Economic Update: Signs of Weakening in Labor, Manufacturing, and Housing Markets | Episode 074 |11-16-23

Unfortunately, the news points to further weakness in the economy, with surprising jumps in initial jobless claims and a concerning rise in continuing claims. The manufacturing sector is also facing challenges, particularly in industrial production and capacity utilization, hinting at broader economic struggles. Megan delves into the impact of the auto strike and its effects on various industries, from furniture to plastics.

In a completely different area, the housing market takes a hit as the NAHB housing market index for November drops significantly. High mortgage rates, low inventory, and a lack of interest in moving contribute to the worst housing confidence since the Great Recession. Megan explains the ripple effects on buyer traffic, reminiscent of the great recession levels.

As a result, equity markets are down, reflecting concerns about the slowing economy, while bonds rally, indicating a fall in yields. Are rate cuts on the horizon? Megan shares insights into market reactions and what it means for investors.

Stay informed on the latest economic developments and market trends with Verdence Capital Advisors. Thank you for tuning in.

Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors. We're coming to you today with our regular segment of Markets with Megan and we're going to focus on kind of a hodgepodge of economic data that we've gotten today and unfortunately, everything we've seen today is pointed to further weakness in the economy. Some of this Fed tightening tight monetary conditions, high inflation it's starting to filter into some of the data that we haven't seen thus far. So let's dig into it. First of all, from the labor market side, we got the initial jobless claims, a surprising jump in these jobless claims. They've reached a three month high. But the bigger point to that is the continuing claims. So these are the people that are continually filing for those unemployment benefits. That rose to the highest level in two years. So there is definitely signs there that the labor market is showing signs of weakness.

Now let's talk about the manufacturing side. We know manufacturing has been contracting for quite some time, but some of these levels that we got today on industrial production and also capacity utilization definitely surprised. To the downside as well. They were weaker than expected. Now, some of this has to do with the auto strike and the production in autos, but let's take that out and look at some of the other things in the capacity utilization number. So this is how much of the capacity are we using in our economy? And when that number is falling, that tends to mean we're using less of the capacity or the demand for goods is slowing. Now we saw this in the auto market, obviously because some of those plants were shut down during the strike. But there's other weakness in things like furniture, apparel, plastics, metals. These are what we consider kind of economic indicators. These are durable goods, types of items that are starting to see weakness.

The last thing is completely different topic is the housing market. We got the monthly NAHB housing market index for November. What a just an ugly number. This saw a much bigger drop than was anticipated and if you go back in history, aside from the pandemic and one brief tick significantly lower in December of last year, this is the worst housing confidence that we've seen here since the great recession. And why is that? Because mortgage rates continue to be high. We have very little inventory and not a lot of people who want to move at this time. So this is causing significant strain on the housing market Perspective buyer traffic also. That's completely fallen off a cliff that's now. It's kind of the great recession types of levels if you take out the pandemic. So housing just continues to be paralyzed here in so many different areas.

So just sum it up the markets, the equity markets, are down today because of the fact that the economy slowing. Bonds are rallying means yields are falling because people are anticipating the Fed will be done and actually are pulling rate cuts up earlier. We're not necessarily in that camp yet. One month is not. We're not going to say it's all clear after one month of data, but it is definitely trending in the way that we had anticipated for many, many months now. So we'll keep watching the economy. We'll see how it starts to iron itself out as we close out this year and we'll be back with more. If you have any questions or comments, please feel free to reach out to podcasts at verdence dot com. Thank you.