Bad week to be a bird, good week for economic sentiment

Economic sentiment rallied heading into Thanksgiving and Black Friday weekend, on the back of a blockbuster jump in confidence in the overall US economy. The Penta-CivicScience Economic Sentiment Index (ESI) increased 1.7 points to 33.7 after having fallen to its lowest point in over a year last reading.

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Four of the five ESI indicators increased over the past two weeks. Confidence in the overall U.S. economy increased the most, rising 5.4 points to 36.5—its largest increase in more than a year.

—Confidence in personal finances rose 2.5 points to 54.3.

—Confidence in making a major purchase rose 1.0 points to 21.2.

—Confidence in finding a new job rose 0.1 points to 38.4.

—Confidence in buying a new home fell 0.7 points to 17.7—its lowest point in over a year.

The Commerce Department reported that retail sales fell 0.1% in October from the prior month, the first monthly decline since March. Despite declining, the figure was less than economists’ forecasts of a 0.3% drop.

Data released by the Department of Labor showed the overall Consumer Price Index decreased to 3.2% in October, lower than the 3.7% in September and the lowest figure since July. Following the release of the inflation data, the stock market saw a significant jump as hopes that the Federal Reserve’s campaign to slow inflation may be near its end.

The strong data lends credence to the growing belief that the U.S. economy is heading towards a soft landing. Goldman Sachs reaffirmed its view that the probability of a recession presently sits at just 15% over the next 12 months.

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The ESI’s three-day moving average began this two-week stretch at 33.6 on November 8. It trended downward to a low of 31.2 on November 12 before rising to 35.0 on November 16. The three-day average then fell to 34.5, rose to a peak of 35.3, and fell to 33.9 to close out the session.

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The next release of the ESI will be Wednesday, December 6, 2023.

Economic sentiment falls to its lowest point in over a year

Economic sentiment declined over the last two weeks, falling to its lowest point in over a year. The Penta-CivicScience Economic Sentiment Index (ESI) decreased 1.1 points to 32.0.

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Four of the ESI’s five indicators decreased over the past two weeks. Confidence in personal finances decreased the most, falling 1.9 points to 51.8.

—Confidence in making a new purchase fell 1.7 points to 20.2.

—Confidence in buying a new home fell 1.6 points to 18.4.

—Confidence in finding a new job fell 0.5 points to 38.3.

—Confidence in the overall U.S. economy rose 0.2 points to 31.3.

The U.S. Bureau of Economic Analysis reported that U.S. gross domestic product rose at a seasonally-adjusted annualized rate of 4.9% in the third quarter of 2023. The blockbuster number was bolstered by strong consumer spending in the late summer, a trend that is unlikely to continue apace in Q4 as consumers continue to deplete household savings. Total U.S. credit card debt stood at a record $1.08 trillion at the end of Q3, a 4.7% increase quarter-over-quarter.

In the housing market, the “lock-in-effect” (the idea that because of the cheap mortgages many Americans recently received, they are now unwilling to sell and get a higher mortgage rate on a new home) has only worsened as the 30-year mortgage rate is close to 8%, the highest rate in nearly a quarter century. Coupled with relatively high home prices—existing home prices rose for seven straight months—the lock-in-effect helps explain why U.S. existing home sales sank to their lowest level since 2010 in September.  

After months of beating expectations, the hot labor market began to slow as the U.S. added 150,000 jobs in October, only half of September’s growth and the smallest monthly increase since June. Revised August and September job growth estimates also showed a combined 101,000 fewer positions added those months than previously reported.

Meanwhile, the unemployment rate rose slightly from 3.8% in September to 3.9% in October. These metrics represent a cooling in the labor market that some attribute to high interest rates, rising inflation, and the conflict in the Middle East. 

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The ESI’s three-day moving average began this two-week stretch at 33.2 on October 25. It trended downward to a low of 30.5 on October 28 before rising to 32.9 on October 30. The three-day average then wavered between 31.1 and 31.7 between November 1 and November 4 before increasing to a high of 34.3 on November 6. The moving average then fell to 33.9 to close out the session.

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The next release of the ESI will be Wednesday, November 22, 2023.

Economic sentiment rebounds

Economic sentiment increased over the past two weeks, rebounding after falling to its lowest point since October 2022 last reading. The Penta-CivicScience Economic Sentiment Index (ESI) increased 1.0 points to 33.1.

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Four of the ESI’s five indicators increased over the past two weeks. Confidence in making a major purchase increased the most, rising 2.6 points to 21.9.

—Confidence in finding a new job rose 1.9 points to 38.8.

—Confidence in personal finances rose 1.4 points to 53.7.

—Confidence in the overall U.S. economy rose 0.3 points to 31.1.

—Confidence in buying a new home fell 0.9 points to 20.0.

The Commerce Department’s third-quarter GDP report, which will be released Thursday, October 26, is expected to show strong economic growth from July to September. EY Parthenon reports that job growth and consumer spending likely increased real GDP about 5% annualized in Q3. However, EY Parthenon reports that this growth will likely be tempered going forward by surging bond yields, the restart of student loan payments, and global economic uncertainty, among other metrics.

The U.S. labor market remains strong—employers added 336,000 jobs in September, a significant rise from 227,000 in August and 236,000 in July. 198,000 Americans applied for unemployment benefits the week ending October 14, a decrease of 13,000 from the previous week’s revised level. 

The strong labor market and continued hiring is helping to fuel new spending—monthly retail and food-service sales were up 0.7% in September. According to estimates from Ian Shepherdson, chief economist at Pantheon Macroeconomics, the rise of inflation-adjusted incomes from December to June pushed the household savings rate up in the second quarter before falling in the third as households started to use their savings, which also helped to increase spending. 

Meanwhile, the average rate on the 30-year fixed mortgage rate hit 8% the morning of October 18. Interest rates have been above the 7% mark since August of this year, the highest level since the early 2000s. 
Due to high interest rates, existing home sales were down 15.3% from August 2022, according to the National Association of Realtors (NAR). At the same time, the median sale price of existing homes was up 3.9%.

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The ESI’s three-day moving average began this two-week stretch at a low of 30.9 on October 11. It trended upward to 34.0 on October 16 before falling to 31.8 on October 19. The three-day average then trended upward to a peak of 35.5 on October 22 before falling to 34.3 on October 24 to close out the session.  

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The next release of the ESI will be Wednesday, November 8, 2023.

Economic sentiment reaches lowest point since October 2022

Economic sentiment decreased over the past two weeks, reaching its lowest point since October 11, 2022. The Penta-CivicScience Economic Sentiment Index (ESI) fell 0.9 points to 32.1.

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Four of the ESI’s five indicators decreased over the past two weeks. Confidence in finding a new job and in making a major purchase decreased the most, falling 1.9 points each, to 36.9 and 19.3 respectively.

—Confidence in the overall U.S. economy fell 1.5 points to 30.8.

—Confidence in buying a new home fell 0.1 points to 20.9.

—Confidence in personal finances rose 0.7 points to 52.3.

Kevin McCarthy’s removal as Speaker of the House could cause economic trouble. Before the vote to remove McCarthy was finalized on October 3rd the stock market was already down as U.S. Treasury yields rose to their highest levels in over a decade—worrying investors that higher borrowing rates could further stall the housing market.

The need for the House to elect a speaker adds another obstacle to overcome before tackling the spending battle. Some on Wall Street fear that a government shutdown may shake consumer confidence, while Moody’s—the last of the three major credit rating agencies to assign the U.S. a rating of AAA—said a shutdown could threaten the U.S.’ credit rating. 

In addition to the rising Treasury yields and a potential government shutdown, the autoworkers strike continues to impact the economy, costing an estimated $4 billion in economic losses over its first two weeks.

After signs that the labor market was cooling, the U.S. economy beat expectations and added 336,000 jobs in September and the unemployment rate remained steady at 3.8%. All three major stock indexes rose after the release of the jobs report on October 6.

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The ESI’s three-day moving average began this two-week stretch at 32.0 on September 27. It rose to 33.2 on September 28 before falling to a low of 30.1 on October 3—the day Kevin McCarthy was removed as speaker of the House. The three-day average then trended upward to a peak of 33.8 on October 8 before falling to 33.5 on October 10 to close out the session. 

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The next release of the ESI will be Wednesday, October 25, 2023.

After one rise, economic sentiment resumes downward trajectory

Economic sentiment decreased over the past two weeks, having now fallen for three of the past four readings. The Penta-CivicScience Economic Sentiment Index (ESI) fell 0.4 points to 33.0.

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Four of the ESI’s five indicators decreased over the past two weeks. Confidence in the overall U.S. economy decreased the most, falling 1.4 points to 32.3.

—Confidence in making a major purchase fell 1.3 points to 21.6.

—Confidence in finding a new job fell 0.4 points to 38.8.

—Confidence in personal finances fell 0.2 points to 51.6.

—Confidence in buying a new home rose 1.5 points to 21.0—rebounding after reaching its lowest point since November 2022 last reading.

America is facing a government shutdown, an auto workers strike, the resumption of student loan payments for 45 million borrowers, rising oil prices, and high borrowing costs. While a shutdown on its own likely would not sink the economy, the convergence of these challenges is driving skittishness. 

EY Parthenon predicts that each week of the government shutdown alone will cost the U.S. economy $6 billion and will decrease GDP growth by 0.1 percentage point in Q4 (in annualized growth terms). Additionally, a Bank of America report expects that the auto strike itself will most likely decrease GDP growth by 0.1 to 0.2 percentage points per week.

The Federal Reserve opted not to raise interest rates on September 20, holding the rates unchanged within the range of 5.25% to 5.5%. This move signals growing confidence in the possibility of a soft-landing, although the Fed is expected to raise rates one more time in 2023.  

Labor market tightness continues, even as job growth cools. A Department of Labor report showed that initial claims for state unemployment benefits dropped by 20,000, from 221,000 to 201,000 claims for the week that ended January 16. 

However, there could be a sharp increase in claims as the United Auto Workers strike continues. While striking workers are ineligible for unemployment benefits, the strike has impacts on the supply chain. Ford furloughed 600 workers not on strike, GM is expected to stop operations at its Kansas City plant, and Stellantis said it would temporarily lay off 68 employees and expects to furlough another 300.

Pending home sales for the four weeks ending September 17 were down 12.7% year-over-year, according to Redfin. The average 30-year fixed mortgage rate remained at 7.47%, nearly even with the two decade high of 7.49% that was reached last month.
Despite high mortgage rates and prices the shortage of supply has kept the market competitive, as the average home was sold within 20 days of hitting the market and 31% of homes sold for more than their list price.

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The ESI’s three-day moving average began this two-week stretch at 33.9 on September 13. It fell to 32.7 on September 15 before rising to 34.6 on September 16. The three-day average then fell to 33.7 on September 17 before rising to a peak of 35.2 on September 18. It then trended downward to a low of 31.3 on September 22 before rising to 33.0 on September 26 to close out the session. 

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The next release of the ESI will be Wednesday, October 11, 2023.