Holiday Travel, Durable Goods, and Gas Prices

Week in Review: Nov. 21-25

In the spirit of Thanksgiving (and because this post only covers three days), we’re making this Week in Review free to all subscribers. If you’re a free subscriber who wants to keep seeing these every Friday, click below!

Thanksgiving at last. I give thanks for an Orioles winning season, the first place Ravens, my family, our company, and our loyal subscribers. I hope you have much to be thankful for as we jump into…

Monday

Chicago Fed National Activity Index

The insanely complex and therefore very sexy CFNAI declined in October, but remains at a level indicating economic expansion, albeit at a below average rate. Slowing growth is in line with my view of the economy, so at least that part’s good and you should give thanks for my insight. Zack doesn’t love this measure because of its bewildering array of components (it mashes together 84 separate indicators), but Monday was slow for data so we thought this would be a nice introduction to . . .

Tuesday

TSA Checkpoint Travel Numbers

TSA check ins are trending just below pre-pandemic levels. AAA estimates that holiday travel will get back to 99% of what we experienced in 2019. Unfortunately, I don’t think airport (or airline) staffing levels have returned to 99% of what they were in 2019, so plan accordingly.

Wednesday

Mortgage Applications

Mortgage applications actually moved higher for the second straight week, up 2.2% for the week ending November 18. Refinance activity also increased but is down 86% year over year. Mortgage applications are inversely correlated to mortgage rates, and with rates dipping a bit recently, we saw a bit more activity on this front.

Jobless Claims

Initial jobless claims jumped to 240,000 for the week ending November 19, an increase of 17,000 from the previous week. This is the highest level since mid-August. For historical context, 240,000 is below the annual average observed from 1970-2018.

So jobless claims are still pretty low, and seasonal adjustments to the data complicate interpretations during holiday seasons. There’s really not that much news here, except it bolsters the view that the labor market has begun to downshift just a bit. Expect to see jobless claims ramp higher in early 2023.

Durable Goods Orders

Demand for durable goods (things that are expensive and typically last for more than three years like a washing machine, computer, or aircraft) keeps rising, up another 1.0% ($2.8 billion) in October. This has now increased during 7 of the past 8 months and 10 of the past 12. New orders increased in every category tracked by the release in October. Shipments generally increased; only a few categories (fabricated metal products, defense aircrafts and parts, and defense capital goods) saw fewer shipments than in September. But keep in mind, these data are for October.

The upshot here is that through October the demand side of the economy remains surprisingly strong, which is both good and bad news. The good news is obvious. The bad news is that this overheated economy remains overheated, which means the Federal Reserve will keep raising rates and keep them elevated for longer. Among other things, that stands to hurt . . .

New Home Sales

Sales of new single-family houses increased in October (+7.5%) but are down 5.8% year over year. This is a little counterintuitive given the incredible increase in mortgage rates over the past year, but I think it mostly has to do with inventory. There were about 95,000 more new homes (+21%) for sale in October 2022 than in October 2021, so buyers have much more from which to choose.

University of Michigan Consumer Sentiment Index

This popular measure of the consumer psyche shows that consumers felt worse about the economy in November than they did in October. This should surprise pretty much nobody and has a lot to do with stubbornly high inflation, including elevated home heating costs.

S&P Global PMI

The S&P Purchasing Managers’ Index readings (which measure the direction of economic trends in a given sector) for both manufacturing and services fell in November, signaling that demand slowed through the first three weeks of the month.

This is a newsy data release because it corresponds to November, and most of the data we have are characterizing economic conditions in October. It may be that the economy has begun weakening in earnest only very recently, which will render upcoming employment and retail sales releases all the more intriguing.

Gas Prices

Gasoline prices are up 7.5% from the same time last year, which is slightly below year-over-year overall inflation according to the Consumer Price Index. I don’t know about you, but gas prices feel much higher to me, but I am, as is well known, a 93-octane kind of guy.

Links of the Week

“Brilliant Jerks, Crazy Hotties, and Other Artifacts of Range Restriction” This post looks at whether most geniuses are jerks (like Steve Jobs) and other similar associations.

Most Billboard Hot 100 pop songs don’t have key changes anymore, which is a real bummer.

Economist and super-blogger Tyler Cowen on his favorite fiction and non-fiction books of 2022.

Final Thoughts

After this week, my outlook for the economy is: Unchanged

I continue to anticipate recession next year. I am shocked that there are economists who see otherwise, but I view them as 85-octane fools. (Zack, for instance, is less certain about recession in ‘23 and drives an EV)

Looking Ahead

Things pick back up next week with PCE inflation data, job openings, construction spending, the jobs report on Friday, and a bunch of others. Happy Thanksgiving!