Overview: There were no major surprises in the two significant economic reports released over the past week. Inflation was in line with expectations, and the labor market bounced back from last month’s weakness. As a result, mortgage rates ended with little change.
The Consumer Price Index (CPI) is one of the most closely watched inflation indicators released each month. Core CPI, which excludes food and energy, is generally favored by investors to reduce short-term volatility and get a better sense of the underlying inflation trend. In November, core CPI was 3.3% higher than a year ago, matching the consensus forecast and the same annual rate of increase as last month.
Although this annual rate is down from a roughly 40-year high of 6.6% in September 2022, it is still far above the readings around 2% seen early in 2021, which is the stated target level of the Federal Reserve. Shelter (housing) costs were 4.7% higher than a year ago and continue to be a primary reason why inflation remains stubbornly elevated. In addition, used vehicle prices jumped 2% from October, and new vehicle prices increased 0.6% from last month. In short, progress in bringing down inflation has stalled in recent months.
Last month, the economy added just 36,000 jobs due to the impact of hurricanes and large strikes. Forecasts for this month varied widely, and the closely watched Employment Report released on Friday revealed that the labor market recovered a little more strongly than expected. The economy added 227,000 jobs in November, above the consensus forecast of 200,000, and the results for prior months were revised higher by 56,000. Sectors exhibiting particular strength included health care, leisure/hospitality, and social services, while retail lost jobs. Average hourly earnings, an indicator of wage growth, were 4% higher than a year ago, the same annual rate of increase as last month.
Core CPI (annual % change)
Week Ahead
Dec. 12
European Central Bank meeting
Producer Price Index (PPI)
Dec. 17
Retail Sales report
Dec. 18
Federal Reserve meeting (25 basis-point rate cut expected)
New Residential Construction report (also known as Housing Starts)
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