Hello, this is Claire Ellerhorst, Senior Portfolio Manager at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity indices finished last week notably higher, with the S&P 500 Index and Nasdaq Composite clocking their best weekly performance since June. The S&P 500 Index rose 4.8% in total return for the week, while the Nasdaq Composite jumped 5.2%. The Dow Jones Industrial Average rose 4.9% in total return, up over 1,000 points. Both gold and oil finished the week higher.
Technical factors and depressed sentiment were noted as possible drivers of last week’s rally, in addition to some slightly more dovish headlines in the Federal Reserve narrative. An article in the Wall Street Journal noted officials may entertain a 50-basis point rate hike in December, following their expected 75-basis point rate hike in November. San Francisco Fed President Daly and Chicago Fed President Evans warned of the risks of overtightening, though Cleveland’s Mester said she supports 75-basis point hikes at each of the next two meetings. Meanwhile, third quarter earnings season is in full swing. Themes in management commentary have included ongoing pressure from rising labor costs and supply chain issues, along with macroeconomic headwinds and weaker consumer demand.
In economic news, industrial production rose 0.4% in September, stronger than expected following a modest drop in the previous month. Capacity utilization, a measure of the manufacturing and production capabilities being utilized in the United States, unexpectedly rose to 80.3% last month. Homebuilding in the U.S. fell more than anticipated in September. Housing starts dropped 8.1% and data for the prior month was revised lower. Starts on single-family homes fell to the lowest level in over two years. Existing home sales fell 1.5% in September to a 10-year low. These housing figures reflect the impact of aggressive rate hikes by the Federal Reserve. The average 30-year fixed mortgage rate is now over 7%, compared to roughly 3% at the start of this year. Still, inventory levels continue to drop and tight supply continues to put upward pressure on housing prices.
In the week ahead, the economic calendar includes more housing market indicators. The Conference Board’s Consumer Confidence index for October is released Tuesday, a measure of the public’s confidence in the health of the U.S. economy. The release on personal consumption expenditures on Friday will provide another measure of inflation, including the Federal Reserve’s preferred measure. Economists expect the report to continue to highlight piping hot inflation, just ahead of the Fed’s next policy meeting the following week.
As always, we’ll be watching and reporting back to you. Thank you.