Considering a reasonably light domestic indicator schedule this week and the Fed's media blackout period ahead of next week's FOMC meeting, attention was understandably focused on the changing of the guard in Washington and the eagerly anticipated policy details from the new administration which will heavily influence the economic performance over the coming years. On that point, President Trump signed a litany of executive orders and memorandums his first day in office spanning a number of areas, including immigration, energy, foreign policy and trade. On the energy front, President Trump declared a national energy emergency and signed executive orders that will, among other things, review burdens to energy development and end the freeze on the approval of new liquid natural gas export permit applications. Furthermore, President Trump made comments regarding his intentions to refill the Strategic Petroleum Reserve. While these actions are seen as bullish and an attempt to spark animal spirits in the sector, questions remain as to whether the desired surge in private sector investment and output will unfold if oil prices fall materially lower over the coming years.
While executive orders on trade tariffs were notably absent, President Trump initially alluded to the possibility of a 25% tariff on imports from Canada and Mexico starting as soon as February 1. Subsequent comments later in the week were less hawkish—considering 10% tariffs on imports from China—though highlight how much trade discussions remain in flux. Understandably, the administration is ironing out the details, including breadth, degree and implementation. As we have expressed in our economic outlook, our base case is for a 5% universal tariff alongside a 30% tariff on imports from China. For further insight, please read our report, Charting the Course: U.S. Trade in 12 Charts. Until clear guidance is given, the uncertainty about tariffs and the impact on the economic outlook remains high, particularly for firms evaluating existing supply chains and for those considering new investments. As we receive greater detail on new economic policies in the coming weeks—particularly those associated with trade—we will adjust our outlook accordingly.
As previously mentioned, the data calendar was relatively quiet this week. Initial jobless claims increased to a six-week high, rising to a seasonally adjusted level of 223K for the week ended January 18. The Southern California wildfires played a major role in the rise, increasing by 61K on a non-seasonally-adjusted basis. As the wildfires are ongoing, we would not be surprised to see initial claims continue to mount over the coming weeks. Continuing claims increased by 46K to 1,899K, marking the highest level since November 2021. Experiencing extended resilience, the labor market is seeing a dichotomy take shape, one that the Federal Reserve is undoubtedly monitoring as it evaluates monetary policy. On one hand, the historically low level of initial claims suggest the labor market is quite healthy. On the other hand, the relatively elevated level and rising trend of continuing claims suggest more concern, as unemployed workers are having a tougher time finding their next job.
On the housing front, existing home sales ended 2024 with strong momentum as resales posted their third consecutive gain in December, up 2.2% to a 4.24-million unit annualized pace. Last month’s improvement was broad based with gains in single family and condos and co-ops resales. This helped bring total existing home sales 9.3% above the pace a year ago. While encouraging, total existing home sales remain 20% lower than the average pace in 2019. Lower mortgage rates have played a role in the slightly better affordability conditions seen in the second half of last year, though they are still prohibitive to most prospective homebuyers, as they currently hover around 7%. Home price appreciation is another headwind as demand continues to run ahead of supply. Inventories of homes on the market have come up from record lows, though the mortgage rate lock-in effect should keep supply relatively scarce and keep a ceiling on the overall pace of existing home sales.
This Week's State Of The Economy - What Is Ahead? - 04 October 2024
Wells Fargo Economics & Financial Report / Oct 10, 2024
The separate survey of households shows employment rising 430K and unemployment falling 281K in September, leading the unemployment rate to unexpectedly tick down a tenth to 4.1%.
This Week's State Of The Economy - What Is Ahead? - 21 October 2022
Wells Fargo Economics & Financial Report / Oct 25, 2022
The real estate sector has been significantly affected by rising interest rates, with total housing starts falling 8.1% in September. Peering ahead, the forward-looking Leading Economic Index points to a recession in the coming year.
This Week's State Of The Economy - What Is Ahead? - 22 May 2020
Wells Fargo Economics & Financial Report / May 25, 2020
The re-opening of the country is getting underway, with all 50 states starting to roll back restrictions.
This Week's State Of The Economy - What Is Ahead? - 23 September 2022
Wells Fargo Economics & Financial Report / Sep 27, 2022
The FOMC raised the target range for the fed funds rate by 75 bps for the third consecutive time. The housing market continues to buckle under the pressure of higher mortgage rates.
This Week's State Of The Economy - What Is Ahead? - 14 January 2022
Wells Fargo Economics & Financial Report / Jan 18, 2022
As you may have already seen, inflation is running almost as hot as the stock of our favorite bank. The Consumer Price Index (CPI) rose 7.0% year-over-year in December, the fastest increase in nearly 40 years.
This Week's State Of The Economy - What Is Ahead? - 16 October 2021
Wells Fargo Economics & Financial Report / Oct 22, 2021
The first economic data released this week in the United States reinforced the theme that labor supply and demand are struggling to come into balance.
This Week's State Of The Economy - What Is Ahead? - 29 September 2023
Wells Fargo Economics & Financial Report / Oct 02, 2023
On the housing front, new home sales dropped more than expected in August, though an upward revision to July results left us about where everyone expected us to be year-to-date.
Where Will That $2 Trillion Come From Anyway?
Wells Fargo Economics & Financial Report / Apr 01, 2020
Net Treasury issuance is set to surge in the coming weeks and months. At present, we look for the federal budget deficit to be $2.4 trillion in FY 2020 and $1.7 trillion in FY 2021.
This Week's State Of The Economy - What Is Ahead? - 24 January 2020
Wells Fargo Economics & Financial Report / Jan 25, 2020
Fears of an escalating coronavirus outbreak reached the United States this week, as a Washington state man became the first confirmed domestic case and the international total reached more than 800.
This Week's State Of The Economy - What Is Ahead? - 14 April 2023
Wells Fargo Economics & Financial Report / Apr 20, 2023
In March retail sales fell 1.0%, manufacturing production slipped 0.5% and the consumer price index rose a modest 0.1%.
