. “The Fed is concerned that strong wage growth will lead to persistent increases in services prices and high overall inflation.”

Read: Inflation appears to be slowing, but the Fed isn’t turning down the heat

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.53%
and S&P 500
SPX,
+0.59%
were set to open higher in Friday trades.

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December 23, 2022
Consumer spending barely rose at start of U.S. holiday shopping season

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The numbers: Consumer spending rose a tepid 0.1% in November, suggesting greater caution by households and heavy discounting in the holiday shopping season.

Analysts polled by The Wall Street Journal had forecast a 0.2% increase.

Incomes climbed 0.4% last month, the government said Friday, a bit faster than the rate of inflation.

Key details: Americans spent less on goods in November, especially new cars and trucks. Higher interest rates have put a dent in car sales while excess inventories forced companies to cut the prices of other products.

Consumers may have also started their holiday shopping early, economists say. Spending rose a sharper 0.9% in October.

Spending on services, meanwhile, increased again. Americans are spending more on things like recreation and travel and not buying as many goods as they were during the pandemic when they were cooped up at home.

The U.S. savings rate rate edged up to 2.4% last month from 2.2%, which was the second lowest savings rate on record going back to 1959.

Households have dipped into their savings to support their spending habits because incomes are not rising as fast as inflation.

The so-called PCE price index is up 5.5% in the past year. And the better known consumer price index has risen 7.1% in the same span.

Big picture: Consumer spending is the main engine of the economy, but it might be starting to sputter in the face of rising interest rates. The Federal Reserve has jacked up rates to try to tame inflation.

What’s likely to keep spending going up for the time being is a strong jobs market. If layoffs increase and unemployment rises, however, the economy is bound to suffer.

Higher borrowing costs depress the economy by making it more expensive to buy a home or car or take out a loan.

Looking ahead: “It seems reasonable to expect people to become more cautious, now that they have run down about half of their accumulated pandemic savings, and labor market conditions are softening,” said chief economist Ian Shepherdson of Pantheon Macroeconomics.

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.53%
and S&P 500
SPX,
+0.59%
were set to open higher in Friday trades.

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December 23, 2022

Canada Producer Prices Slip in November

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By Robb M. Stewart

OTTAWA–Producer prices in Canada eased in November, led by energy products, and Canadian companies paid slightly less for raw materials.

Statistics Canada’s industrial product price index fell 0.4% in November from the month before, when the index advanced 2.4%. On a 12-month basis, the producer-price index increased 9.7%.

Excluding energy products, producer prices were unchanged on-month in November, the data agency said.

Energy and petroleum products prices fell 2.7% from the month before, with prices for finished motor gasoline and diesel fuel both lower. Market data show that the downward trend continued into the first half of December, Statistics Canada said.

The price of softwood lumber was down for a fourth consecutive month in November, in part a reflection of a cooling housing market in Canada and the U.S., and prices for motorized and recreational vehicles also slipped from October, the agency said. Prices rose for primary non-ferrous metal products, in part due to the appreciation of the Canadian currency against the U.S. dollar.

The industrial product price index measures the prices that manufacturers in Canada receive once their goods leave the plant. It doesn’t reflect the final prices consumers pay for goods on store shelves.

The raw materials price index, which tracks prices paid by manufacturers, was down 0.8% from October, driven by a fall in crude energy products that more than offset the largest month-over-month increase in prices for natural gas since the agency began measuring the index in 1980. Compared with a year earlier, prices for raw materials were up 8.0% in November.

Annual consumer inflation held steady in October after peaking in June, Statistics Canada said last month. The agency will release November’s consumer-price index on Wednesday.

The Bank of Canada, like the Federal Reserve, has aggressively raised interest rates this year to tackle inflation but recently signaled the rate cycle may be coming to an end. The central bank this month again lifted its monetary policy rate, bringing the cumulative increase this year to 4 percentage points for a key rate of 4.25%, the highest level in almost 15 years.

Write to Robb M. Stewart at robb.stewart@wsj.com

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December 19, 2022

The Fed Is Making a Mistake—and the Stock Market Will Pay the Price

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We all make mistakes—but the Federal Reserve may be making a bigger one than most. That could mean another difficult year for the stock market in 2023.

Those concerns were front and center this past week, following the Federal Open Market Committee’s December meeting. The Fed didn’t do anything to surprise the market as it raised the federal-funds rate by a half-point, just as everyone expected, and suggested a terminal rate of just over 5%, a level investors had slowly come around to. But the dot plot reflected the Fed’s belief that rates would have to go high and stay high, while Chairman Jerome Powell continued to strike a hawkish tone.

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December 16, 2022
Swiss National Bank Slows Tightening Cycle With a 50 Basis Points Interest-Rate Rise

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By Xavier Fontdegloria

Switzerland’s National Bank on Thursday increased interest rates for a third consecutive time in as many meetings, but slowed the pace of rises as inflation pressures moderated.

The Swiss central bank increased its policy rate by 50 basis points, to 1.0%, after a larger increase of 75 basis points at its September meeting.

…

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December 15, 2022
Vanguard sees a recession in 2023 — and one ‘silver lining’ for investors

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The last 12 months was a year of fast-rising inflation, fast-rising interest rates and fast-rising questions about a future recession.

Prices went up while stock markets and savings account balances went down, leaving consumers and investors dizzy and their wallets hurting.

There may be more financial pain, that’s pretty sure — but it might not be as bad as feared, according to Vanguard’s look ahead to 2023.

The likely recession will not send jobless rates charging sharply higher, sticker shock will fade for the price of goods, and the rise in rent and mortgages will also ease, Vanguard said.

“On Tuesday, inflation data for November showed prices are continuing to cool. Analysts say that makes a 50-basis point increase, rather than a 75-basis-point increase, more likely.”

The good news: This opens up chances for stocks to rebound, the asset-manager added.

The outlook, released this week, comes as Americans are trying to guess what 2023 holds for their finances while they manage their holiday shopping budgets, and 2022 investments.

On Tuesday, inflation data for November showed prices are continuing to cool. From October to November, the cost of living nudged up 0.1%, lower than the 0.3% forecast, the Consumer Price Index showed. Year over year, the inflation rate receded to 7.1% from 7.7% in October, according to the CPI data.

On Wednesday, the Federal Reserve will announce its latest decision on interest rate increases. A 50-basis point increase is widely expected after four jumbo-sized 75-basis point hikes from the central bank.

Here’s one roadmap for what’s next, as far as Vanguard’s researchers and experts can see.

Hot inflation will cool

Inflation rates during 2022 climbed to four-decade highs. There have been signs of easing, such as smaller-than-expected price increases in October.

“As we step into 2023, early signs of a recovery in goods supply and softening demand could help balance supply and demand for consumption goods and bring prices lower,” the authors noted ahead of Tuesday’s CPI numbers.

But the cost and demand of services are going to prevent a quick fall, they noted. Signs of slowing price increases are already emerging in rents and mortgages, but they will take longer to ease than prices of consumer goods, the authors said.

That echoes the view from Treasury Secretary Janet Yellen, who said Sunday there will be “much lower inflation,” absent any unanticipated shocks to the economy.

But while hot inflation will cool, it will still be warm to the touch. The Fed says 2% inflation is its target goal; Vanguard sees 3% inflation by the end of 2023.

A recession is very much on the cards

As “generationally high inflation” slowed economies across the world, the Fed and other central banks have countered with interest-rate increases to tame price increases. That “will ultimately succeed, but at a cost of a global recession in 2023,” according to Vanguard’s report. Vanguard sees a 90% chance of a recession in the United States by the end of next year.

Vanguard is hardly alone in the recession call, so the question is how bad could the big picture look?

In Vanguard’s view, it’s not so bad. “Households, businesses, and financial institutions are in a much better position to handle the eventual downturn, such that drawing parallels with the 1970s, 1980s, 2008, or 2020 seems misplaced,” the authors wrote.

Job losses may be clustered

For now, the jobless rate in a tight labor market is 3.7%, which is just a little above the lowest levels in five decades. That stands against the headline-grabbing list of companies where layoffs are mounting, notably in the tech sector.

When a recession, in all likelihood, lands next year, “unemployment may peak around 5%, a historically low rate for a recession,” the Vanguard outlook said. As interest rates climb, the job losses “should be most concentrated in the technology and real estate sectors, which were among the strongest beneficiaries of the zero-rate environment.”

The unemployment rate going from 3.7% to the 5% vicinity is “a sizable move,” Roger Aliaga-Díaz, Americas chief economist for Vanguard, said in a Monday press conference on the report. “But it is less dramatic of a rise than compared to past recessions perhaps.”

Spotting the opportunities

When interest rates go up, bond prices go down. So it’s been difficult for bonds with lower returns and “near-term pain” for investors this year, the Vanguard outlook said.

“However the bright side of higher rates is higher interest payments. These have led our return expectations for U.S. and international bonds to increase by more than twofold,” the report said.

Vanguard said U.S. bond return projections could be 4.1% – 5.1% annually over the next year versus its 1.4% – 2.4% return estimate last year. For U.S. stocks, the forecast could be 4.7% – 6.7% annually, while returns in emerging market equities could be between 7% and 9%.

On Tuesday morning, stock markets are soaring higher on the cooler than expected inflation data, igniting hopes of an end of year Santa Claus rally.

“‘There’s one silver lining of our outlook for a modest global recession. And it’s the clear silver lining of higher expected returns for investors.’”

— Joseph Davis, Vanguard’s chief global economist

Still, the Dow Jones Industrial Average
DJIA,
+0.30%
is down nearly 5% year to date. The S&P 500
SPX,
+0.73%
is off 14% in that time and for the Nasdaq Composite
COMP,
+0.38%
is down more than 26%.

When the market hits bottom is impossible to know, the outlook said — but it noted “valuations and yields are clearly more attractive than they were a year ago.”

“There’s one silver lining of our outlook for a modest global recession. And it’s the clear silver lining of higher expected returns for investors,” said Joseph Davis, Vanguard’s chief global economist.

“We’re long concerned that the low rate environment was both unsustainable and ultimately a tax and a headwind for savers and long term investors,” Davis said.

But even with all the turbulence this year, “we certainly are starting to see the dividends to higher real interest rates around the world in the higher projected returns that we anticipate for investors over the coming decade.”

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December 13, 2022
Investors Grow More Confident Fed Will Pull Off a Soft Landing

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Investors Grow More Confident Fed Will Pull Off a Soft Landing

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December 11, 2022
U.S. consumer sentiment improves in December as inflation worries ease

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The numbers: The University of Michigan’s gauge of consumer sentiment rose to a preliminary December reading of 59.1 from a November reading of 56.8.

Economists polled by the Wall Street Journal had expected a December reading of 56.5.

Inflation expectations over the next year fell to 4.6% from 4.9% last month. It is the lowest since September 2021. Five-year inflation expectations remained steady at 3%.

Key details: A gauge of consumer’s views of current conditions rose to 60.2 in December from 58.8 in November, while an indicator of expectations for the next six months rose to 58.4 from 55.6 last month.

Big picture: Economists think falling gasoline prices are behind the improvement in confidence.

The national average retail price for a gallon of gas is now $3.33, down $1.69 from June, according to White House data.

Still, high inflation has consumers remain in a relatively dour mood. The index is only marginally above the record low of 50 in June. By comparison, the consumer sentiment index was 101 in February of 2020.

Looking ahead: “High prices coupled with ongoing aggressive rate hikes will be a headwind for consumers and sentiment going forward,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

Market reaction: Stocks
DJIA,
-0.90%

SPX,
-0.73%
were higher on Friday on the back of hotter-than-expected wholesale inflation in November. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.583%
rose to 3.54%.

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December 9, 2022
U.S. wholesale price inflation picks up in November, but is lower for year

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The number: U.S. wholesale prices rose 0.3% in November, the Labor Department said Friday.

Economists polled by The Wall Street Journal has forecast a 0.2% gain.

This is the third straight 0.3% monthly gain in the PPI index. Inflation in October and September was also revised up from the prior estimate of a 0.2% gain.

The core producer price index, which excludes volatile food, energy and trade prices, also rose 0.3% in November, up from a 0.2% gain in the prior month.

The increase in producer prices over the past 12 months slowed to 7.4% gain from 8.1% in the prior month. This is down from the peak of 11.7% in March.

Over the past year, core prices rose 4.9%, down from 5.4% in October.

Key details: The cost of energy fell 3.3% in November after a 2.3% gain in the prior month.

Food prices jumped 3.3% after a 0.8% increase in the prior month.

The cost of trade services jumped 0.7% in November after two straight monthly declines.

Big picture: Although hotter than expected in November, inflation at the wholesale level is showing steady deceleration from the peak in March.

The market is more focused on consumer price inflation report, which will be released next Tuesday, one day before the Fed’s decision on interest rates.

Market reaction: Stock futures
DJIA,
-0.25%
turned lower on the upside surprise to the monthly gain. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.533%
jumped to 3.5%.

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December 9, 2022
Inflation and credit-card debt are on the rise, despite a strong job market. Tell us how the economy is affecting you.

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We want to hear from readers who have stories to share about the effects of increasing costs and a changing economy. If you’d like to share your experience, write to readerstories@marketwatch.com. Please include your name and the best way to reach you. A reporter may be in touch.

For many people living in the U.S., these are tough — and confusing — times.

On Friday, the Labor Department reported 263,000 new jobs in November, while the unemployment rate held steady at 3.7%. Layoffs remain low, despite mass job cuts in the tech sector. Average hourly wages have also risen 5.1% in the past year, but still lag behind inflation for many workers. And there were 10.3 million job openings in October — slightly down from the previous month’s 10.7 million.

Some people might see the latest economic data as both challenging and confusing.

After all, the cost of living rose 7.7% on the year in October. The once red-hot housing market is finally cooling, thanks to mortgage rates that have more than doubled over the last year amid the Federal Reserve’s attempts to rein in inflation, and rents, while moderating, have surged from pre-pandemic levels. Borrowing money to cover increased precarity is becoming more expensive too, with the average credit-card APR at 19.2% as of Nov. 30, according to Bankrate.

“‘It’s just mind-boggling, the disconnect that we’ve seen.’”

Given all the conflicting signals, economists say it can be difficult for consumers to know exactly how to feel about the economy right now. “It’s not new, this disparity between the actual facts on the ground about what’s going on in the economy and the sentiment,” said Heidi Shierholz, president of the Economic Policy Institute, a left-leaning think tank.

“I remember this summer it was just unambiguously the strongest jobs recovery we’ve had in decades,” she added. “There’s just absolutely zero chance that we were in a recession — not only were we not in a recession, we were in just an extraordinarily fast recovery — and the polling, a huge share of people actually thought we were in a recession. It’s just mind-boggling, the disconnect that we’ve seen.”

Still, the fact that inflation is eating into people’s savings — and that essential goods like food, energy and housing have spiked in cost — is bound to make many people unhappy.

Struggling to pay for rent and food

“Going into the pandemic, more than seven out of every 10 extremely low-income renters were already spending more than half of their income on rent. And then the pandemic hits; we saw a lot of low-wage workers lose their jobs and see an income decline,” said Andrew Aurand, vice president for research at the National Low Income Housing Coalition. “Then in 2021, we see this huge spike in prices. For a variety of reasons, they’ve struggled for a long time, and since the pandemic, it’s gotten even worse.”

Moderate-income Americans are struggling too. Maybe you can’t afford your favorite family meals, as the price of grocery store and supermarket purchases has jumped by 12.4% from last year. Or maybe you’re putting off a trip to see family this holiday season thanks to the higher cost of airfare, or you’re worried about losing your job as some business leaders warn of a recession. Perhaps you’re forced to rely on credit cards and personal loans, as credit-card debt is up 15% from a year ago.

MarketWatch has chronicled many of these changes, detailing renters’ frustrations, families’ tough choices at the grocery store, and the reality faced by would-be home buyers sidelined by higher rates and dwindling affordability.

But we would like your help telling an ongoing story about the American economy, centering the experiences of everyday people. Our readers know better than anyone about how today’s economic conditions have impacted their daily lives.

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December 2, 2022
Fed eyes slower rate hikes as recession threat grows

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Senior officials at the Federal Reserve expect smaller increases in interest rates will “soon be appropriate” as the threat of recession grows.

Although the Fed still expects rates to rise higher than previously forecast, senior officials are unsure just how much further they will go. Slower rate hikes, they say, would give them more time to evaluate the “lagging” effects on the economy amid the rising threat of a recession.

“Short of some wild inflation report before the next meeting, 50 basis points sounds very reasonable in December. But the Fed is clearly not finished yet.”

The Fed’s economic staff for the first time said a recession was possible in the next year, according to a detailed summary of the bank’s last strategy session in early November.

The bank’s previous minutes have not mentioned the possibility of a recession.

The main U.S. stock gauges
SPX,
+0.59%

DJIA,
+0.50%
extended gains after the release of the Fed minutes.

The Fed has quickly raised a key U.S. interest rate to a top range of 4% from near zero last spring in an effort to tame high inflation. Rising rates tend to reduce inflation by slowing the economy and depressing demand for goods and labor.

Yet some economists and senior officials at the Fed also worry the central bank could spark a recession or a period of prolonged economic weakness if rates go too high.

Some members said there was an increasing risk that the Fed’s actions “would exceed what was required” to bring inflation down to acceptable levels.

In recent speeches, a few have suggested a “pause” in rate hikes might be warranted by early next year to see how they affect the economy. A rapid easing of inflationary pressures could strengthen their case.

The rate of inflation exploded earlier this year to a 40-year high of 9.1% from almost zero during the early stages of the pandemic. It has since slowed to 7.7%.

Earlier this month, the bank lifted the so-called fed funds rate by three-quarters of a point to a range of 3.75% to 4% — the third big rate increase in a row. Most U..S. loans such as mortgages and car loans are tied to the fed fund rate.

In December, the Fed is likely to raise rates again, but markets are betting on a smaller 1/2-point increase. The minutes also suggest a smaller rate hike is likely.

“Short of some wild inflation report before the next meeting, 50 bps sounds very reasonable in December,” senior economist Jennifer Lee of BMO Capital Markets said. “But the Fed is clearly not finished yet.”

Senior Fed officials have repeatedly said they plan is to further raise rates in 2023 and then keep them high for an unspecified period of time to make sure inflation declines.

Officials are less unified on just how high rates will go. Some want to stop at around 5% while others suggest they might need to go higher.

Wall Street expects the Fed to raise its benchmark rate to 5% by next year.

The Fed’s aggressive posture stems from the biggest surge in prices since the early 1980s.

The Fed is aiming to bring down inflation to pre-pandemic levels of 2% or so, but they acknowledge it could take a while.

Several Fed members also expressed worries that non-traditional financial institutions could amplify the problems for the U.S. economy if higher rates exposed them to greater instability.

The troubles at the crypto-currency firm FTX were emerging just as the Fed meeting took place.

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November 23, 2022
U.K. inflation hit fresh four-decade high of 11.1% in October

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U.K. inflation accelerated in October, reaching a fresh four-decade high, as higher wholesale energy prices fed through households’ utility bills.

The U.K.’s Office for National Statistics said Wednesday that consumer prices were 11.1% higher in October than a year earlier, more than the 10.1% rise registered in September.

This is the highest rate of inflation since February 1982, and beats the 10.9% consensus forecast from economists in a poll by The Wall Street Journal.

The jump in inflation was mainly due to higher energy prices, which increased for most households even as the U.K. government implemented an energy price cap from Oct. 1. Electricity prices rose 65.7% on year, up from the 54% increase registered in September. Gas prices soared 128.9% compared to a year earlier, outstripping the 95.7% the prior month.

The core price index–which excludes volatile categories such as food and energy–increased 6.5% in October on year, unchanged from September.

The Bank of England expects inflation to remain around 11% in the fourth quarter, and to moderate slightly toward 10% in 2023’s first quarter.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

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November 15, 2022
Fed’s Waller says market has overreacted to consumer inflation data: ‘We’ve got a long, long way to go’

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Federal Reserve Gov. Christopher Waller said Sunday that financial markets seem to have overreacted to the softer-than-expected October consumer price inflation data last week.

“It was just one data point,” Waller said, in a conversation in Sydney, Australia, sponsored by UBS.

“The market seems to have gotten way out in front over this one CPI report. Everybody should just take a deep breath, calm down. We’ve got a ways to go ” Waller said.

Investors cheered the soft CPI print, released Thursday, driving stocks up to their best week since June. The S&P 500 index
SPX,
+0.92%
closed 5.9% higher for the week.

The data showed that the yearly rate of consumer inflation fell to 7.7% from 8.2%, marking the lowest level since January. Inflation had peaked at a nearly 41-year high of 9.1% in June.

Waller said it was good there was some evidence that inflation was coming down, but noted that there were other times over the past year where it looked like inflation was turning lower.

“We’re going to see a continued run of this kind of behavior and inflation slowly starting to come down, before we really start thinking about taking our foot off the brakes here,” Waller said.

“We’ve got a long, long way to go to get inflation down. Rates are going keep going up and they are going to stay high for awhile until we see this inflation get down closer to our target,” he added.

The Fed is focused on how high rates need to get to bring inflation down, and that will depend solely on inflation, he said.

Waller said “the worst thing” the Fed could do was stop raising rates only to have inflation explode.

The 7.7% inflation rate seen in October “is enormous,” he added.

The Fed signaled at its last meeting earlier this month that it might slow down the pace of its rate hikes in coming meetings.

The central bank has boosted rates by almost 400 basis points since March, including four straight 0.75-percentage-point hikes that had been almost unheard of prior to this year.

“We’re looking at moving in paces of potentially 50 [basis points] at the next meeting or the next meeting after that,” Waller said.

The Fed will hold its next meeting on Dec. 13-14, and then again on Jan. 31-Feb. 1.

At the same time, Powell said the Fed was likely to raise rates above the 4.5%-4.75% terminal rate that they had previously expected.

“The signal was ‘quit paying attention to the pace and start paying attention to where the endpoint is going to be,’” Waller said.

In the wake of the CPI report, investors who trade fed funds futures contracts see the Fed’s terminal rate at 5%-5.25% next spring and then quickly falling back to 4.25%-4.5% by November. That’s well below the levels prior to the CPI data.

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November 13, 2022
Is the stock market open? Veterans Day is a regular day for U.S. stocks, but the bond market is closed.

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The stock market remains open Friday, Nov. 11, the Veterans Day holiday in the U.S., even through it counts as a holiday for the $53 trillion American bond market.

That means a full day of trading for stocks, which appear poised to book a robust week of gains, despite continued fears of a potential U.S. economic recession as the Federal Reserve works to tame stubbornly high costs of living.

Signs of a potential cooling off on the inflation front led the Dow Jones Industrial Average
DJIA,
+3.70%
to advance 1,200 points on Thursday, with it, the S&P 500 index
SPX,
+5.54%
and Nasdaq Composite Index
COMP,
+31.35%
all booking their best daily gains since 2020.

Don’t miss: Veterans Day: Are banks open? Does USPS deliver mail?

While Friday marks the start of a three-day weekend for the bond market, Treasury yields already have climbed dramatically this year with the Fed’s sharp rate hikes. The central bank aims to temper demand for goods and services by making borrowing costs more restrictive.

Consumers may feel certain effects of inflation in their everyday lives, like when they go to the grocery store. But it can also impact our savings and investments. Here’s what to know.

The benchmark 10-year Treasury rate
TMUBMUSD10Y,
3.819%
fell to about 3.8% on Thursday, but was up from a 1.3% low last December. Bond yields move in the opposite direction of prices.

The fresh rally on Wall Street followed the consumer-price index reading for October showing a 7.7% annual rate, down from a 9.1% high in June. The Dow remains down more than 8% from its January peak, the S&P 500 is 17.5% lower and the Nasdaq is 31% below its last record close, according to Dow Jones Market Data.

Veterans Day was born out of the wreckage of World War I, with Nov. 11 recognized as a legal holiday in the U.S. in 1938, two decades after an armistice between the Allied nations and Germany went into effect at the 11th hour of the 11th day of the 11th month.

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November 11, 2022
What NASA knows about soft landings that the Federal Reserve doesn’t

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The Federal Reserve still has a chance to meet both of its main goals — strong economic growth and stable prices — but time is running out to achieve a soft landing.

The problem is that Fed officials are fixated on raising interest rates
FF00,
+0.00%
several more times, including another supersize increase at their meeting Tuesday and Wednesday. They don’t seem to notice that inflation is already retreating significantly, while growth is dangerously close to stalling out.

They have a blind spot because they are looking at the past.

Greg Robb: Another jumbo Fed rate hike is expected this week — and then life gets difficult for Chairman Powell

Fed officials ought to reach out to another government agency that has had remarkable success in achieving soft landings: The National Aeronautics and Space Administration.

NASA’s scientists know something the Fed has forgotten: It takes a long time to send and receive messages from space, so they need to account for those delays when sending instructions to their spacecraft so they can land safely on Mars, or orbit Saturn or the moons of Jupiter.

Compounding errors

It’s the same way with the economy. The signals that the Fed receives from the economy are often delayed, sometimes by months. Unfortunately, one of the main signals the Fed is relying upon right now to decide how much to raise interest rates is delayed by a year or more.

I’m talking about inflation in the price of putting a roof over our heads. Shelter prices are now the leading contributor to increases in the consumer price index (CPI) and the personal consumption expenditure (PCE) price index. But because of the way the CPI for shelter is constructed — for very good reasons — the inflation reported today reflects conditions as they were 12 to 18 months ago.

The error is compounded because shelter prices are by far the largest component of the CPI, at more than 30%.

The Fed is disappointed that inflation hasn’t declined more since it began raising interest rates in March, but how could it when the signals about shelter prices were sent last summer and fall, long before the housing market began to cool in response to higher interest rates
TMUBMUSD10Y,
4.049%
and the reductions in the Fed’s holdings of mortgage-backed securities?

According to real-time data, shelter prices are no longer rising at a near-10% annual rate as the CPI and PCE price index claim. Growth in rents and house prices has slowed since the first rate hikes in March. House prices are actually falling in most regions of the country, and private-sector measures of rents show that landlords are now dropping rents in many cities.

Just like a radio signal from Jupiter, it takes time for that message to be received by the CPI. It will be received and incorporated into the CPI eventually, but by then it may be too late for the Fed to react. The Fed might crash the spacecraft because it mistakenly believes the messages it gets are in real time.

Growth is slowing

The Fed’s blind spot puts the economy in peril. Recent data show that growth is naturally slowing from the breakneck pace following the pandemic shutdowns but also from the Fed’s relentless squeeze on financial conditions.

It’s very hard to argue that the economy is still overheating. Domestic demand has stalled out since the spring. Final sales to domestic purchasers — which covers consumer spending and business investment — has grown at a 0.3% annual pace over the past two quarters.

Real disposable incomes are growing at less than 1% annualized. Household wealth has fallen off a cliff, with the stock market
SPX,
-0.41%

DJIA,
-0.24%
in a bear market and home equity beginning to fall. Wage growth is beginning to slow. Supply chains are improving.

And the CPI excluding shelter has gone from rising at a 14% annual pace in the spring when the tightening began, to falling at a 1% annual pace over the past three months. Rate hikes are working!

This benign picture on inflation may not persist. Inflation is still worrisome, particularly for essentials such as food, health care, new vehicles and utilities.

But the Fed should adopt a more balanced view of the economy, no matter what the signals from the past say. No one wants a hard landing.

Just ask NASA.

More reported analysis from Rex Nutting

Everybody is looking at the CPI through the wrong lens. Inflation fell to the Fed’s target in the past three months, according to the best measure.

The Federal Reserve risks driving the economy into a ditch because it’s not looking at where inflation is heading

Americans are feeling poorer for good reason: Household wealth was shredded by inflation and soaring interest rates

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November 1, 2022