As we approach the update of the Chicago Fed National Activity Index (CFNAI) set for Monday, December 21, a slight increase is anticipated in the three-month average. This forecast, averaging several econometric estimates from The Capital Spectator, predicts a value of -0.14, signaling a modest improvement from the prior month. Currently, this suggests that U.S. economic activity continues to remain slightly below the historical trend rate of growth. It’s important to note that only values falling beneath -0.70 hint at an “increasing likelihood” of the onset of recession, as outlined by guidelines from the Chicago Fed. Based on the current average projection for November, the CFNAI’s three-month average appears to reflect an expansion that is moderately below the historical trend but still above the threshold indicating the start of a new U.S. recession.
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While the manufacturing sector may be showing signs of recession, the labor market remains surprisingly robust—a key takeaway from recent economic updates. Whether this unusual relationship can be sustained is uncertain, but for now, it keeps the recession risk categorized as a low-probability event, according to the latest numbers. Given the current emphasis on payroll data, any dip in job growth at this juncture could pose a challenge. However, recent reports, including the weekly update on new unemployment benefit claims, indicate that this isn’t an imminent concern.
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● U.S. jobless claims decrease from a five-month peak | MarketWatch
● Examining Janet Yellen’s rate hike “gamble” | Telegraph
● Philly Fed manufacturing index drops into negative territory for December | RTT
● U.S. Leading Economic Indicator sees an uptick in November | RTT
● U.S. consumer economic expectations stabilize in December | Bloomberg
● Mexico raises its key interest rate following Fed’s hike | Bloomberg
In a significant move, the Federal Reserve increased its target range for the federal funds rate by 25 basis points, bringing it to 0.25% to 0.50%, marking the first hike in nine years. The Fed attributed this decision to the “considerable improvement in labor market conditions this year” and the expectation that inflation “will rise over the medium term to its 2 percent goal.” However, the economic data remains mixed, highlighted by conflicting U.S. macroeconomic updates reported yesterday. Housing starts showed a strong recovery in November, yet industrial production fell by 0.6% last month—the largest decline in over three years—resulting in an annual contraction exceeding 1%.
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● Fed increases target rate by 25bps, marking the first hike in nine years | WaPo
● Minimal adjustments in the Fed’s updated median macro forecasts | Federal Reserve
● U.S. housing starts and building permits show recovery in November | NY Times
● U.S. industrial output plummets in November; manufacturing remains flat | MarketWatch
● U.S. Manufacturing PMI drops to a three-year low in December | Markit
● German business sentiment dips but remains elevated | Reuters
This morning, three economic reports were released, serving as the final data points ahead of the Federal Reserve’s policy statement, which is slated to unveil the first interest rate hike in nearly a decade. How do these latest figures compare? Overall, the results present a mixed picture. Housing starts experienced a significant rebound in November, while industrial output continued to show weakness last month. Additionally, the preliminary December data for Markit’s purchasing managers’ index for manufacturing indicates growth, although the upward trend appears to be faltering. Will this data convince the Fed to postpone the rate hike once again? Only time will tell, but let’s quickly review the latest figures before the Fed announcement.
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Anticipation builds as the Federal Reserve is expected to announce a rate hike during its policy statement today at 2:00 PM Eastern Time. Indicators such as Fed fund futures and the 2-year Treasury yield suggest that today could mark the beginning of the central bank’s interest rate increases after a nine-year hiatus.
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● U.S. consumer inflation remains flat in November, rising 0.5% year-over-year | USA Today
● NY Fed manufacturing index remains negative, though contraction moderates in December | MarketWatch
● U.S. homebuilder confidence dips in December but remains elevated | The Hill
● Eurozone Composite PMI declines to a two-month low in December | Markit
● German Composite PMI slips to a two-month low in December | Markit
● UK unemployment rate falls to 5.2%, the lowest since 2008 | Bloomberg
● German investor sentiment improves slightly in December | RTE
Forecasts for U.S. industrial production are optimistic, with expectations of a slight recovery, rising 0.1% in the upcoming report for November compared to the previous month. This differs from the previously reported decline of 0.2% in October, according to The Capital Spectator’s average point forecast based on multiple econometric models.
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According to forecasts, housing starts are likely to rebound to a seasonally adjusted annual rate of 1.100 million units in the November update. This estimate represents a modest increase compared to the previous month’s data on residential construction activity, as evaluated by The Capital Spectator’s average of several econometric estimates.
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In recent economic discussions, the focus has notably shifted toward a variety of reports reflecting the current health of the U.S. economy. In particular, the impending updates from the Chicago Federal Reserve and insights from various sectors provide a draft of what’s to come in the following months.
As we observe the adjustments in industrial production, housing starts, and employment statistics, it becomes evident that while some sectors appear wobbly, others showcase resilience. The overall landscape is mixed; however, with targeted interest rate changes and their implications, all eyes are on the Federal Reserve and upcoming reports as indicators of future economic conditions.
