What We Are Watching This Week
- S&P Flash Services and Manufacturing
- Consumer Confidence
- Durable Goods
- Personal Consumption Expenditures
Highlights From Last Week
- US Retail Sales
- Empire Manufacturing Survey
- Housing Starts and Building Permits
- Federal Reserve Rate Announcement
The large-cap indexes reached record highs as investors welcomed the start of what is widely expected to be an extended Federal Reserve rate-cutting cycle. The rally was broad, with smaller-cap indexes performing exceptionally well, although they remained below previous highs. Notably, the small-cap Russell 2000 Index finished the week about 9% below its November 2021 peak.
Canadian equities faced challenges on Friday but finished in positive territory for the day and the week. On the economic front, retail sales in July rose by 0.9%, reaching $66.4 billion. Sales increased in seven out of nine sectors, with motor vehicle and parts dealers leading the gains. The new housing price index dropped sharply to 217,400 in August, down from 279,800 in July. Meanwhile, Statistics Canada reported that the industrial product price index fell by 0.8% month-over-month in August, though it rose 0.2% year-over-year. The raw materials price index saw a 3.1% monthly decline in August and a 2.5% decrease on an annual basis.
In Europe, the pan-European STOXX Europe 600 Index declined 0.33% in local currency terms as the initial rally spurred by the U.S. Federal Reserve’s rate cut faded, and investor caution over future monetary policy grew. Among major European stock indexes, Italy’s FTSE MIB rose 0.58%, France’s CAC 40 gained 0.47%, and Germany’s DAX saw a modest 0.11% increase. The U.K.’s FTSE 100 Index, however, fell 0.52%.
BoE holds rates steady; U.K. inflation remains unchanged, but service prices rise. As expected, the Bank of England (BoE) kept its key interest rate at 5.0%, with an 8–1 vote from the Monetary Policy Committee in favor of no change. In a rare move, the BoE provided forward guidance, indicating that “in the absence of significant developments, a gradual approach to easing policy remains appropriate.” Governor Andrew Bailey emphasized the importance of maintaining low inflation, cautioning against cutting rates too quickly or too much. However, Bailey expressed optimism that rates could fall further if evidence shows underlying price pressures easing. Headline inflation remained steady at 2.2% year-over-year in August, the same as in July. However, the year-over-year increase in service prices, a key focus for the BoE due to its ties to wages, accelerated to 5.6% from 5.2%.
According to the Empire State Manufacturing Survey, business activity in New York State expanded in September 2024 for the first time in almost a year. The general business conditions index surged by sixteen points to reach 11.5. Both new orders and shipments experienced significant growth, while delivery times and supply availability remained stable, and inventories leveled off. Labor market conditions stayed weak, with a slight decline in employment and a steady average workweek. Input and selling price increases showed little change. Despite a dip in the capital spending index, which fell below zero for the first time since 2020, firms expressed greater optimism about future business conditions.1
On Tuesday, the U.S. Census Department reported advance estimates of U.S. retail and food services sales for August 2024, adjusted for seasonal factors, holidays, and trading-day variations (but not for price changes), reached $710.8 billion. This represents a modest increase of 0.1 percent (±0.5 percent) from the previous month and a 2.1 percent (±0.5 percent) rise compared to August 2023. The June to August 2024 sales were 2.3 percent (±0.5 percent) higher than the same period a year earlier. The percent change from June to July 2024 was revised upward, from a 1.0 percent (±0.5 percent) increase to 1.1 percent (±0.2 percent). Retail trade sales increased by 0.1 percent (±0.5 percent) from July 2024 and 2.0 percent (±0.5 percent) compared to last year. Notably, nonstore retailers saw a 7.8 percent (±1.4 percent) increase from the previous year, while food services and drinking places grew by 2.7 percent (±2.1 percent) compared to August 2023.2
U.S. factory production surged by 0.9% in August 2024, driven largely by a rebound in motor vehicle output, which jumped 9.8%. This followed a downwardly revised 0.7% decline in July. Despite the strong August performance, manufacturing remains constrained by higher borrowing costs. Year-on-year, factory output increased by 0.2%. Gains were seen in primary metals, electrical equipment, and aerospace sectors, though nondurable goods production slipped 0.2%, mainly due to declines in printing and petroleum products. Overall, industrial production rebounded by 0.8% after a 0.9% decline in July, while capacity utilization in the industrial sector rose by 78.0%, still below its historical average. The Federal Reserve is expected to begin easing its monetary policy, offering relief to the manufacturing sector.3
In August 2024, privately-owned housing units authorized by building permits reached an annual rate of 1,475,000, a 4.9% increase from July but 6.5% lower than August 2023. Single-family permits rose 2.8% to 967,000, while permits for buildings with five or more units numbered 451,000. Housing starts increased by 9.6% from July to an annual rate of 1,356,000, also 3.9% higher than August 2023. Single-family housing starts surged 15.8% to 992,000, while starts for buildings with five or more units reached 333,000. Housing completions jumped 9.2% from July to an annual rate of 1,788,000, 30.2% higher than the previous year. However, single-family completions fell 5.6% to 1,029,000, while completions for buildings with five or more units hit 740,000.4
On Wednesday, the Federal Reserve lowered key interest rates by 50 basis points, setting the new target range for the federal funds rate at 4.75% to 5%. The Committee noted that while economic growth continues, job gains have slowed, and unemployment has risen slightly, though it remains low. Inflation is approaching the 2% target but is still somewhat elevated. The Committee is increasingly confident that inflation is moving sustainably toward the goal and sees risks to employment and inflation as balanced, though the economic outlook remains uncertain. Projections for GDP growth remain at 2% over the next three years. Unemployment is expected to reach 4.4% in 2024 and 2025, slightly improving to 4.3% in 2026. Core PCE inflation is projected to drop to 2.6% in 2024 and reach 2.0% by 2026. The federal funds rate is forecasted to be 4.4% in 2024, 3.4% in 2025, and 2.9% in 2026. The Committee will continue to assess data and adjust policy as needed, maintaining a focus on maximum employment and a 2% inflation rate while reducing its holdings of Treasury and agency securities.5
The U.S. Department of Labor reported that, for the week ending September 14, initial jobless claims decreased by 12,000 to 219,000, following a revised figure of 231,000 from the previous week. The 4-week moving average also dropped by 3,500 to 227,500. Meanwhile, continuing claims for all benefit programs for the week ending August 31 totaled 1,727,368, a decline of 97,315 from the prior week. In comparison, there were 1,678,889 continuing claims during the same week in 2023.6
According to the Manufacturing Business Outlook Survey, the Federal Reserve Bank of Philadelphia reported manufacturing activity in the region showed mixed results in September. The general activity index turned positive, rising to 1.7 from -7.0, but both the new orders and shipments indexes dropped into negative territory. The new orders index fell to -1.5, while the shipments index hit its lowest since March 2023 at -14.3. Employment improved, with the employment index increasing to 10.7, marking its second positive reading in three months. Around 89% of firms reported stable employment, the highest since 1978. However, the average workweek index declined to -13.6. Both price indexes rose, indicating ongoing price increases. Despite mixed current indicators, firms remain optimistic about growth in the coming six months.7
| WK | Year to Date | |
| Dow | 1.35% | 11.60% |
| S&P500 | 1.36% | 19.55% |
| Nasdaq | 1.49% | 19.56% |
| S&P400 Mid-cap | 2.31% | 11.57% |
| Russell | 2.08% | 9.91% |
| TSX | 1.30% | 13.90% |
| Oil | 3.70% | -0.60% |
- https://www.newyorkfed.org/survey/empire/empiresurvey_overview
- https://www.census.gov/retail/sales.html
- https://fred.stlouisfed.org/series/INDPRO
- https://www.census.gov/construction/nrc/pdf/newresconst.pdf
- https://www.federalreserve.gov/monetarypolicy/files/monetary20240918a1.pdf
- https://www.dol.gov/ui/data.pdf
- https://www.philadelphiafed.org/surveys-and-data/regional-economic-analysis/mbos-2024-09
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).
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