Weekly Economic Snapshot: Signs of Strength & Softness

Last week’s indicators offered updates on the labor market, housing, and consumer sentiment, which highlighted both progress and lingering challenges in the U.S. economy. Financial markets rallied to new highs, thanks to evolving trade policy dynamics and increased expectations for further Fed rate cuts this year. As inflation concerns and employment uncertainty persist, last week’s data shed light on factors shaping economic momentum.

The number of people who filed for unemployment for the first time rose for a second straight week. Initial jobless claims increased to 223,000—slightly above expectations and up from the previous week’s unrevised figure. The data, current through January 18th, does not yet reflect potential increases from recent weather events such as freezing temperatures and California’s fires, which will likely push claims higher in the coming weeks. Given the high volatility of this weekly data, the 4-week moving average (MA) gives a better sense of the overall trend. The 4-week MA was up 750 from the previous week to 213,500, the second-lowest level since April 2024, trailing only the previous week’s figure.

Despite last week’s uptick in unemployment claims, the labor market remains strong. December’s robust jobs report showed 256,000 jobs were added last month and the unemployment rate inched down to 4.1%. However, the latest data combined with the possibility of weather-driven increases, has raised some caution about a potential labor market slowdown. While the initial jobless claims are subject to weekly revisions, they remain an important leading indicator of the broader employment situation. The Fed keeps a close eye on any labor market data, as employment is one of the main factors of monetary policy decisions.

Existing home sales closed out its worst year since 1995 on a positive note. Sales rose for a third straight month to their highest level since February. They come in at a seasonally adjusted annual rate of 4.24M in December. This represents a 2.2% increase from November and marks the longest streak of monthly gains since late 2021. Despite the total of 4.06 million existing home sales, the solid finish to 2024 suggests a potential turning point for the housing market. December sales were up 9.3% compared to a year ago. That’s the third consecutive year-over-year increase and the longest such streak in over three years. Notably, these gains came during the winter months when sales are typically softer.

Mortgage rates, which averaged 6.7% throughout 2024 as well as December, continue to weigh on housing activity. However, the recent uptick in sales may indicate consumers are gradually adjusting to the new reality of mortgage rates in the 6-7% range. It almost may indicate they’re becoming more willing to move forward, even if it means giving up their historically low locked-in rate.

Existing home sales could impact residential real-estate ETFs such as the iShares Residential and Multisector Real Estate ETF (REZ A-).

Consumer sentiment fell for the first time in six months, according to this month’s final report of the Michigan Consumer Sentiment Index. The January final report came in at 71.1. It marked a 3.9% decrease from December’s final reading and a 10.0% decline from one year ago. The latest reading was lower than the expected value of 73.2.

The Michigan Consumer Sentiment Index is a monthly survey measuring consumers’ opinions regarding the economy, personal finances, business conditions, and buying conditions. This month, both the current conditions and future expectations indexes fell. Respondents reported improvements to their personal income. But  they expressed concerns about unemployment and uncertainty surrounding tariffs and their impact on inflation. As a result, short-term and long-term inflation expectations both rose.

Consumer attitudes are closely monitored, as their confidence levels tend to impact their spending behavior. Given that consumer spending accounts for approximately 70% of the economy, consumer spending has a major impact on economic growth.

The Consumer Discretionary Select Sector SPDR ETF (XLY A) is tied to consumer confidence.

The S&P 500 rallied last week before hitting Friday’s roadblock, finishing up 1.7%, its second straight week of gains. The index hit a new all-time high on Thursday and is up 3.97% year-to-date. Meanwhile, the S&P Equal Weight Index rose 1.1% last week and is up 4.20% year to date.

The 10-year Treasury yield finished the week higher at 4.63% while the 2-Year note finished higher/lower at 4.27%.

According to the CME FedWatch Tool, markets are nearly certain that the Federal Reserve will hold rates steady at 4.25-4.50% during this week’s meeting. Looking ahead, markets currently anticipate just one rate cut in 2025. There is a 70% probability that it will occur at the June 18 meeting.

The economic calendar is jam-packed next week with critical updates. The Bureau of Economic Analysis will release the first estimate of Q4 GDP. And the Department of Commerce will unveil the latest inflation data with the PCE Price Index. These two key reports could shape economic and market expectations.

Additionally, housing data will be in focus with December’s new and pending home sales and Home Price Indexes from the FHFA and S&P Case-Shiller. Rounding out the week, the Conference Board’s Consumer Confidence Index is expected to show a slight improvement in sentiment. The ISM will release the Chicago PMI, offering insight into regional manufacturing activity.

For more news, information, and analysis, visit the Innovative ETFs Channel.