Economic sentiment dips to its lowest point this year

Economic sentiment decreased over the last two weeks, falling for the third consecutive reading to its lowest point since December. The Penta-CivicScience Economic Sentiment Index (ESI) decreased 1.2 points over the last two weeks to 34.5.

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Four of the ESI’s five indicators decreased over the past two weeks. Confidence in personal finances decreased by 3.5 points, falling to 53.2, marking that indicator’s largest single-period decrease in over a year.

—Confidence in finding a new job fell 1.3 points to 36.4.

—Confidence in making a major purchase fell 1.3 points to 24.1.

—Confidence in the overall U.S. economy fell 0.8 points to 36.6.

—Confidence in buying a new home rose 1.1 points to 22.5.

The February 2024 jobs report showed nonfarm payroll employment increased by 275,000 in February. This increase beat economics’ predictions, in part due to hirings in health care and by the government. Despite this increase, the unemployment rate rose to 3.9 percent, up from 3.7 percent in January and marking the highest rate since January 2022.

Federal Reserve Chair Jerome Powell traveled to Congress on March 6 to make his semi-annual testimony before lawmakers. Here, Powell affirmed that he does not believe the U.S. is in or at risk of a recession. Powell also claimed that the Fed believes that the “policy rate is likely at its peak for this tightening cycle,” but that rate cuts “really will depend on the path of the economy.” Atlanta Fed President Raphael Bostic echoed Powell’s sentiments, stating “Only when I gain that confidence will I feel the time is right to begin lowering the federal funds rate.”

The prospect of rate cuts was made more unlikely following the release of the U.S. Bureau of Labor Statistics’ February Consumer Price Index. The Bureau reported that core CPI increased by 0.4 percent month over month in February, and that prices rose by 3.2 percent over the last year. The Bureau reported that over 60 percent of this month-over-month increase was driven by the cost of gasoline and shelter. This is the second consecutive month that core inflation has increased by 0.4 percent.

The Federal Reserves’ “Beige Book” survey, which polled business across the Fed’s 12 districts the six weeks prior to February 26, found that eight of the Fed’s 12 regional banks reported a “slight to modest growth in activity.” However, this good news was also met with mixed data on the overall health of the U.S. economy. Specifically, the report detailed how consumers “became increasingly sensitive to price changes,” even though almost every district reported “some improvement in labor availability and employee retention.”

Despite these mixed results, Business Roundtable’s Q1 CEO Economic Index showed optimism in the U.S. economy, with the index increasing above its historical average for the first time since 2022. Specifically, the Index increased by 11 points, up from 74 in Q4 2023 to 85 in Q1 2024. This increase was largely driven by the “plans for capital investment” indicator, which increased 16 points to 78.

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The ESI’s three-day moving average began this two-week stretch at 36.1 on February 28. It then rose to a peak of 36.5 on February 29 before decreasing to a low of 33.1 on March 3. The three-day moving average then trended upward to 35.6 on March 9 before falling to to 34.6 to close out the session on March 12.

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The next release of the ESI will be Wednesday, March 27, 2024.

Economic sentiment falls to its lowest point since early January

Economic sentiment decreased over the last two weeks, falling to its lowest point since the first week of January. The Penta-CivicScience Economic Sentiment Index (ESI) decreased 1.4 points over the last two weeks to 35.7.

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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 2.2 points to 37.4, marking that indicator’s largest single-period decrease since August 2023.

—Confidence in making a major purchase fell 1.7 points to 25.4.

—Confidence in buying a new home fell 1.6 points to 21.4.

—Confidence in finding a new job fell 1.4 points to 37.7.

—Confidence in personal finances increased 0.3 points to 56.7.

Lawmakers are facing an impending government shutdown as budget negotiations continue to stall in Congress. Friday, March 1 marks a key deadline for Federal funding, where, without an agreement, funding will run out and force the government into a partial shutdown. CNN reports that House Speaker Mike Johnson (R-LA) is facing pressure from members of his party advocating for conservative policies added to the spending bills.

On February 15, both Japan and the United Kingdom reported negative gross domestic product (GDP) for the fourth quarter of 2023. This marked the second consecutive quarter that these economies weakened, thus meeting a broadly accepted criteria for a recession. 

Over the past two weeks, Barron’s reported that The Conference Board’s Leading Economic Index fell 0.4% in January, and therefore, “Economic activity in the U.S. no longer faces an imminent threat of recession.” In contrast, Citi’s chief US economist, Andrew Hollenhorst, cast doubt on a soft landing, noting a concerning outlook in the economy’s forward-looking indicators such as inflation and the unemployment rate.

Stocks continued to rally during this period, with the S&P and the Dow Jones Industrial Average breaking record highs on February 23. This was partly fueled by technology company Nvidia, whose fourth quarter results beat already high expectations, causing the stock’s market capitalization to increase by $277 billion, marking the largest single-day increase in history.

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The ESI’s three-day moving average began this two-week stretch at 36.2 on February 14. It then decreased to 35.6 on February 15 before increasing to a peak of 36.9 on February 19. The three-day moving average then decreased to 35.1 on February 22, then oscillated between increasing and decreasing before rising to 36.1 to close out the session on February 27. 

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The next release of the ESI will be Wednesday, March 13, 2024.

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.