Mixed Housing Data and Upside Inflation Surprise
n a light week for economic data, market participants continued to digest last week's slew of strongerthan-expected reports. Retail sales and manufacturing production surprised to the upside, while the Consumer Price Index rose at its fastest pace since October. While seasonal factors likely boosted some of these headline figures, the string of beats raises the potential for more aggressive moves from the Federal Reserve. As discussed in Interest Rate Watch, the minutes of the last FOMC meeting (released on Wednesday) underscored the Committee's resolve to bring down inflation and suggest more members may be drifting toward the hawkish camp.
One sector that has acutely felt the effects of the FOMC's policy tightening thus far is housing. Existing home sales fell 0.7% to a 4.0 million-unit annualized pace in January. The slip marks the 12th consecutive month that sales have declined and brought the year-over-year change down to an alltime low of -36.9%. The pullback in sales has helped to cool off home price appreciation. The median single-family home price was $363,100 in January, down nearly 14% from its recent peak of $420,900 in June 2022. Inventory remains low by historical standards but edged up slightly in January as the spring selling season starts to get under way. This year will likely be different than last year—to learn more, join a webinar with our real estate economists on Wednesday, March 1 as they discuss the housing market outlook for 2023.
Meanwhile, new home sales leaped 7.2% in January to a 670,000-unit annualized pace, the highest since March. The median new home sales price was $427,500 during the month, which is down 0.7% over the year. The price decline likely reflects home builders offering interest rate buy-downs and sale price discounts to move inventory. For-sale inventory totaled 439,000 units at the end of January, down nearly 3% over the month.
Despite the bite of high mortgage rates and still-elevated home prices, brighter days may be ahead for housing demand. Strong labor market conditions have supported real income growth, and recent upward revisions to personal income suggest households have more purchasing power than previously thought. Specifically, fourth quarter personal income was lifted by $185B and the third quarter was revised higher by roughly $108B. The positive revisions meant consumers came into the year with a bit more dry powder, likely driving the 1.1% jump in real personal spending in January. Solid spending in discretionary categories, such as food services & accommodations (+4.6%), recreation services (+1.4%) and transportation services (+0.9%), is a sign of the continued resilience of household spending.
While strength in real consumption is a positive development, it also adds pressure to inflation. The core PCE deflator, which excludes food and energy, rose a higher-than-expected 0.6% in January. The increase bumped the year-over-year percent change to 4.7%, up from 4.6% in December, which is well-above the FOMC's 2% inflation target.
This Week's State Of The Economy - What Is Ahead? - 04 December 2020
Wells Fargo Economics & Financial Report / Dec 09, 2020
Manufacturing held up relatively well in November, despite a larger-than-expected dip in the ISM manufacturing survey. The nonfarm manufacturing survey rose slightly.
This Week's State Of The Economy - What Is Ahead? - 07 August 2020
Wells Fargo Economics & Financial Report / Aug 11, 2020
There were more signs of global recovery this week and PMI surveys improved further across the world.
This Week's State Of The Economy - What Is Ahead? - 12 August 2022
Wells Fargo Economics & Financial Report / Aug 13, 2022
The FOMC has made it clear that it needs to see inflation slowing on a sustained basis before pivoting from its current stance. The data seems to be going in multiple directions all at once.
This Week's State Of The Economy - What Is Ahead? - 05 June 2020
Wells Fargo Economics & Financial Report / Jun 09, 2020
Data this week continued to suggest the U.S. economy hit rock bottom in April. Still, it is a long road to recovery and the pickup in economic activity will be gradual.
This Week's State Of The Economy - What Is Ahead? - 17 February 2023
Wells Fargo Economics & Financial Report / Feb 20, 2023
Inflation in the U.K. receded for the third straight month in January, with the headline rate coming in at 10.1% year-over-year. In bad news, this is still five times the Bank of England\'s 2% target.
This Week's State Of The Economy - What Is Ahead? - 20 November 2020
Wells Fargo Economics & Financial Report / Nov 24, 2020
The international economic news over the past week has been somewhat mixed. On the positive side, China’s October data showed ongoing growth in manufacturing and firming retail and service sector activity.
Rising COVID-19 Cases Put A Damper On Re-openings
Wells Fargo Economics & Financial Report / Jun 27, 2020
The rising number of COVID-19 infections gained momentum this week, with most of the rise occurring in the South and West. The rise in infections is larger than can be explained by increased testing alone and is slowing re-openings.
This Week's State Of The Economy - What Is Ahead? - 31 July 2020
Wells Fargo Economics & Financial Report / Aug 11, 2020
The resurgence in COVID-19 in much of the Sun Belt appears to have topped out, although cases are rising faster in some smaller mid-Atlantic states and in parts of Europe, Asia and Australia.
This Week's State Of The Economy - What Is Ahead? - 10 June 2022
Wells Fargo Economics & Financial Report / Jun 13, 2022
CPI increases continue to sizzle like this weekend’s temperature, putting consumers in a worse mood than Texas Rangers fans (with their 9.5 games back $500 million middle infield).
28 January 2021 Economic Outlook Report
Wells Fargo Economics & Financial Report / Feb 08, 2021
In our recently released second report in this series of economic risks, we focused on the potential of demand-side factors to lead to significantly higher U.S. inflation in the next few years.
