Volume 183: Week ending January 20, 2024

Retail sales show holiday shopping ended on a strong note
The 0.6% rise in retail sales in December was stronger than anticipipated, suggesting retailers ended the holiday shopping season on a high note.  Robust sales drove December sales at department stores and online retailers.

With spending at restaurants and bars flatlined, Oxford Econmics estimates consumption in inflation-adjusted terms rose by 0.3% last month, which would leave consumption growth at 2.5% for Q4, a slowdown from Q3 but still a strong pace.

Spending is expected to slow in 2024 as employment growth weakens and household savings rebound.

Source: Oxford Economics, U.S. Census

Manufacturing sector struggles, even as consumption growth remains strong.
In December, manufacturing output increased by 0.1%, but the sector ended the year without significant improvement. Motor vehicle output contributed to this small gain after the UAW strike, but it is still 2.5% below pre-strike levels. Other manufacturing areas saw a decline, including a 1.2% drop in machinery output.

Recent manufacturing surveys, especially the significant decline in the January Empire State survey, suggest a weaker outlook for the sector. However, these surveys have been overly pessimistic and volatile in the past year.

While further weakness in manufacturing is anticipated, it's more likely to continue stagnating than experience a sharp decline.

Source: Capital Economics

Fed’s Beige Book finds signs of a cooling labor market across most of the country
According to a Federal Reserve survey, there were signs that the labor market was cooling in nearly all regions of the country.

The survey, known as the Beige Book, is a collection of anecdotes from business contacts collected before Jan. 8.

The contacts spoke of larger applicant pools, lower turnover rates, more selective hiring by firms and easing wage pressures.

Cooling wages, in particular, would help keep inflation on a downward path.

Fed officials will meet at the end of the month to plot interest-rate policy. They use the Beige Book to get a sense of conditions on the ground.

Source: MarketWatch

Mortgage Rates Expected to Dip Below 6 Percent in 2024, Boosting Home Sales
Fannie Mae's Economic and Strategic Research Group predicts that the housing market will gradually return to a more stable state in 2024. They anticipate a decline in mortgage rates, falling below six percent by the end of the year.

Lower rates are expected to increase refinance volumes and improve existing home sales, which may reach 4.5 million units by Q4 2024, up from 3.8 million in Q4 2023. However, due to ongoing affordability challenges, a full recovery to pre-pandemic sales rates will take time.

Despite this, new single-family home construction is forecasted to surpass 2023 levels. Overall, the market is expected to see more modest home price growth in 2024, at 3.2 percent compared to 7.1 percent in 2023.

The ESR Group’s latest forecast continues to project a slowdown in economic growth in 2024; however, it now anticipates a brighter economic backdrop compared to previous months, having replaced its call for a modest recession with positive-but-below-trend growth in 2024.

“In 2024, we expect home sales and mortgage origination activity to begin a gradual recovery in the presence of a slow-growing economy,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.

Source: Fannie Mae

Market Watch

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