Retail Sales Fell 1.1% in December, Led Lower by Falling Auto and Gasoline Sales… While retail sales were up 6% in 2022, they ended the year on a down note.
What it means— Meh, probably not much. Gasoline sales fell 4.6% as the price of oil fell, and auto sales dropped 1.2% as interest rates climbed and customers still couldn’t get the models they wanted. In general, retailers did everything they could to get rid of their excess inventory during the holiday season, which included offering big discounts. Add to all of this the fact that we’re still rebalancing our spending from goods back to services, and you have a recipe for falling retail sales. What we don’t see are consumers refusing to purchase stuff, and unemployment is still at 50-year lows. As long as people remain employed and stores remain open, don’t expect retail sales to fall off of a cliff. However, household inflation remains problematic causing a cut back in spending decisions even for those with incomes over $100,000 which will take more time to enter the Fed’s data.
Bank of Japan Holds Band at 0.50%, and Then Tries To Tame the Front of the Yield Curve… On Tuesday, the Bank of Japan (BoJ) announced that it will keep the 10-year government bond yield trading in a band of -0.50% to 0.50%, and then on Wednesday the BoJ announced that it will offer variable-rate loans for up to 10 years to financial institutions.
What it means— The BoJ is trying to have it both ways. The bank wants the 10-year government bond yield to remain at 0.50% or below but doesn’t want the rest of the yield curve getting wonky as investors bid down the yield on the 10-year while letting yields on maturities near the 10-year and beyond trade way above that level. To that end, the BoJ arguably will offer loans at less than 0.50% that mature in five years to reshape the yield curve. It won’t work, but that’s the plan. The problem isn’t the yield on bonds, it’s the value of the yen versus the U.S. dollar and other currencies. As long as the BoJ holds interest rates artificially low, investors will leave the yen for other currencies that have higher interest rates. This creates inflation in Japan, a nation full of retirees who don’t want to see higher prices. Eventually, the BoJ will widen the trading band for the 10-year government bond yield, which will allow yen holders to earn more on their savings and will take pressure off of the currency.
Initial Jobless Claims and Continuing Claims Still Show Strength at 190,000 and 1.65M, respectively… Initial jobless claims fell to a four-month low, while continuing claims barely inched higher.
What it means— A lot of things might be happening in the economy, but rising unemployment isn’t one of them. Microsoft joined other tech firms when it announced layoffs this week adding engineers to the coming cuts. But, the initial jobless and continuing claims show that those who have lost their employment are quickly getting picked up elsewhere. This doesn’t fit the preferred Fed narrative of remaining hawkish until unemployment climbs above 4%, but if inflation abates, hopefully the central bankers will soften their view.
Housing Starts Fall 1.4% to an Annualized Rate of 1.38M… Housing starts dropped 21.8% over last year.
What it means— Single-family starts increased 11.3% last month, while multi-family starts fell 18.9% and building permits dipped below overall housing starts to 1.33M. Housing starts tend to be slow in December, so we shouldn’t make judgments based on any particular statistic, but the overall trend is lower activity. This won’t help the housing shortage, but it will keep prices elevated as buyers wait for mortgage rates to fall.
Existing Home Sales Fell 1.5% Last Month to 4.02M Annualized, Are Down 34% Since December 2022, and Are now at Slowest Pace Since November 2010… Total sales for the year were down 17.8% from 2021.
What it means— The standoff continues. Buyers aren’t yet comfortable with the sticker shock of higher mortgage rates, and sellers aren’t motivated to lower prices much. As a result, fewer units have changed hands and supply has dried up. Even though sales fell to the lowest level since the depth of the real estate crisis in 2010, inventory fell 13.4% last month, to just 970,000 units. Even at the current anemic sales pace, that puts inventory at just a 2.9-month supply, down from 3.3 months in November. The median sale price eased 2.3% to $366,900, roughly 11.5% lower than the record set last June but still 2.3% higher than in December 2021. While the impact of tech layoffs is global, the median price of Silicon Valley sales is -25% from the April peak.
It will be interesting to see what happens when the spring selling season gets underway. If the Fed signals at the February meeting that it might stand aside in the months ahead, then mortgage rates could fall close to 5.5% and give residential real estate a nudge.
From the “what was she thinking” category:
Michigan Woman ‘Catfishes’ Her 14-Year-Old Daughter… Kendra Licari’s 14-year-old daughter and the daughter’s 14-year-old boyfriend were harassed online for months with derogative statements about their relationship and themselves. In January of last year, Licari and the young man’s mother approached their school administrator to address it, but because the abuse did not happen on school property, the administrator referred the matter to the local sheriff. The abuse continued, adding up to hundreds of messages that addressed not only Licari’s daughter and her boyfriend but also other teens at their school. The more the sheriff investigated, the more it became clear that the perpetrator wasn’t a teen. After obtaining records from an app company, a texting service, and a cell phone service, the sheriff was able to determine what phone was used to send the messages. It belonged to Kendra Licari. She had assumed the identity of a teen, catfishing so she could bully the teens online. It’s not clear whether the intended targets were her daughter and the boyfriend, just the other teens, or all of them. However, it is clear that next month Licari either will face a trial or plead guilty.
Data supplied by HS Dent Research
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