Positives
1)The December CPI fell one tenth headline while up .3% core and both were exactly as anticipated. Versus last year, headline inflation rose 6.5% and the core rate was higher by 5.7% with both a slowdown from the 7.1% and 6% seen in November, respectively. Energy prices fell 4.5% m/o/m, though still up 7.3% y/o/y. Food prices grew by .3% m/o/m and a still robust 10.4% y/o/y. With respect to services, prices ex energy rose .5% m/o/m and 7% y/o/y (40 yr high) with higher rents (lagging here as we know relative to reality) continuing to filter in. On the goods side, core goods prices fell again by .3% m/o/m and the y/o/y gain is now only 2.1%.
2)The Cleveland Fed’s 16% trimmed CPI for December rose .4% m/o/m but the y/o/y slowed to 6.5% from 6.7% in November and 7% in October.
3)Initial jobless claims were little changed but at a still low level of 205k vs 206k in the week before. The 4 week average fell to 213k from 214k, the lowest since mid October. Those continuing to collect claims fell by 63k w/o/w.
4)The initial January UoM consumer confidence index rose to 64.6 from 59.7, 4 pts better than expected and the highest since April 2022. It still remains though well below the February 2020 print of 101. Most of the contribution to the gain came from the Current Conditions component which rose almost 9 pts m/o/m. Expectations grew by 2 pts. One yr inflation expectations further moderated to 4% from 4.4% and that is the least since April 2021. Longer term inflation expectations though have been steady, up one tenth to 3% which is back to the most since June 2022. Employment expectations were little changed but just off the lowest since 2011. Income expectations did rise. Thanks to the reduced inflation expectations and rise in income, the mean % of expecting family income will beat inflation did rise to the highest since April 2022 at 37.4 vs 43.5% in February 2020. We can also thank the lower inflation thoughts on the improvement in spending intentions for autos, major appliances and homes. The UoM said, “Still, a sizable 36% of consumers cited high prices for the erosion of their living standards, though this share declined to its lowest point since April 2022.” And, “Consumers also continued to note rising borrowing costs; for the 3rd straight month, over 30% of consumers spontaneously mentioned high interest rates weighing down buying conditions for durables, vehicles, or homes.” Finally, “2/3rds of consumers expect an economic downturn in the year ahead, reflecting how low sentiment remains despite recent improvements.”
5)In the December NY Fed’s Consumer Expectations Survey, inflation expectations moderated by .2% m/o/m to 5% and that is the least since July 2021 while 3 yr expectations were unchanged at 3% and 5 yr rose one tenth to 2.4%. Expectations for gas, food, rent and education prices all slipped but rose slightly for medical care.
6)After rising by 16 bps in the week ending Dec 30th, the average 30 yr mortgage rate fell by a like amount in the following week to 6.42%. With very little activity in the last 2 weeks of the year, refi’s rose 5.1% w/o/w but are still down 44% y/o/y.
7)Fannie Mae released its monthly Home Purchase Sentiment Index and it rose 3.7 pts m/o/m to 61 in December “but the index remains only slightly above its all time low set in October.” Of the survey’s 6 components, 3 rose, that being home buying conditions, mortgage rate outlook and job security.” Because of a still challenging affordability situation, just 21% said it’s a good time to buy.”
8)The Bank of Korea raised rates by 25 bps to 3.50% as expected but the internal vote was very mixed with two of six wanting to do nothing implying this could be one of the last hikes for now. That said, Governor Rhee said “I don’t think it’s right to interpret from this decision that the rate will be frozen.”
9)China reported its December trade data but it’s impossible to parse out the influence of massive covid spread and how it clogged everything up. Exports fell 10%, a touch less than the estimate of down 11%. Imports were lower by 7.5% vs the forecast of down 10%.
10)In the Eurozone Sentix Investor Confidence index, the current situation was unchanged but expectations rose. Sentix said “There is a glimmer of hope for Asia at the start of the year: expectations for the Asia ex Japan region (especially China) are rising dynamically. The end of the restrictive Corona measures in China is generating hopes of better times ahead.” As for the current situation, Sentix said “the economic environment remains challenging.”
Negatives
1)The Atlanta Fed’s sticky CPI rose 6.7% y/o/y in December, the highest in this cycle and vs 6.6% in November. The core sticky print was 6.6%. The ‘flexible’ not sticky basket saw inflation slow to 7.3% y/o/y from 9.9% in November and 11.6% in October.
2)The NFIB December small business optimism index dropped to 89.8 from 91.9 and that is the lowest since June 2022 and a hair from the weakest since 2013. The NFIB chief economist said “Overall, small business owners are not optimistic about 2023 as sales and business conditions are expected to deteriorate. Owners are managing several economic uncertainties and persistent inflation and they continue to make business and operational changes to compensate…”Owners continue to call inflation their top business problem, lamenting the cost increases for their inputs (inventory, supplies, labor, energy, etc.) which compel them to raise their selling prices to cover the costs.”
3)Import prices surprisingly rose in December by .4% m/o/m vs the estimate of down .9%. Ex petro import prices were higher by .8% m/o/m vs the forecast of down .3%.
4)Purchase applications were lower by .5% w/o/w to the lowest since 2015 and down now 44% y/o/y. Versus last yr, headline prices rose by 3.5% and by 2.4% ex petro or 1.7% ex food and fuel. If dollar weakness continues, it will be more expensive to import stuff.
5)Cass Freight said its December shipments index fell 3.9% y/o/y and by 3.3% m/o/m but that’s non-seasonally adjusted. Adding that change saw a 1.2% m/o/m gain. Cass Freight said “With retail sales broadly growing in line with inflation rates, it’s clear that peak holiday shipping volumes were flattish in real terms vs a year ago. Normal seasonality from here would have shipments back in positive territory y/o/y in 1H ’23, but sharpening declines in imports, into the West Coast in particular, suggest near term trends may soften further.” The inferred freight rate in December saw a .4% y/o/y drop and by 2.2% m/o/m. “Aside from some noise in this series as a result of fuel prices and modal mix, the trend has clearly turned lower over the course of 2022 and is poised to continue in this direction in the near term.”
6)Another wild week in the JGB market ahead of next week’s BoJ meeting.
7)Prices keep rising in Japan as measured by the Tokyo December CPI (a precursor to the national report) as headline inflation rose 4% y/o/y as expected and by the same amount ex food which was 2 tenths above the estimate. Taking out both food and energy saw prices up 2.7% as forecasted but that is the biggest increase since 1992 if we take out the influence of VAT hikes. The headline rise is the most in 40 years.
8)I was sad to hear the Lisa Marie news.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.