One of Americans’ biggest headaches − high inflation − seemed to be in retreat the past few months until the latest report revealed an unwelcome flare-up in January. Will a lesser-known price measure that the Federal Reserve follows more closely deliver better news?
Consumer confidence, meanwhile, has been recovering from some inflation-induced blahs. Will the February report highlight more good vibes or another mood swing?
And home prices have been in the doldrums because of high mortgage rates − although borrowing costs have eased a bit lately. Could that bear fruit in the latest reading on home prices?
This week’s economic news should help answer those and other questions that matter for your pocketbook. Here’s a sneak peek:
Are companies spending money?
30,000-foot view: Companies have been cautious about buying more factory machines, computers and other equipment recently because of high interest rates that make borrowing more expensive.
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But new orders for such long-lasting goods rose in November and December. Businesses have been encouraged by fading recession fears and the Federal Reserve’s expected interest rate cuts later this year, says Nomura economist Aichi Amemiya.
He estimates a key measure that excludes aircraft and defense-related items – a proxy for business investment – will show flat or slightly higher purchases in January when the Commerce Department releases the data on Tuesday.
You should care because: More capital spending means more growth for the economy and, generally, more hiring. After all, new machines typically need workers to run them.
Are house prices in the US dropping?
For home sellers, the past six months or so have been frustrating.
30,000-foot view: Monthly increases in home prices have steadily slowed since the middle of last year as rising mortgage rates discouraged housing sales. In November, the average home price in major metro areas fell for the first time in 10 months (before seasonal adjustments), according to the S&P CoreLogic Case-Shiller Home Price Index of 20 cities.
Nomura expects more of the same in S&P’s release of the December figures on Tuesday.
You should care because: Mortgage rates generally have dipped since late last year and that should lift home sales and prices in the months ahead, Nomura says.
Graphic by James Powel
Is consumer confidence high right now?
Americans have been feeling better about their finances and the economy lately but that could change quickly if the outlook darkens.
30,000-foot view: In January, consumer confidence reached the highest level since late 2021 on easing inflation, strong job growth, rising stock prices and the prospect of lower interest rates. Economists surveyed by Bloomberg estimate the Conference Board will announce Tuesday that confidence held steady in February while Nomura expects a slight uptick.
You should care because: The measure affects household spending and the economy.
Is US inflation cooling down?
Inflation seemed to be on a steady downward path until the Labor Department’s consumer price index raised concerns earlier this month.
A core measure of the index, which excludes volatile food and energy items, rose a sharp 0.4% in January, keeping the annual increase at 3.9%. That led some economists to push out their forecast for the Federal Reserve’s first interest rate cut from May to a bit later this year.
30,000-foot view: On Thursday, the Commerce Department will release a different inflation gauge called the personal consumption expenditures (PCE) price index. The Fed keeps a closer eye on the core PCE index than the core consumer price index and economists expect a similar 0.4% rise in that PCE reading as another jump in rent as well as services such as health care, finance and insurance offsets roughly flat goods prices, Barclays says.
You should care because: That rise would be the largest monthly increase in a year, Nomura notes, but would still nudge down the annual increase from 2.9% to 2.8%, a bit closer to the Fed’s 2% goal. Economists still expect inflation to continue to drop in the coming months as rent increases slow.
The PCE report is also expected to show that consumer spending increased a modest 0.2% last month, well below December’s 0.7% leap.
Is US manufacturing in a recession?
The economy has been strong and resilient. But the nation’s manufacturers have barely felt it.
30,000-foot view: U.S. manufacturing activity has contracted for 15 straight months as consumers have shifted their spending from goods to services since the pandemic and businesses have grappled with high interest rates and bloated inventories.
You should care because: On Friday, the Institute for Supply Management is expected to announce that factory activity shrank yet again in February but the total activity level – which includes new orders, production, jobs and other elements – was likely the highest since October 2022. Nomura anticipates an even bigger improvement to just below expansion territory.
