Inflation Eases

A flood of major economic data delayed by the government shutdown was released this week. The biggest surprise was that CPI inflation was much lower than expected. The reaction to this data was small, however, and mortgage rates ended the week just slightly lower.

Although this annual rate has dropped sharply from a peak of 6.6% in September 2022, it is still well above the readings around 2.0% seen early in 2021, which is the stated target level of the Fed. Overall prices are up about 25% since January 2020, more than double the roughly 10% increase seen in the prior five-year period. Some economists have noted that the latest inflation reading may have been skewed downward by the data collection period which began later in the month than usual due to the government shutdown. Companies generally discount their goods more heavily later in November for the holiday shopping season, possibly lowering average prices more than would have been seen during the normal collection period. 

Against a consensus forecast of 50,000, the economy added 64,000 jobs in November. Particular strength was seen in health care, construction, and social assistance. However, the unemployment rate unexpectedly increased from 4.4% to 4.6%, the highest level since September 2021. Lessening its impact, though, the Bureau of Labor Statistics warned that the household survey which is used to calculate the unemployment rate will be affected for several months by the disruption in data collection during the shutdown. Average hourly earnings, an indicator of wage growth, were 3.5% higher than a year ago, down from an annual rate of 3.8% last month. 

In November, sales of existing homes rose slightly from October, close to expectations, to the highest level in nine months. The median price of $409,200 was up a slim 1% from last year at this time. Inventories remain stuck at low levels, standing at just a 4.2-month supply nationally, below the roughly 6-month supply typical in a balanced market. However, inventories were 8% higher than a year ago. First-time buyers represented 30% of sales, well below typical historical levels of around 40%.

Looking ahead, investors will continue to monitor comments from Fed officials for hints about monetary policy next year. With the end of the shutdown, the schedule for the release of delayed government economic reports continues to be gradually updated. GDP, New Home Sales and Consumer Confidence are scheduled to be released on Tuesday. Mortgage markets will close early on Wednesday and will be closed on Thursday for Christmas.