Applying the Brakes: December 13 – 17

The Federal Reserve expressed concern about prices. Here are the five things we learned from U.S. economic data released during the week ending December 17. 


The Fed becomes less accommodative. The policy statement released after the past week’s Federal Open Market Committee (FOMC) meeting noted recent “solid” job gains and that the unemployment rate “has declined substantially.” It also called out the supply chain challenges that “contributed to elevated levels of inflation.” Whereas the FOMC voting members kept the fed funds target rate at near zero percent, they slowed their pace of pumping cash into the economy. This included reducing its net asset purchases of both Treasury (by $20 billion to $40 billion a month) and agency mortgage-backed securities (by $10 billion to $20 billion a month). They also cautioned that further reductions in these monthly purchases “will likely be appropriate.” The statement concluded by saying that the Fed would adjust its monetary stance based on “public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”

Projections released with the policy statement point to the Fed raising short-term interest rates next year. The median 2022 forecast has the U.S. economy expanding 4.0 percent with a 3.5 percent unemployment rate. They, however, anticipate inflation to remain above its two-percent target, with prices rising next year 2.6 percent (and the core measure—net of energy and food—up 2.7 percent). As a result, the meeting participants expect three quarterly bumps in the fed funds target rate in 2022 and three more in 2023. 

Retail sales wobbled in November. Retail and food services sales gained a modest 0.3 percent during the month to a seasonally adjusted $639.8 billion. Sales through the first 11 months of 2021 were up 19.6 percent from the same months in 2020. Note that the Census Bureau does not adjust this data series for price changes. Sales at auto dealers/parts stores slipped 0.1 percent, while those at gas stations rose 1.7 percent. Net of both, core retail sales gained 0.2 percent in November, with an 11-month comparable of +16.5 percent. Sales increased at retailers focused on sporting goods/hobbies (+1.3 percent), groceries (+0.9 percent), building materials (+0.7 percent), and apparel (+0.5 percent). Restaurants/bars sales jumped 1.0 percent. General merchandisers saw sales drop 5.4 percent, while electronics/appliance retailers suffered a 4.6 percent drop.

Manufacturing output rose to a three-year high in November. Manufacturing production advanced a seasonally adjusted 0.7 percent during the month, after swelling 1.4 percent in October. The Federal Reserve points out that manufacturing output was at its highest level since January 2019 after having grown 4.6 percent over the past year. Durable goods output jumped 0.8 percent, while that for nondurables increased 0.5 percent. Even though automobile production advanced 2.2 percent in November, it remained 5.4 percent under its year-ago pace. Overall industrial production increased 0.5 percent in November and was 5.3 percent above year-ago levels. Mining output gained 0.7 percent, while output at utilities slowed 0.8 percent. Even though manufacturing factory utilization rose by a half percentage point in November, the 77.3 percent reading remained 9/10ths of a percentage point below the measure’s 48-year average. 

Wholesale prices rose again in November. The Producer Price Index (PPI) for final demand jumped a seasonally adjusted 0.8 percent during, up from 0.6 percent gains during each of the three preceding months. The Bureau of Labor Statistics has core PPI (net of energy, food, and trade services) soared 0.7 percent following October’s 0.4 percent jump.  Energy PPI rocketed 2.6 percent (gasoline: +7.3 percent) and food PPI advanced 1.2 percent, while core wholesale goods prices soared 0.8 percent. Over the past year, wholesale prices have surged 9.6 percent, with the core measure up 6.9 percent from November 2020.

Housing starts picked up in November. The Census Bureau reports that housing starts rose 11.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.679 million units. Starts of both single-family (+11.3 percent) and multi-family (+12.1 percent) homes advanced in November. Looking towards the future, housing construction permits grew 3.6 percent to an annualized 1.712 million units. Permits for single-family homes increased 2.7 percent, while those for multi-family homes swelled 6.1 percent. Housing completions jumped 4.1 percent to an annualized 1.231 million homes. 

Other U.S. economic data released over the past week:

  • Jobless Claims (Week ending December 11, 2021, First-Time Claims, seasonally adjusted): 206,000, +18,000 vs. the previous week, -667,000 vs. the same week a year earlier). 4-week moving average: 203,750 (-74.6% vs. the same week a year earlier). 
  • Import Prices (November 2021, All Imports, not seasonally adjusted): +0.7% vs. October 2021; +11.7% vs. November 2020. Nonfuel Imports: +0.5% vs. October 2021; +6.3% vs. November 2020.
  • Export Prices (November 2021, All Exports, not seasonally adjusted): +1.0% vs. October 2021; +18.2% vs. November 2020. Nonagricultural Exports: +1.0% vs. October 2021; +17.8% vs. November 2020. 
  • State Employment (November 2021, Nonfarm Payrolls, seasonally adjusted): Vs. October 2021: Payrolls grew in 16 states and held steady in 34 states and the District of Columbia. Vs. November 2020: Increased in 49 states and the District of Columbia and steady in 1 state.
  • NFIB Small Business Optimism (November 2021, Index (1986=100), seasonally adjusted): 98.4 (vs. October 2021: 98.2; vs. November 2020: 101.4).
  • Business Inventories (October 2021, Manufacturers and Trade Inventories, seasonally adjusted): $2.218 trillion (+1.2% vs. September 2021; +7.8% vs. October 2020). 
  • Treasury International Capital Flows (October 2021; Net Foreign Purchase of U.S. Securities, not seasonally adjusted): -$22.1 billion (vs. September 2021: +$14.2 billion; vs. October 2020: +$30.6 billion).

The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.

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