Market Update: U.S. Leading Market Indicators, S&P Takeaways, U.S. Existing Home Sales

What We Are Watching This Week

• US Leading Market Indicators
• S&P Flash US Services and Manufacturing PMI
• US Existing Home Sales

Highlights From Last Week

• US Consumer Price Index (CPI) and Core CPI
• US Retail Sales
• Industrial Production
• Housing Starts
• Producer Price Index (PPI) and Core PPI

Despite some positive earnings surprises, the major stock market indices ended the week mixed due to discouraging inflation data. The S&P 500 Index recorded its first weekly decline of the year, mainly driven by decreases in large-cap growth stocks. However, an equally weighted version of the S&P 500 reached a new intraday high on Thursday. After experiencing a significant drop earlier in the week, the small-cap Russell 2000 Index rebounded and led the gains. In Canada, the TSX market increased by 1.5% over the week, with the financial and oil sectors driving the gains, up 2.4% and 1.8%, respectively. The STOXX Europe 600 Index rose by 1.39% in Europe, supported by signs of easing inflation and expectations of interest rate cuts. Germany’s DAX and France’s CAC 40 Index achieved new highs during the week, gaining 1.13% and 1.58%, respectively, fueled by positive corporate earnings. Italy’s FTSE MIB climbed by 1.85%, while the UK’s FTSE 100 Index added 1.84%.

In January, the Consumer Price Index for All Urban Consumers (CPI-U) in the U.S. increased by 0.3 percent on a seasonally adjusted basis, following a 0.2 percent rise in December. Over the past year, the overall index rose by 3.1 percent. The increase was mainly driven by a 0.6 percent rise in shelter costs, contributing significantly to the overall increase. Additionally, the food index increased by 0.4 percent, with food at home and food away from home increasing. However, the energy index fell by 0.9 percent, primarily due to a decline in gasoline prices. Over the last 12 months, the overall index increased by 3.1 percent, slightly lower than the 3.4 percent increase seen in the previous 12-month period. Excluding food and energy, the core index rose by 0.4 percent in January, with notable increases in shelter, motor vehicle insurance, and medical care costs. Conversely, used cars, trucks, and apparel saw a decrease in their indexes. The core index, excluding food and energy, increased 3.9 percent over 12 months. Energy prices decreased by 4.6 percent over the last 12 months, while food prices increased by 2.6 percent during the same period. The shelter index rose by 0.6 percent during the month, emerging as the primary driver behind the monthly uptick. Owners’ equivalent rent climbed by 0.6 percent over the month, while the index for rent rose by 0.4 percent. The lodging away from home index also surged by 1.8 percent in January.¹

On Thursday, for the week ending February 10, the Labor Department reported that seasonally adjusted initial claims for unemployment benefits dropped to 212,000, down by 8,000 from the previous week’s revised level. The 4-week moving average increased to 218,500, up 5,750 from last week’s revised average. The total number of continued weeks claimed for benefits in all programs in the week ending January 27 decreased to 2,160,209, with 1,953,615 weekly claims filed for benefits in all programs during the same week in 2023.²

According to the New York Fed, the Empire State business-conditions index, which measures manufacturing activity in the state, rebounded by 41 points in February yet remained in negative territory at -2.4. This marks the third consecutive month below breakeven. The index had dropped by 53 points over the previous two months. The February reading surpassed expectations, with economists anticipating a -13.5 reading. In the Empire State survey, the new orders index increased by 43.1 points to -6.3 in February, while the shipments index rose by 34.1 points to 2.8. Input price increases in the New York region picked up for the second consecutive month, as did selling prices. However, optimism about the future remained subdued.³

In contrast, the Philadelphia Fed’s manufacturing index accelerated to 5.2 in February from -10.6 in the prior month, surpassing economists’ expectations of -9. This marks the first positive reading since August. In the Philadelphia survey, the new orders index improved to -5.2 from -17.9, while shipments moved into positive territory at 10.7 from -6.2. Prices paid increased, but prices received decreased, and the employee index fell further into negative territory.⁴

Consumer spending experienced a notable decline in January, as reported by the Commerce Department. Advance retail sales dropped by 0.8%, following a revised gain of 0.4% in December. Economists had anticipated a smaller drop of 0.3%, with expectations influenced by December’s likely inflated figures due to seasonal factors. However, the decrease surpassed forecasts, even after excluding auto sales, which dropped by 0.6%. The sales report, not adjusted for inflation, indicated spending lagging behind the pace of price increases, with year-over-year sales up by only 0.6%. Sales declined notably in building materials, garden stores, miscellaneous stores, and motor vehicle parts retailers, with gas station sales also decreasing as pump prices dropped. However, restaurants and bars reported a slight increase of 0.7%. The retail sales control group, crucial for GDP calculations, fell by 0.4%.⁵

In January, industrial production experienced a slight decline of 0.1%, as reported by the Federal Reserve. According to The Wall Street Journal’s survey, this figure was slightly better than the anticipated 0.2% gain. Manufacturing, in particular, fell by 0.5% following a 0.1% gain in the previous month. Key details reveal that utility output surged 6% in January due to colder weather, contributing to the overall production increase. However, motor vehicle and parts output decreased by 0.2% after a significant 3.2% increase in the prior month. Capacity utilization dropped to 78.5% from 78.7% for the previous month, below economists’ forecast of 78.8%. In the broader context, economists had anticipated a subdued reading, considering the decline in weekly hours worked in the January job report and unfavorable winter weather conditions. Factory activity has been on a soft trend, particularly as the Federal Reserve implemented swift interest rate hikes.⁶

In January, housing starts in the United States experienced a notable decline of 14.8%, primarily due to a sharp decrease in multifamily starts, according to data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. Overall, housing starts reached a seasonally adjusted annual rate of 1.33 million units. Single-family starts decreased by 4.7% to a rate of 1 million units annually, although they are up by 22% compared to the previous year. Conversely, multifamily starts plummeted by 35.6% to an annualized pace of 327,000 units. Alicia Huey, chairman of the National Association of Home Builders (NAHB), expressed optimism regarding the gradual improvement in single-family production later in the year, attributed to moderating mortgage interest rates. NAHB Chief Economist Robert Dietz also forecasted a decline in multifamily construction in 2024 due to elevated unit numbers under construction. He expects single-family starts to post a modest gain this year, supported by expected interest rate cuts by the Federal Reserve. Regionally, combined single-family and multifamily starts saw decreases across the board compared to the previous month. However, there were notable differences in permit growth between single-family and multifamily construction, with single-family permits reaching the highest level since May 2022. The number of apartments under construction dipped below 1 million for the first time since May 2023, while the number of single-family homes under construction matched the highest reading since June 2023. Despite the slowdown, builders continue to benefit from the ongoing shortage of previously owned homes, with new homes now accounting for 30% of overall sales, up from historical averages.^{7 & 8}

In January, wholesale costs surged at the fastest pace in five months, signaling that inflation may not ease towards the Federal Reserve’s 2% target as quickly as expected. The producer-price index (PPI) rose by 0.3% last month, surpassing economists’ forecasts of a 0.1% increase. Core wholesale prices, excluding food, energy, and trade margins, experienced an even steeper rise of 0.6%, the largest increase in a year. Although the yearly rate of wholesale inflation slightly decreased to 0.9%, core wholesale inflation remained unchanged at 2.6%. Inflation typically begins at the wholesale level before impacting consumers. The recent PPI report and disappointing consumer-price index (CPI) data suggest that inflation may persist above the Fed’s target rate. Despite expectations of inflation moderating in 2024, both CPI and PPI reports indicate a potentially “bumpy” road to the central bank’s target, as highlighted by Raphael Bostic, the Atlanta Federal Reserve Bank president. Service inflation, a key driver of U.S. inflation, increased by 0.6% in January, with prices rising across various sectors such as medical care and travel arrangements. However, wholesale goods prices continued to decline, primarily led by decreases in gasoline prices. The inflation outlook appears more favorable, with the wholesale cost of partly finished goods and raw materials declining compared to the previous year. These indicators provide insights into potential changes in retail-level inflation.⁹

1. https://www.bls.gov/news.release/cpi.nr0.htm
2. https://www.dol.gov/ui/data.pdf
3. https://www.newyorkfed.org/medialibrary/media/Survey/Empire/empire2024/ESMS_2024_02.pdf?sc_lang=en&hash=3B7408542B3FB46CCAA6200461B2981D
4. https://www.philadelphiafed.org/surveys-and-data/regional-economic-analysis/mbos-2024-02
5. https://www.census.gov/retail/marts/www/marts_current.pdf
6. https://www.federalreserve.gov/releases/g17/current/g17.pdf
7. https://www.census.gov/construction/nrc/pdf/newresconst.pdf
8. https://www.nahb.org/news-and-economics/press-releases/2024/02/housing-starts-decline-in-january-on-multifamily-weakness
9. https://www.bls.gov/news.release/ppi.nr0.htm

Important Information: 

Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.  

Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Canadian Industry Regulation Organization (CIRO) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors.  

Sightline Wealth Management LP is a wholly owned subsidiary of Ninepoint Financial Group Inc. (“NFG Inc.”). NFG Inc. is also the parent company of Ninepoint Partners LP, it is an investment fund manager and advisor and exempt market dealer. By virtue of the same parent company, Sightline is affiliated with Ninepoint Partners LP. Information and/or materials contained herein is for information purposes only and does not constitute an offer to sell or solicitation to purchase securities of any issuer or any portfolio managed by Sightline Wealth Management or Ninepoint Partners, including Ninepoint managed funds.  

The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavors to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions.