Review of the Week: November 27, 2023

As we delve into the final weeks of 2023, let's take a look at the key events and economic indicators that shaped the past week's financial landscape. From inflation trends to the state of the housing market and labor market conditions, here's a comprehensive review:

Inflation Inching Lower

Background: Inflation has been a central concern for consumers and policymakers alike. After reaching alarming levels in the past year, the latest data shows signs of relief.

• October's Data: October's Personal Consumption Expenditures (PCE) revealed that headline inflation remained flat for the month. The year-over-year reading dropped from 3.4% to 3%. Core PCE, a preferred measure by the Federal Reserve that excludes volatile food and energy prices, rose by 0.2% in October. The year-over-year reading fell from 3.7% to 3.5%, marking its lowest level in over two years.

The Bottom Line: Inflation has made substantial progress downward, with the headline reading at 3% (down from a peak of 7.1%), and core inflation at 3.5% (down from 5.6%). The Fed has responded to inflationary pressures with rate hikes, but many economists believe that the recent progress could lead to a pause in rate hikes at the next Federal Reserve meeting on December 13.

Pending Home Sales Plunge in October

Background: The housing market has been characterized by high demand and low inventory, leading to soaring home prices and competitive buying conditions.

• October's Numbers: Pending Home Sales, a forward-looking indicator based on signed contracts for existing homes, dropped by 1.5% from September to October. This decline pushed Pending Home Sales to their lowest level since tracking began in 2001.

The Bottom Line: Elevated mortgage rates and tight housing inventory have contributed to a slowdown in home purchase activity. Lawrence Yun, NAR's Chief Economist, emphasized the importance of addressing housing supply shortages to satisfy growing demand.

What the Media Misunderstands About New Home Sales

Background: Reports on new home sales often generate media attention, but interpreting the data accurately is essential.

• October's Data: New Home Sales fell by 5.6% from September to October, with a 679,000-unit annualized pace. While mortgage rate increases affected activity, these signed contracts still represented healthy figures, surpassing numbers from previous months and last year.

The Bottom Line: Supply remains a concern. Of the 439,000 new homes available for sale in October, only 76,000 were completed. Media reports highlighting declines in median sales prices can be misleading, as they may not accurately reflect broader market trends. Lower-priced starter homes are becoming more prevalent, affecting the median price.

Home Values Still Standing Strong

Background: Home values have experienced significant fluctuations in recent years.

• Price Indexes: The Case-Shiller Home Price Index, considered a reliable measure of appreciation, indicated a 0.7% increase in home prices from August to September, marking the eighth consecutive month of gains. The FHFA House Price Index also reported a 0.6% rise in September, with new record highs achieved each month since February.

The Bottom Line: Home values have surged, recovering from the 2022 downturn. Depending on the index, prices are projected to appreciate between 6-8% this year. These indexes underscore the potential for building wealth through homeownership and appreciation gains.

Continuing Jobless Claims Hit 2-Year High

Background: Labor market conditions can have a significant impact on the overall economy.

• Jobless Claims: Initial Jobless Claims increased by 7,000 in the latest week, with 218,000 people filing for unemployment benefits for the first time. Continuing Claims, which indicate the number of people still receiving benefits after their initial claim, increased by 86,000. This brought the number of Continuing Claims to 1.927 million, reaching the highest level in two years.

The Bottom Line: While Initial Jobless Claims remain relatively low historically, the rising trend in Continuing Claims suggests a weakening labor market. It's becoming more challenging for individuals to secure employment after job loss, which can have broader economic implications.

As we continue into the final month of the year, these economic indicators and trends will continue to shape financial markets and consumer confidence. Stay informed and monitor these developments for their potential impact on your financial decisions.

For additional insights and up-to-date information, consider visiting reputable sources such as Bloomberg, CNBC, The Wall Street Journal, and Reuters for comprehensive financial news coverage.