Economic sentiment increases slightly

Economic sentiment increased slightly over the last two weeks after falling for the first time in 2024 in the last report. The Penta-CivicScience Economic Sentiment Index (ESI) increased 0.3 points over the last two weeks to 37.1.

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Two of the ESI’s five indicators increased over the past two weeks. Confidence in buying a new home rose the most, increasing 2.0 points to 23.0.

—Confidence in making a major purchase rose 1.6 points to 27.1. This indicator, which also increased last period, has firmly recovered from its low point in October 2023 and is again at its highest point in over a year.

—Confidence in personal finances fell 0.3 points to 56.4.

—Confidence in the overall U.S. economy fell 0.5 points to 39.6.

—Confidence in finding a new job fell 1.4 points to 39.1.

The January 2024 jobs report showed that nonfarm payroll employment increased by 353,000 in January, while the unemployment rate stayed constant at 3.7 percent for the third consecutive month. This increase in employment can be attributed to higherings across industries. CNN reported that this gain “blew economists’ expectations out of the water,” with most forecasts predicting a gain of 176,500 jobs in January.

This stunning jobs report is believed to have cemented the Federal Reserves’ anticipated decision to refrain from cutting interest rates in March. In an appearance on 60 Minutes, Fed Chair Jerome Powell stated that rate cuts are “unlikely” to occur in March and expressed that the Fed needs to feel “more confident” that inflation is reducing before cuts occur.

These prospects of an early cut almost diminished following the release of the January consumer price index (CPI), which increased by 0.3 percent from December. This amounts to a 3.1% increase in the all items index over the past year, down from 3.4% in December.

Despite the stock market’s slight lull following Powell’s comments, the S&P continued to barrel past previous record highs, with the index closing above 5,000 for the first time on February 9.

Mortgage rates also reacted to the jobs report. The average 30-year fixed mortgage rate increased above 7% following the release of the report as the housing market reacted to the decreased likelihood that the Fed will cut the federal funds rate.

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The ESI’s three-day moving average began this two-week stretch at 34.6 on January 31. It then increased to 37.8 on February 3 before trending downward to 36.0 on February 7. The three-day moving average then increased to its highest point of 38.7 on February 11 before decreasing to 37.5 to close out the session on February 13.

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The next release of the ESI will be Wednesday, February 28, 2024.

Economic sentiment falls for the first time in 2024

The good vibes train of 2024 hit a speed bump over the past two weeks, as economic sentiment declined for the first time this year. The Penta-CivicScience Economic Sentiment Index (ESI) decreased 0.9 points to 36.8, during a two-week stretch that witnessed a deluge of media coverage around positive economic news.

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Four of the five of the ESI indicators decreased over the past two weeks. Confidence in personal finances and buying a new home fell the most, decreasing 1.5 points each to 56.7 and 21.0, respectively.

—Confidence in the overall U.S. economy fell 1.1 points to 40.1.

—Confidence in finding a new job fell 1.1 points to 40.5.

—Notably, confidence in making a major purchase rose 0.7 points to 25.5. This indicator, along with confidence in the housing market, was amongst the lowest performing in recent years, now stands at its highest point in more than twelve months.

The past two weeks can be characterized by extraordinary attention by the media on consumer sentiment. The University of Michigan consumer sentiment index rose 29% between November 2023 and January 2024, “the biggest two-month increase since 1991.” While the rise in sentiment may “seem to have come out of nowhere,” it follows positive GDP news from Q4 of 2023, declining gas prices and inflation in December, and optimism amongst consumers that mortgage rates will soon drop. The question now is whether the progress made on inflation will be sustained, or if geopolitical tensions–particularly in the Middle East–will put upward pressure on gas and shipping prices.

The Commerce Department reported that the U.S. economy grew at a pace of 3.3% from October to December 2023. Although this was a decline from the 4.9% GDP growth experienced in the third quarter of 2023, this marked the sixth consecutive quarter where GDP has grown at a pace of 2% or more.

Recent data also suggests a slowing of inflation in December, which coupled with continued robust consumer spending during the holiday season, has led some to expect the Federal Open Market Committee will leave interest rates unchanged at 5.25-5.5% during its meeting on Wednesday, January 31.  

Mortgage borrowing costs have been steadily declining in recent months, with the 30-year fixed mortgage to around 6.7%. Compared to October, when mortgage rates were roughly 7.8%, buyers have an additional $40,000 in purchasing power. 

The lower borrowing costs are helping fuel activity in the housing market, which had slowed significantly in 2023. According to the National Association of Realtors, pending home sales climbed 8.3% in December from November, the biggest increase since June 2020.

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The ESI’s three-day moving average began this two-week stretch at 36.2 on January 17. It then oscillated between increasing and decreasing before peaking at 38.3 on January 22. The three-day moving average then continued to oscillate, hitting its lowest point of 35.8 on January 27. It then trended upward to 37.9 on January 29 before finally falling to 35.9 on January 30 to close out the session.

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The next release of the ESI will be Wednesday, February 14, 2024.

The rally continues: economic sentiment increases to its highest point in over a year

Economic sentiment posted another strong increase over the last two weeks. Two things are significant about this latest reading: it represents the biggest single-reading jump in over a year (rising 2.2 points to 37.7) and the ESI now stands at its highest value since March 1, 2022.

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Just as in the last reading, all five of the ESI indicators increased over the past two weeks. Confidence in finding a new job rose the most, increasing 2.8 points to 41.6—the largest increase since June 2023.

—Confidence in buying a new home rose 2.7 points to 22.5.

—Confidence in personal finances rose 2.0 points to 58.2—its highest level in more than a year.

—Confidence in the overall U.S. economy rose 1.7 points to 41.2.

—Confidence in making a major purchase rose 1.4 points to 24.8.

The Labor Department reported that the U.S. economy added 216,000 jobs in December, a figure well above the 170,000 jobs economists projected. Meanwhile, the unemployment rate remained at 3.7% in December. These numbers point to the continued strength of the labor market as we continue into 2024.

The Labor Department also reported that the producer price index—a metric which tracks inflation before reaching consumers—fell 0.1% from November to December. Prices for final demand goods fell also 0.4% in December, this metric’s third consecutive decline. Finally, core wholesale prices, which omit volatile food and energy costs, remained steady from November and were up 1.8% year-over-year. These figures, which were lower than economists had projected, help to point to slowing inflation in the U.S. economy.

The Mortgage Bankers Association reported total mortgage application volumes increased 9.9% in the first week of 2024 compared to the last week of 2023. Additionally, refinance applications increased 19% the first week of 2024 from the last week of 2023. Although average mortgage rates are 39 basis points higher today than one year ago, they have fallen 26 basis points over the past four weeks—meaning there are some borrowers who can benefit from refinancing at current rates.

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The ESI’s three-day moving average began this two-week stretch at 36.7 on January 3. It trended downward to a low of 35.4 on January 6 before rising to a peak of 40.0 on January 9. It then trended downward to 35.9 on January 16 to close out the session.

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The next release of the ESI will be Wednesday, January 31, 2024.

Economic sentiment increases to its highest point since July 2023

Economic sentiment posted a strong increase to kick off 2024. The Penta-CivicScience Economic Sentiment Index (ESI) jumped 1.2 points to 35.5 over the past two weeks, rising to its highest point since July 2023.

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All five of the ESI indicators increased over the past two weeks. Confidence in the overall U.S. economy rose the most, increasing 3.8 points to 39.5—the second largest single reading increase in over a year.

—Confidence in making a major purchase rose 1.5 points to 23.4.

—Confidence in finding a new job rose 0.3 points to 38.8.

—Confidence in personal finances rose 0.3 points to 56.2.

—Confidence in buying a new home rose 0.5 points to 19.8.

The S&P 500 closed out 2023 just 0.6% shy of its all-time high from January 2022, logging a 24% gain in 2023. Additionally, the week ending on December 29th constituted the ninth consecutive week that the S&P rose, representing its longest string of increases since January 2004.

The U.S. economy is projected to have added 170,000 jobs in December, capping a year in which 2.7 million jobs were added. While data from the Department of Labor showed that new state unemployment benefit claims rose 12,000 the week ending on December 23, indicating a cooling market, the labor market has remained resilient overall.

The strong finish to 2023 and resilient labor market may continue into 2024 as forecasts remain optimistic—Bank of America is predicting a soft landing rather than a recession.

Meanwhile, Mastercard SpendingPulse reported that holiday sales from November 1 to December 24 increased 3.1% year-over-year. This year’s sales are consistent with what is typical for the holidays. However, this growth is slightly lower than the 3.7% increase Mastercard SpendingPulse had previously projected for this holiday season.

Freddie Mac reported on December 28 that the average 30-year fixed mortgage rate fell to 6.61%, its lowest point since June of 2023. This was the first time average rates fell below 7% since August, and more than a full percentage lower than the 30-year peak of almost 8% in late October.

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The ESI’s three-day moving average began this two-week stretch at 34.8 on December 20. It then rose to a peak of 37.0 on December 22 before trending downward to 33.8 on December 26. The three-day average then increased back up to a peak of 37.0 on December 28 then oscillated between increasing and decreasing before decreasing to 34.8 on January 2 to close out the session.

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The next release of the ESI will be Wednesday, January 17, 2024.

Economic sentiment decreases slightly

Economic sentiment declined over the last two weeks. The Penta-CivicScience Economic Sentiment Index (ESI) decreased 0.2 points to 34.3.

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Three of the five ESI indicators decreased over the past two weeks. Confidence in the overall U.S. economy fell the most, dropping 1.5 points to 35.7.

—Confidence in making a major purchase fell 0.7 points to 21.9.

—Confidence in finding a new job fell 0.5 points to 38.5.

—Confidence in personal finances rose 0.4 points to 55.9.

—Confidence in buying a new home rose 0.8 points to 19.3.

The Fed maintained the target federal funds rate at 5.25%-5.5% on December 13—the third time in a row the Fed held the rate steady. Meanwhile, Federal Chair Jerome Powell noted that “we believe that our policy rate is likely at or near its peak for this tightening cycle,” indicating that rate cuts may occur next year. After the Fed’s announcement, the Dow surged by over 400 points, exceeding the 37,000 for the first time.

The decision to hold rates steady coincides with a report from the Congressional Budget Office showing the U.S. economy is set to avoid a recession. The report projects the economy will grow 1.5% in 2024. However, it also expects unemployment to increase to 4.4% by the end of 2024 and to remain near that level through 2025.

The Labor Department reported that 199,000 jobs were added to the economy in November, although that number is bolstered by tens of thousands of autoworkers and actors who returned to work after strikes. Additionally, the unemployment rate dropped from 3.9% to 3.7%, and wages increased 0.4% throughout November.

Mortgage rates have declined for seven consecutive weeks, falling below 7% for the first time since mid-August the week of December 14. Along with the mortgage rate decreases, mortgage applications have been increasing, rising for a sixth straight week for the week ending December 8 according to the Mortgage Bankers Association, an indicator that demand may be rising.

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The ESI’s three-day moving average began this two-week stretch at 31.9 on December 6. It then rose to 35.3 on December 8 before trending downward to 33.2 on December 11. The three-day average then oscillated between increasing and decreasing before rising to a peak of 35.7 on December 18. The three-day average then fell slightly to 35.1 close out the session.

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The next release of the ESI will be Wednesday, January 3, 2023.