Chief Economist Scott Brown discusses the latest market data.
In his renomination hearing, Fed Chair Jerome Powell stressed that the key to maximum sustainable employment and financial stability was keeping inflation low. However, he didn’t appear as hawkish as financial market participants had feared.
The Fed’s Beige Book noted that economic growth expanded at “a modest pace” in the final week of 2021. However, demand for materials and labor “remained elevated.” Omicron led to “a sudden pullback in leisure travel, hotel occupancy and patronage at restaurants.” Contacts reported “solid growth in prices charged to customers, but some also noted that price increases had decelerated a bit from the robust pace experienced in recent months.”
The Consumer Price Index (CPI) rose 7.0% in 2021. The largest increase in nearly 40 years. Ex-food and energy, the CPI rose 5.5% y/y. The monthly increase was led by higher prices of new and used motor vehicles. Shelter costs are trending higher. Retail sales fell 1.9% in December (+16.9% y/y), down 2.3% ex-autos (+17.0% y/y). The drop likely reflects earlier holiday shopping, an omicron impact and reduced purchasing power for the average consumer. Industrial production slipped 0.1% in December (+3.7% y/y), held back by a 1.3% decline in motor vehicle output (-5.9% y/y).
Next week: The economic calendar is thin. December is not a critical month for housing. The drop in jobless claims will lead the LEI higher.
As of close of business 1/20/2022