A banner last day of the month propelled the stock market to solid gains for November. For the month, Wall Street’s major indices performed as follows:
+5.3% Dow Jones
+4.6% S&P 500
Positive returns vaulted us out of a bear market, closing 20.4% higher than the recent low on September 30, 2022. The final-day push was largely thanks to remarks by Federal Reserve Chairman Jerome Powell, who indicated that the central bank would raise rates only 50 basis points at its December meeting.
In October, inflation rose 7.7% over the previous twelve months according to the Consumer Price Index, nudging up 0.4% in the month since September’s CPI report.
The good news is that inflation increased slower than expected, welcome news and a first sign that inflation growth may be moderating. Economists originally forecast a +7.9% CPI gain for October. The true 7.7% number was the slowest rate of increase since January of 2022 and also a significant reduction from June’s +9.1% and September’s +8.2% CPI readings.
Core inflation readings decelerated to 6.3% annually, slowing from a forty-year high in previous months.
However, despite the encouraging initial inflation report in October, household staples such as food, housing, and energy are still climbing at a concerning pace. Shelter costs in particular increased 0.8% just last month, the highest rate of increase since 1990.
The Bureau of Labor Statistics’ next CPI report revealing November’s inflation data will be released December 13th.
Jobs and Unemployment
The U.S. economy added 261,000 jobs in October according to the latest data released by the U.S. Labor Bureau.
The unemployment rate also increased to 3.7% for the month. While that is an increase, it’s only a tick above the 50-year low, as there are still almost two jobs available for each job seeker.
For the period of August-October, job growth average 289,000 new jobs per month. And since January 2021, the US economy has average more than 200,000 additional new jobs every month.
However, weekly job data reveals that layoffs are still relatively low across the U.S. economy, despite mass layoffs across the technology sector. In October, employment grew most in the manufacturing and healthcare sectors.
Fed officials have expressed that the unemployment rate would need to climb to the 4% mark or beyond before exerting a cooling influence on demand-driven inflation.
The next jobs, payroll, and unemployment report will be released December 2nd and carefully scrutinized by the Fed and Wall Street.
The Federal Reserve hiked interest rates another 0.75 basis points at its November 1-2 meeting. That was the Fed’s fourth consecutive 0.75-point rate hike as they look to stall inflation, pushing the central bank’s benchmark rate to a range of 3.75% to 4%, its highest mark in 15 years.
The most likely scenario includes another Fed 50-basis-point increase at its December 13-14 meeting. That notion was confirmed by Federal Reserve Chairman Jerome Powell during his November 30th speech, when he expressed that the Fed was ready to start tapering interest rate increases as soon as December.
One potential path includes a .50% rate hike in December and yet again at their next meeting in February 2023, then pausing rate hikes as soon as March 2023 at the high point of around 5%.
Of course, the Fed will be closely watching inflation, employment, and a host of economic data in advance of its December meeting.
According to the Bureau of Economic Analysis, U.S. Gross Domestic Product rose 2.9% in the third quarter of 2022, exceeding advance estimates of 2.6%.
That marks a solid turnaround after GDP declined the first two quarters of the year. While negative GDP in Q1 (-1.6%) and Q2 (-0.6%) meets one basic definition of a recession, economic expansion in Q3 reversed that momentum.
The official determination on recessions is handed down by the National Bureau of Economic Research, who gauge a deeper array of factors and data. Still, in a September poll by Cinch Home Services, 76 percent of Americans surveyed felt that the U.S. economy was already in a recession, among other polls with similar results.
GDP increases were pushed by jumps in exports and consumer spending during Q3, while a drop in housing investments was the biggest detractor.
Housing Market and Mortgage
At first glance, it may seem like the housing market is in freefall after mortgage rates doubled since the start of the year, but the truth is far more encouraging.
Yes, mortgage rates hit the 7%-mark last month, but rates for home loans have fallen by almost half a percentage point since. According to Freddie Mac’s mortgage survey, the average 30-year-fixed loan is at 6.58% right now, a welcome development after rates essentially doubled since the beginning of 2022.
As expected, homebuyers are facing sticker shock when purchasing a property, causing a cooling of demand. Through October and based on latest data from the National Association of Realtors, home sales declined for the ninth straight month, slowing by 5.9% just from September to October and down 24.8% year-over-year.
While sales volume and purchase activity are down, the housing market still stands on a strong foundation of record-high homeowner equity, paltry inventory, and an overwhelming majority of homeowners now have safe, low-rate fixed mortgages. Today’s mortgage rates are also not unfavorable based on historical averages, so home prices will continue to cool in 2023 but without a meltdown or crash like we saw in 2008.
Debt is the fastest way to kill the accumulation of generational wealth! And right now, U.S. consumers are turning to credit cards and racking up debt at an alarming pace. In fact, household debt increased at its fastest rate in the past 20 years, reaching a record $16.5 trillion. The increase is in large part due to spikes in credit card balances and mortgage debt.
From Q3 2021 to Q3 2022, U.S. credit card balances rose 15% according to the New York Federal Reserve, now totaling $930 billion. From July to September 2022 alone, total household debt skyrocketed $351 billion, the quickest quarterly increase since 2007.
While a good portion of that increase was mortgage borrowing (especially with HELOCs as homeowners tapped in to record equity), the rise in credit card debt, personal loans, and the like can be blamed on “a combination of robust consumer demand and higher prices,” according to Fed officials.
“It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting.”
-Federal Reserve Chairman Jerome Powell during a speech on November 30th.