Week of December 9, 2024 in Review

Consumer and wholesale inflation moved higher in November, while the latest unemployment filings also surprised to the upside. Learn more in these top stories:

Annual Consumer Inflation Inches Upward
Wholesale Inflation Hotter Than Forecasted
Initial Jobless Claims Spike Higher
Family Hack of the Week
What to Look for This Week
Technical Picture

Annual Consumer Inflation Inches Upward

The latest Consumer Price Index (CPI) showed that inflation rose 0.3% in November, with the annual reading coming in at 2.7%. While this was an uptick from 2.6% YoY in September and 2.4% YoY in August, it was in line with what economists had forecasted.

The core measure, which strips out volatile food and energy prices, increased 0.3% from October while the annual reading held steady at 3.3%. These figures also met expectations.

Note that shelter costs remain the largest contributor to Core CPI, and they’re still overstated due to the lag effect. Inflation would be lower if more real-time shelter costs were better reflected in the reporting.

What’s the bottom line? This latest inflation report comes ahead of the Fed’s 2-day meeting Tuesday and Wednesday, where they will be deciding whether to cut their benchmark Fed Funds Rate (which is not mortgage rates or even a long-term rate). The Fed Funds Rate is a very short-term rate, literally a rate that’s only good overnight. Banks use this as the rate that they lend money to one another, but it is the building block for all interest rates.

Remember the Fed began aggressively hiking the Fed Funds Rate in 2022 to curb runaway inflation. More recently, cooling consumer inflation and rising unemployment caused the Fed to start cutting the Fed Funds Rate, first by 50 basis points at their meeting in September. A 25-basis point cut followed on November 7.

Markets are currently expecting another 25-basis point cut this Wednesday.

Wholesale Inflation Hotter Than Forecasted

The Producer Price Index (PPI), which measures inflation on the wholesale level, rose 0.4% in November, which was double the estimate of a 0.2% rise. The annual reading jumped from an upwardly revised 2.6% to 3%, much hotter than the 2.6% that the market was anticipating. Core PPI, which strips out volatile food and energy prices, rose 0.2% for the month and the year-over-year reading held steady at an upwardly revised 3.4%.

What’s the bottom line? While the stalling progress on inflation has caused some fears that it is reemerging, we need to look at the numbers in context. November’s 3% year-over-year PPI reading is well below the peak of 11.7% seen in 2022. Plus, a spike in prices for chicken eggs (+55%) and fruits and vegetables (+31%) accounted for half of the monthly overall headline inflation reading, which would have been in line with estimates otherwise.

Still, PPI data is important because some of the components are factored into another inflation measure called Personal Consumption Expenditures (PCE). We will need to see if these PPI readings cause an upside surprise to PCE when it is reported on December 20.

Initial Jobless Claims Spike Higher

The number of people filing for unemployment benefits for the first time jumped in the latest week, as Initial Jobless Claims rose 17,000 to 242,000. There were also 1.886 million people still receiving benefits after filing their initial claim. This marked a 15,000 jump in Continuing Claims from the previous week.

What’s the bottom line? Initial Jobless Claims came in well above estimates, hitting the highest amount in over two months, though this increase could reflect volatility in filings that can occur around holidays. The previous report measured the week that included Thanksgiving, so if people delayed filing because they were traveling or busy for the holiday, this could have caused the spike higher in the latest report.

Meanwhile, Continuing Claims remain elevated, now topping 1.8 million for the 27th week in a row. These filings continue to reflect the hiring slowdown we have seen and the challenges some people are experiencing as they look for new employment.

Family Hack of the Week

These Sugar Cookies courtesy of The New York Times are as easy to make as they are delicious. Yields 18 cookies.

Preheat oven to 350 degrees Fahrenheit. In a medium bowl, whisk together 2 cups flour (leveled), 3/4 teaspoon baking soda and 1/2 teaspoon kosher salt. In the bowl of an electric mixer, beat together 1 1/2 sticks salted butter and 1 cup sugar until fluffy, about 2 minutes. Beat in 1 egg and 1 egg yolk until creamy, then add 1 tablespoon vanilla. Add the flour mixture to the butter mixture and beat until just combined.

Add 2 tablespoons sugar to a small bowl. Roll dough into golf-ball-size balls (about 2 tablespoons each) and roll each one in the sugar. Transfer dough to parchment-lined baking sheets, keeping balls 3-inches apart. Bake until cookies are just set and dry in the center, about 10 to 12 minutes. Transfer each sheet to a rack to cool for a few minutes, then transfer cookies to racks to cool completely.

To enjoy the freshest cookies, only bake as many as you plan on eating in a day. To store extra dough, roll into balls and store in an airtight container in the freezer. Bake them from frozen, rolling in sugar just beforehand.

What to Look for This Week

The Fed’s 2-day meeting begins Tuesday, with their Monetary Policy Statement announcing their rate cut decision and press conference following Wednesday afternoon.

Plus, there’s a full week of economic reports ahead. In housing news, we’ll see this month’s homebuilder confidence Tuesday, November’s Housing Starts and Building Permits Wednesday, and Existing Home Sales Thursday.

Also, look for November’s Retail Sales Tuesday, the latest Jobless Claims and third quarter GDP Thursday, and the Fed’s favored inflation measure, Personal Consumption Expenditures, Friday.

Technical Picture

Mortgage Bonds have been moving lower and ended last week beneath the dual floors of support at the 25-day and 200-day Moving Averages. There is more room for Bonds to continue lower before reaching the next floor at the 100.43 Fibonacci level. The 10-year broke above the dual ceilings at the 25-day Moving Average and the 4.33% Fibonacci level, and has a lot of room to move higher before reaching a ceiling at 4.5%.

Make it a great week!

Ray

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