Weekly Economic Update – Thanksgiving Week: Leading Economic Indicators; Existing Home Sales; Durable Goods; and Consumer Sentiment

The views and opinions expressed in this post are solely those of the author and do not necessarily reflect the views of the Georgia Institute of Technology or the Georgia Board of Regents.

This is a short week given that Thanksgiving is on Thursday. Rather than try to send out the update on Friday, I am posting on Wednesday and will catch-up any data released on Friday next week.

In addition to the regular economic data this week, we also got the minutes of the last Federal Open Market Committee (FOMC) meeting. The minutes supported my position that 1) the Fed may not be done raising rates, and 2) that the early 2024 rate cuts that everyone seems to be taking as fact may not be so absolute. In short, the Fed see rates “remaining restrictive for some time (i.e., don’t expect those mortgage rates to drop any time soon) as they see upside risks to inflation and downside risks to growth.

Leading Economic Indicators

Speaking of “downside risks to growth”, the Conference Board (a global nonprofit think tank and business membership organization) maintains a set of leading, current, and lagging economic indices for the U.S. economy. As each name implies, they are designed to provide a future view, a current view, and a backward view into the state of the U.S. economy. The index of leading economic indicators traditionally moves in a downward trend prior to a recession (graph below – gray bars indicate “official” recessions). In October, the index dropped 0.8% for the 19th consecutive monthly decline. 19 months. In other words, the index has been forecasting a recession since March 2022. Not once since the index began in 1959 has it experienced such a decline without the economy moving into a recession.

Existing Home Sales

The National Association of Realtors reported on Tuesday that sales of existing homes fell to a 13-year low of 3.79 million units on an annual basis. Existing home sales have fallen for 5 months in a row and show no indication of changing direction. However, the median sales price of an existing home ROSE to $394,500! So, even with fewer sales, prices are still rising.

Simply put, people are simply not going to put their home on the market and move unless they absolutely have to. And the reason is obvious….the average rate on an existing mortgage is now up to 3.825%, but still far lower than the 7.62% average 30-year mortgage rate for October. People aren’t willing to drop their low-rate mortgage for one with nearly twice the loan rate.

And even with the high mortgage rates, home prices are sticky and are not coming down. The difference between the cost to buy vs. rent has widened considerably over the past two years, which is driving many people out of the housing market as owning a home has simply become far too expensive.

Durable Goods

Given the fact that orders for durable goods exploded in September, it isn’t surprising that they they posted a significant decline of 5.4% in October. Year-over-year, new orders were up only 0.3%, and that is NOT adjusted for inflation, so in real terms, they were down from a year ago. Overall defense orders fell 11.6%, led by a decline in defense aircraft spending of 30.9%. Core durable goods (durable goods less transportation) were virtually flat, as they have been for the past four months. (Core capital goods shipments are used to calculate equipment investment in the quarterly GDP report.)

Consumer Sentiment (Final)

Two weeks ago we got the preliminary numbers on consumer sentiment for the month of November. On Wednesday morning, the Univ. of Michigan released the final reading for the month, and the numbers on consumers feelings about the economy improved slightly from the preliminary numbers, but are still down from October as consumers continue to express concerns about high prices, high interest rates, wars in both Gaza and Ukraine, as well as domestic politics. Across age cohorts, younger and middle-aged consumers exhibited strong declines in their attitudes about the economy.

While the sentiment numbers improved slightly from the preliminary reading, consumers inflation expectations for the next year worsened, rising to 4.5%. While consumers do not see inflation subsiding in the short-term, what is even more concerning is that now, they don’t see it subsiding in the medium 5-10 year term either. Average annual inflation expectations for the medium term rose to 3.2% which is the highest reading since 2011.

And a Note of Thanks…

As we approach Thanksgiving, I want to take a moment to say “thank you” to all those who have subscribed to this weekly update. And to everyone that has dropped me a kind note or e-mail, or made a positive comment on LinkedIn, or even “Liked” a post, I want you to know how much I appreciate your comments.

It was suggested that I start this little weekly blog back in August, because of all the questions I regularly get on the state of the economy. It occurred to me that some people may find it helpful and, based on your comments, it appears that several of you do. And to those who do, I would like to ask you for a small favor…send it someone else who might find it informative. As of today, there are only 64 subscribers to this weekly update. MAYBE another 2-3 read it weekly on my website, alfie.com (where it is also posted every week). I would really like to try to get to 100 subscribers before the end of the year. Putting this little update together each week is a lot more work that I realized when I began, and the more people that sign up, the more it encourages me to keep it going. It is free after all, so pass it along and hopefully I’ll be able to keep it going every week in 2024.

Thanks again for reading. I hope you and your family have a very Happy Thanksgiving.

— Alfie