Signs increased that the Federal Reserve might pause or slow the pace of interest rate increases in 2019, particularly as the economy has softened somewhat. (For more on the current state of the economy, see my guest column in The Hill.)
In the minutes from the December 18–19 meeting of the Federal Open Market Committee (FOMC), participants stressed that future hikes were not on a “preset course” and would be data dependent. Federal Reserve Board Chair Jerome Powell reiterated that point further in a speech, suggesting that the FOMC would not rush to raise rates until economic conditions warranted such action. He also commented on the Federal Reserve’s balance sheet, which should fall below $4 trillion in the coming weeks for the first time since December 2013.
The Federal Reserve did receive some good news on the inflation front. Reduced energy costs helped to pull consumer prices lower in December, the first decline since March. The consumer price index has risen 1.9 percent over the past 12 months, the first year-over-year reading below 2 percent since July 2017 and down from 2.9 percent in July (the highest year-over-year rate since February 2012). With that said, core inflation remained at 2.2 percent year-over-year for the fifth straight month.
There were 493,000 job openings in the manufacturing sector in November, not far from August’s all-time high (508,000). In addition, durable goods firms reported the most job postings in November (324,000) since January 2001.
Overall, the job openings data provided another solid reading regarding manufacturing job growth, consistent with the strong outlook and a tight labor market. Indeed, manufacturers continue to report difficulties in finding talent as their top concern. For the ninth consecutive month, there were more job openings in the U.S. economy (6,888,000 in November) than the number of people looking for work (6,018,000 in November and 6,294,000 in December).
New data on factory orders and international trade were not released on schedule due to the partial government shutdown.
Small business owners remain upbeat despite the fourth consecutive pullback in optimism in the National Federation of Independent Business’s monthly survey. The easing in December stemmed largely from reduced sales expectations, which were the lowest since April. On the other hand, workforce challenges remained the top “single most important problem” for the 11th consecutive month, and 39 percent of small business owners said they had job openings in December, a new record high in the survey’s history.
There were some signs of softness in earnings for several key retailers, even as consumer spending has been expanding modestly overall. For its part, consumer credit outstanding increased 6.7 percent in November, including a 5.5 percent gain for revolving credit. The data suggest Americans were more willing to incur credit card debt in both October and November after some hesitance to do so in September. Overall, consumer credit has increased 4.3 percent over the past 12 months.