Baker Market Update
2024-10-18

Welcome back to another weekly market update by yours truly, Rachel. We are still seeing the aftermath of the destruction that was caused by hurricanes Helene and Milton in Florida. US retail sales numbers, US Empire State Manufacturing Index, US Jobless Claims numbers, and the NAHB Market Index are some of the main topics I am discussing in this week’s market update.

US Retail sales strengthened in September by more than forecast in a broad advance, illustrating resilient consumer spending that continues to power the economy. The value of the retail purchases, unadjusted for inflation, increased 0.4% after a 0.1% gain in August. Excluding autos and gasoline stations, sales climbed 0.7%. The sales figures cap another likely quarter of solid economic growth and consumer demand fueled by a hardy labor market. While the retail figures offered a straight-forward momentum in the economy, separate releases Thursday indicate something of the opposite. Industrial production declined in September, largely due to a pair of hurricanes and a strike at Boeing Co. Applications for jobless benefits fell a week after a steep increase due to hurricane Helene, as well as some cutbacks in the auto industry that boosted unemployment insurance claims in the Midwest earlier this month.

The Empire State manufacturing index fell and pointed back toward contraction in October. This is likely due to labor strikes around the time of the survey, and bad weather in other parts of the US, likely contributed to the weakness. However, that could prove only temporary as firms grew more optimistic about future conditions. October’s headline index for the Empire State survey was -11.9 – below the consensus expectation for 3.6. That came after the index had swung back into expansion in September, at +11.5. New orders and shipments both fell significantly, flipping from expansion to contraction. Employment was a relative bright spot, with the number of employees rising and pointing toward expansion for the first time since October 2023. The brief port strike earlier this month likely weighed somewhat on the survey, particularly the supply-availability index, which fell 5.4 points to -7.5. The Empire survey was distributed to firms October 1st, with responses collected from October 2-9. The longshoremen strike lasted from October 1-3, but the impact on cargo backlogs could last as long as a month. Despite the weak assessment of current conditions, firms became more optimistic about the outlook.

We saw the US Jobless Claims drop after a jump the week prior, which was due to storms. Applications for US unemployment benefits unexpectedly fell after jumping the previous week in southeastern states affected by hurricane Helene, and data will probably remain volatile in the coming weeks. Initial claims decreased by 19,000 to 241,000. Continuing claims, a proxy number for people receiving benefits, increased to 1.87 million in the previous week to the highest since July, according to Labor Department data released on Thursday. The damage done by Helene and hurricane Milton, which hit Florida two weeks later, has left many people unable to work and possibly unable to file for benefits. That means claims will continue to fluctuate in the near term, although economists anticipate this volatility will eventually subside. Up until this point, weekly filings were subdued, in part because the number of Americans losing their jobs was relatively low. Another reason behind the drop in initial filings was a sizeable drop in Michigan, on an unadjusted basis. Claims in the state declined by the most since February 2022 after jumping by a large amount in the two previous weeks due to layoffs in manufacturing.

The NAHB Market Index was a topic this week where we saw US home builders jump to a four month high this month, with the prospect of lower mortgage rates fueling optimism about demand for new houses in the coming year. After the Federal Reserve lowered interest rates by half a percentage point last month, labor market and inflation data have come in stronger than expected and policymakers have talked of a more gradual approach going forward. That’s led to an uptick in mortgage rates, which have crept up from two-year low they reached in September. “We are forecasting uneven declines for mortgage interest rates in the coming quarters, which will improve housing demand but place stress on building lot supplies due to tight lending conditions for development construction loans.” NAHB Chief Economist Robert Dietz said in a prepared statement. While new-homes sales have ebbed and flowed over 2024, the biggest builders have been solidly profitable and take market share from smaller companies, who generally have higher borrowing costs. Builders are already looking forward to the vital spring selling season, with the expectation that lower borrowing costs will bring new customers into the market.

Next week we will see more information and data being released on new home sales, existing home sales, durable goods orders, and the S&P Global US PMI (Manufacturing, Services, and Composite) numbers. Happy Friday everyone! Enjoy your weekends!