Economy in Brief

• Sales rise to highest level since March.
• Monthly sales rise in three of four regions of the country.
• Median price edges lower.

• Current General Activity Index is lowest since April 2023.
• New orders, shipments & employment weaken.
• Prices paid index improves but prices received falls sharply.

• Initial claims were lower than expected in the week ended December 14.
• Continuing claims remained steady.
• The insured unemployment rate remained unchanged at 1.2%.

Investors have shifted their attention back to the economic data and monetary policy over the past few days, marking a shift from recent weeks when political developments took centre stage in shaping financial market sentiment (chart 1). While this week’s decision by the US Fed to cut policy rates by 25 bps was widely anticipated, the accompanying commentary and forecasts have heightened concerns that US monetary policy will remain tighter for longer in the months ahead. Similarly, the BoE’s likely decision to leave rates unchanged this week has stoked comparable concerns about the UK’s policy trajectory. The key driver behind these concerns is inflation. Persistent inflation in the services sector (chart 2) and ongoing wage pressures are leaving policymakers in the US and UK reluctant to ease monetary policy further. This hesitancy has been amplified by financial conditions that have arguably been looser in recent months than central banks would prefer (chart 3). Additionally, a potential shift toward a more protectionist global trade environment next year could exacerbate price pressures in traded goods sectors, further complicating efforts to bring inflation back toward target levels (chart 4). Meanwhile, in Japan, the BoJ’s decision to maintain its accommodative monetary policy highlights a contrasting challenge: low inflation and a fragile economy. These dynamics stand in stark contrast to the issues confronting the US Fed (chart 5). Further complicating the global picture is China (chart 6), where recent data point to an economy weighed down by weak consumer demand, excess industrial capacity, and tepid inflation. This also underlines the increasingly divergent challenges faced by policymakers across the world’s major economies as they navigate a highly complex and uncertain macroeconomic landscape.

• Single-family starts recover after two hurricanes; multi-family starts continue downward.
• Regional movement is mixed.
• Building permits rise due to strength in multi-family sector.

• Goods deficit widened by $10 billion. Services surplus widened by nearly $2 billion.
• Balance on primary income posted a deficit for only the fifth quarter in the history of the series.
• Secondary income deficit widened by nearly $16 billion, the largest quarterly increase in the series history.

• Applications to purchase a house rose, while applications to refinance declined.
• Slight increase in rates on 30-year fixed-rate loans.
• Average loan size rises modestly.