Macro Report

Week’s Takeaway:

Industrial economic data from this week confidently points to a recovery in demand. Furthermore, inflation data confirms that the FOMC will likely pause the cutting cycle for an extended period.

Notes:

On the industrial side of data, there was a lot to get hopeful about going into 2025. First and foremost, the FED’s Industrial production index showed a 0.9% increase in December, well above the expected increase of 0.3% – the highest level of output since June. Capacity utilization also rose to 77.6%. As we mentioned in yesterday’s FFI Live, we expect that the incredible amount of investment in the U.S. manufacturing base over the last 2-3 years will result in a new all-time high level in industrial production output, previously set in September 2018.

The FED Manufacturing surveys were mixed, with Empire (NY) printing at – 12.6, below the expected increase to 3. However, the more reliable Philadelphia index jumped to 44.3, it’s highest level of expansion since April 2021.

This was also coupled with a much better than expected NFIB (National Federation of Small Businesses) Optimism Index jumping to 105.1, it’s highest level since October 2018. Furthermore, the NAHB (National Association of Homebuilders) Housing Market Index increasing to 47, versus the expectation of a decline to 45. Optimism in the housing sector was then confirmed by an impressive mix of housing starts and building permits, with both coming in above expectations – starts rose to 1,499k, versus the expected increase to 1,327k (highest level since February), while permits decreased to 1,483k, better than the expected decline to 1,460k.

Finally, December inflation data came in mostly below expectations, while remaining elevated for YoY readings. Core CPI (Consumer Price Index) eased to 3.2%, below the expected 3.3% and down from 3.3%, where it has been sitting for the previous three months. Core PPI (Producer Price Index) on the other hand rose to 3.5% but came in below the expected 3.8% print. The market is currently pricing in only one rate cut for next year (currently in June). Over the last month, the market has moved more in line with our thinking of no rate cuts in 2025.

Next Week’s Notes:

Next week, the data releases will be relatively light, with a few key reports from the manufacturing sector, housing market, and broader economic indicators.

For the manufacturing sector, we will receive another January Fed Manufacturing Survey, the Kansas City index. Additionally, the preliminary results for the January S&P Global US Manufacturing PMI will be published.

In housing, we are set to see December’s Existing Home Sales, which have market expectations for an increase to 4.20m from 4.15m sales in November.

On the broader economic front, the final results for the January University of Michigan consumer surveys will be issued. The preliminary data indicated notable rises in inflation expectations, with the 1-Year accelerating to 3.3%, the highest rate in eight months, and similarly, the 5- Year increased to 3.3%, the steepest since June 2008. Additionally, we will get a look at the weekly updates on Initial and Continuing Jobless Claims.