Weekly Economic Update
Last Week and the Economy
The FOMC voted to keep interest rates steady and released updated economic projections at last week’s meeting. The 10-year Treasury yield reached a 16-year high. The National Association of Realtors reported that home sales fell further in August. Home builders reported lower confidence. Additionally, U.S. stocks ended the week in the red.
All the major U.S. equity averages slumped last week. The S&P 500 lost 2.93% and the Dow Jones Industrial Average [DOW] followed suit, losing 1.89%. The Nasdaq and Russell 2k Small Cap Index sustained more substantial losses – ending the week 3.62% and 3.82% lower, respectively. In international markets, the MSCI-EAFE Index also fell by 2.06%.
FOMC Held Interest Rates Steady and Released New Projections
The FOMC met on Tuesday and Wednesday to discuss the state of the economy and the future path of interest rates. At the meeting, committee members noted moderate economic growth, low unemployment, and persistently elevated inflation. In light of these factors, they chose to hold the Fed funds rate steady at a target range of 5.25 – 5.50%.
Committee members also released updated projections for the future of monetary policy and the economy. These forecasts showed that members predict some softening of economic conditions in 2024 followed by a gradual return to the Fed’s targets. The FOMC expects inflation to return to 2% as well as GDP and unemployment to return to their long-run targets by 2026. They also expect interest rates to fall below 3% the same year before continuing to decline to 2.5% in the long run.
10-year Treasury Yield Hit 16-year High
Following the Fed’s interest rate announcement, the 10-year Treasury yield rose by 14 basis points to 4.49% on Thursday. This marks the highest yield since 2007. Other Treasury yields also rose, including the 30-year which increased by 16 basis points to 4.56%. Market pundits speculate that increased bond yields could have contributed to the corresponding fall in stock prices.
Home Sales Fell, Prices Rose
The National Association of Realtors [NAR] released new data showing that existing home sales fell by 0.7% from July to August – with the Midwest being the only region to experience higher sales. Sales fell by a substantial 15.3% from one year ago, with all four regions reporting slower sales year-over-year.
The inventory of available homes fell by 0.9% for the month and 14.1% for the year. Additionally, home prices continued to escalate – rising by 3.9% from one year ago to $407,100. NAR Chief Economist Lawrence Yun said, “home prices continue to march higher despite lower home sales. Supply needs to essentially double to moderate home price gains.”
Home Builder Confidence and Construction Starts Fall
The Census Bureau reported that permits for new construction homes rose in August but the number of homes that actually broke ground fell by 11.3% from the previous month and 14.8% from one year ago. This slowdown coincides with a report from the National Association of Home Builders [NAHB] showing that builder confidence fell to a 5-month low.
According to the NAHB, the drop in builder confidence corresponds to mortgage rates surpassing the 7% threshold. NAHB Chief Economist Robert Dietz said, “high mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower.”
The NAHB also reported that 32% of home builders reduced prices to bolster sales in September – up from 25% in August. The average discount was 6%.
Data Sources for stock and index quotes: Yahoo Finance, WSJ
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Key Economic Data Points
Unemployment Rate:
FOMC Target Rate:
GDP:
As of August 2023: 3.8% (Next Report: 10/6/23)
As of September 2023: 5.25% – 5.50% (Next Report: 11/01/23)
Q2 2023: +2.1% (Next Report: 9/28/23)
Data Sources: U.S. Bureau of Labor Statistics, FRED – St. Louis Fed, U.S. Bureau of Economic Analysis.
Weekly Quote:
Wealth is the slave of a wise man. The master of a fool.
-Seneca
The Week Ahead – Economic Data & Events
Tuesday: Case-Shiller Home Price Index, Consumer Confidence, New Home Sales
Wednesday: Durable Goods Orders
Thursday: GDP, Pending Home Sales Index
Friday: International Trade in Goods, Personal Income and Outlays, Chicago PMI, Consumer Sentiment
Weekly Reports: Mortgage Applications (Wednesday), EIA Petroleum Status Report (Wednesday), Jobless Claims (Thursday), EIA Natural Gas (Thursday), Fed Balance Sheet (Thursday), Baker Hughes Rig Count (Friday)
Source: Econoday
The Week Ahead – S&P 500 Companies Reporting Earnings
Tuesday: Costco Wholesale Corporation (COST), Cintas Corporation (CTAS)
Wednesday: Micron Technology Inc. (MU), Paychex Inc. (PAYX)
Thursday: Accenture Plc Class A (ACN), CarMax Inc. (KMX), NIKE Inc. Class B (NKE)
Friday: Carnival Corporation (CCL)
Source: Finscreener
Weekly Tip:
Define what “emergency” means to you and set rules that determine when you should spend money in your emergency fund.
Data Sources for stock and index quotes: Yahoo Finance, WSJ
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When: Tuesday, October 24th, 6:00 - 7:30 CDT
Where: Birmingham Botanical Gardens
Speaker: Patricia L. Burris, CFP®
This event will cover the most important aspects of Social Security including filing strategies, taxation, and updates for 2024.
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When: Tuesday, November 14th, 6:00 -7:30 PM CST
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Speaker: Patricia L. Burris, CFP®
This event will cover what you need to know about Medicare including when to enroll, how much it costs, and supplement options.
Last Week's Riddle and Answer
Last Week's Riddle:
What runs around a yard but never moves?
Last Week's Answer:
A fence runs around a yard but doesn’t move.
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