Moving into a new year and new administration, economic data presents a mix of resilience and challenges, according to a recent report from the California Association of Realtors (CAR). Additionally, growing concerns regarding upcoming tariffs following the presidential election are adding uncertainty to overall price implications, the CAR report acknowledged, with respondents citing concerns over price increases in electronics and hospital supply chains in particular.
The service sector inflation pressures persisted despite a decline in ISM services activity, which can complicate the Fed’s inflation strategy as wage growth remains elevated and tariff-related uncertainties loom, the report noted. Essentially, this means that despite overall inflation potentially easing, price increases within the service industry, like healthcare, hospitality, and transportation, continue to remain elevated and are a significant concern for economists and policymakers. These increases are often linked to tight labor markets and higher wage costs within these sectors.
Meanwhile, said the CAR report, construction spending rose in October, driven by solid residential improvements, while nonresidential outlays softened under high interest rates. The report also noted that consumer sentiment saw a short-term boost in December but was cautious about the future due to inflation concerns. At the same time, November employment bounced back, but unemployment rate inched up and labor force participation declined.
On a related note, the National Association of Realtors (NAR) reported that in 2024, 36 percent of their clients moved to a different state. However, the majority of clients moved within their state; 21 percent moved within the same city, 21 percent moved to a different city in the same area, and 21 percent moved to a different area within their state.
The ISM Manufacturing PMI for the US increased to 48.4 in November 2024 from 46.5 in October, according to Tradingeconomics.com, beating forecasts of 47.5. The reading pointed to another, albeit softer, contraction in the manufacturing sector. New orders rebounded after seven months of contraction (50.4 vs 47.1) and production (46.8 vs 46.2), employment (48.1 vs 44.4), and inventories (48.1 vs 42.6) contracted less. Also, price pressures eased (50.3 vs 54.8) and the supplier deliveries index indicated faster deliveries (48.7 vs 52).
According to Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee, “Demand remains weak, as companies prepare plans for 2025 with the benefit of the election cycle ending. Production execution eased in November, consistent with demand sluggishness and weak backlogs. Suppliers continue to have capacity, with lead times improving but some product shortages reappearing.”
Despite the slowdown, said the CAR report, the prices paid component rose to 58.2, a reflection of the service sector’s wage growth of 0.6% in October, which was the highest since March. “The difficulty in taming service inflation complicates the Federal Reserve’s pricing outlook and presents a challenge to the Fed on cooling inflation without stifling economic growth,” said the report.
Consumer sentiment showed an improvement in early December, reaching a nine-month high of 74.0, according to the University of Michigan’s Survey of Consumers. The climb in the index was driven by a surge in optimism in current economic conditions during the holiday shopping season and following the election. This boost was primarily among Republicans, whose sentiment surpassed that of Democrats within two months of the election, reversing the partisan trend seen since 2020.
Despite an improvement in the present outlook, expectations about the upcoming year remained cautious, with future sentiment dropping to a six-month low. Inflation continued to weigh heavily on consumers’ minds, with year-ahead expectations rising to 2.9%, reflecting concerns about potential tariff-related price increases.
The CAR report concluded that, “While sentiment has shown a short-term lift in the current month, inflation worries and economic uncertainty continued to worry consumers and hinder the progress on their near-term expectations.”
