Weekly U.S. Economic Data Newsletter

Date: December 22, 2024

U.S. Economic Data: Insights and Analysis

This past week provided a blend of economic signals that help paint the broader picture of the U.S. economy. As we assess these metrics, the divergence between manufacturing contraction and services growth remains a dominant narrative. In contrast, labour market resilience and softer inflation metrics continue to shape monetary policy expectations.

Key Highlights

1. Manufacturing PMI

• Flash Manufacturing PMI: 48.3 (previous: 49.7, forecast: 49.4).
• Analysis: Manufacturing continues to contract, with a reading below the 50.0 threshold. Persistent supply chain disruptions and weakening global demand are dampening manufacturing activity. This slowdown could weigh on industrial production and capex in the coming months.

2. Services PMI

• Flash Services PMI: 58.5 (previous: 56.1, forecast: 55.7).
• Analysis: Services sector expansion underscores robust consumer activity and strength in non-goods spending. Sectors such as travel, hospitality, and healthcare appear to be thriving, driven by sustained demand and holiday seasonality.

3. Consumer Spending

• Core Retail Sales m/m: 0.2% (previous: 0.2%, forecast: 0.4%).
• Retail Sales m/m: 0.7% (previous: 0.5%, forecast: 0.6%).
• Analysis: Headline retail sales surged, likely bolstered by holiday shopping and robust seasonal demand. However, the softer core sales figure suggests that inflation and higher interest rates are influencing discretionary spending patterns.

4. Labor Market Resilience

• Unemployment Claims: 220K (previous: 242K, forecast: 229K).
• Analysis: A drop in initial jobless claims indicates a strong labour market, with businesses showing reluctance to cut jobs despite economic uncertainties. Consumer spending may remain supported as long as labour market conditions hold steady.

5. Inflation Trends

• Core PCE Price Index m/m: 0.1% (previous: 0.3%, forecast: 0.2%).
• Analysis: Decelerating inflationary pressures align with the Federal Reserve’s objectives, providing relief to markets. Core PCE, the Fed's preferred inflation gauge, suggests price growth is cooling without drastically hindering demand.

6. Housing Market Stabilization

• Existing Home Sales: 4.15M (previous: 3.96M, forecast: 4.09M).
• Analysis: Despite high mortgage rates, home sales have rebounded, indicating that buyers are adapting to higher financing costs. This stabilization is critical for broader economic confidence.

7. Economic Growth

• Final GDP q/q: 3.1% (previous: 2.8%, forecast: 2.8%).
• Analysis: The upward revision in GDP reflects strong consumer spending, robust services growth, and inventory rebuilding. However, the sustainability of this pace in 2025 remains a question as financial conditions tighten.

8. Manufacturing Challenges

• Philly Fed Manufacturing Index: -16.4 (previous: -5.5, forecast: 2.9).
• Analysis: The index's steep decline signals regional manufacturing struggles. Persistent cost pressures and declining new orders could exacerbate economic pressures in the sector.

Market Implications

For the Dollar

• Positive retail sales and services growth supported the USD. However, manufacturing contraction and softer inflation metrics could lead to dovish Fed expectations, potentially capping gains.

For Equities

• The cooling inflation print and resilient labour market should provide relief for equity markets, especially in consumer-focused sectors. However, industrials may face headwinds as manufacturing stagnates.

For Bonds

• Lower-than-expected inflation supports a favourable environment for fixed income, with yields likely to decline if economic growth moderates in Q1 2025.

Closing Thoughts

The U.S. economy remains resilient, driven by strong consumer spending and services growth. However, manufacturing contraction and global economic uncertainties are key risks heading into 2025. As inflation cools and the Fed nears the end of its tightening cycle, markets may stabilize, offering opportunities for strategic investments.

Stay tuned for next week’s analysis, in which we’ll explore housing starts and new order data and their implications for the broader economy!