• U.S. economic activity moderated in December on continued price pressures and high interest rates. Consumer confidence readings remain well below their summer 2021 highs.
• On a slowdown in global demand, both gasoline and lumber prices eased in December, as did shipping costs.
• While five- and 10-year expectations for CPI picked up modestly in early December, inflation expectations are down by 35 bps and 66 bps, respectively, from April 21 peaks.

Virus and mobility

COVID-19 cases:  Average daily new cases in the U.S. picked up sharply to 56,102 in the first week of December from an average 39,316 cases in October (an increase of over 40% during this period). But this remains significantly below the average new cases during June to September (99,000). The latest daily new cases are still below the daily average cases since the pandemic began in March 2020. That said, daily new deaths continued to decline, to an average 298 deaths, compared with an average 391 daily deaths reported in October and less than one-tenth the peak average death rate on Jan. 13, 2021. Of the eight countries we track, all but China have loosened lockdowns significantly, with the U.K. and Canada tied for the least severe.

People-facing COVID-19-sensitive

OpenTable:  Nationally, the latest seated diners' reservation data reflects an average 8% decline in the first week of December compared with the pre-pandemic baseline. This comes after it surpassed the pre-pandemic base. But seasonal adjustment distortions are also at play. Divergence in seated diners' reservations continued into early December, with states such as New York and Illinois still more than 20% below the pre-pandemic levels, while Florida, Georgia, and Texas are well above. California OpenTable reservations declined in the past week, dragging the overall country average down.

Air traffic:  Air traffic improved in the past week in the U.S., after a slight drop during the Thanksgiving holidays, with travelers passing through airport security checkpoints. This suggests that leisure continued to improve, and business travel has also picked up. Despite the pickup in business travel, demand for corporate and long-haul travel still trails pre-COVID-19 levels. according to Airlines for America. Overall, in the fourth quarter (through Dec. 5), more than 142 million travelers passed through airport security checkpoints, compared with 151 million passengers in the same period of 2019 (i.e., a 5.8% gap, compared with around 9% in the third quarter).

Hotel occupancy:  The hotel occupancy rate for the week ended Nov. 26 dropped by 12.6%, though seasonal adjustment distortions are likely at play because of the Thanksgiving holiday. If we exclude that period, we see the occupancy rate remained above the pre-pandemic level as the economy reopened fully and both leisure and business travels have recouped most of the gaps.

Current and future activity

Weekly Economic Index (WEI):  The WEI is adjusting to its pre-COVID-19 levels as spending patterns and business activity absorb higher prices and interest rates. The WEI for the week ended Nov. 26 came in at 1.5% year over year and 1.9% on average in the fourth quarter through Nov. 26--decelerating from 2.9% average year-over-year growth in the third quarter.

Taiwan Purchasing Managers' Index (PMI) measures:  The Taiwan Manufacturing PMI continued to deteriorate in November into a deep contraction, at 43.9--the lowest reading since the data became available in 2012--suggesting persistent weakness in manufacturing activities. Manufacturing activity was down by almost 12.3 percentage points since the beginning of the year (when the index was at 56.2) and 24.8 percentage points since its record high in April 2021 (68.7) as strong demand for semiconductors outpaced supply. Broad-based weakness was seen in new orders, production, prices, supplier delivery, and employment. New orders contracted for the eighth straight month, while the production index is in contraction for five months in a row.

U.S. PMI measures:  The U.S. manufacturing and services PMIs for November display divergent business conditions. ISM manufacturing PMI fell to contraction territory (49.0), the first time since May 2020, when the pandemic-led lockdowns closed businesses worldwide. New orders remained in contraction territory (47.2) for six months. On weakening global demand, manufacturing employment index slid into contraction again after a brief uptick in the previous month. The production subindex remained healthy amid depleted inventories and a higher order book position. In contrast, nonmanufacturing (services) PMI remains healthy--it came in at 56.5, from 54.4 in October, underpinned by robust business activity (64.7) and new orders (56.0) as holiday activities provided a lift.

Raw steel capacity:  Raw steel capacity utilization came in at 73.1% for the week ended Dec. 3, which was 7.6 percentage points below the 2019 average and 9.5 percent points lower than the same period in the previous year. Capacity utilization has been dropping since the third week of August, reflecting weakness in demand for steel. Steel capacity utilization is an important metric for industry profitability. Also, year to date, steel production fell 4%, to 85.15 million tons, compared with the same period last year. The drop in production and capacity utilization perhaps is also tied to the recent drop in metal prices amid slowing global demand, particularly in China.

Home mortgage applications:  For the week ended Dec. 5, the Mortgage Bankers Assn. mortgage applications index fell 3% from the previous week--the first decline in the past month and 40% lower than the same week last year. Mortgage applications for refinance, however, increased 5% this week after a sharp drop in the previous week. The 30-year fixed mortgage rate, which has been increasing since the beginning of the year, rose to 6.5% for the week ended Dec. 1. That said, in the past month, the mortgage rate dropped by 60 basis points after peaking at 7.08% in October last week. The drop perhaps pulled a few homeowners back into the refinance market, but could not pull homebuyers into purchasing new homes.

Johnson Redbook Same-Store Sales Index:  As we have been reporting, the Same-Store Sales Index has been declining after it reached its all-time high of 18.5% in January (year-over-year, four-week moving average). Elevated inflation and tighter financial conditions continued to weigh on household spending, particularly goods. During the fourth quarter (through Dec. 3), same-store retail sales growth slowed to an average 9%, compared with an average 12.8% in the third quarter, as households traded down to cheaper items and shopped for value.

Rigs count:  The number of active drilling rigs in the U.S. increased to 627 on Dec. 2 from the 598 average in September. Refiner and blender adjusted production remained steady, averaging 9.4 million barrels/day since Oct. 7.

Consumer confidence:  The University of Michigan Consumer Sentiment Index's preliminary reading for December increased 2.3 points to 59.1--after a 3.1 drop in October--and is 9.1 points above its all-time low of 50.0 in June. It remained approximately 69.2 points below the 2019 average. Elevated inflation, rising interest rates, and growing risk of the U.S. economy heading into a recession have weighed heavily on consumer sentiments. The Conference Board Consumer Confidence Index weakened in November. December University of Michigan Consumer Sentiment picked up, and the biweekly Ipsos-Forbes Advisor U.S. Consumer Confidence Tracker improved on Dec. 1, as lower gas prices helped improve moods.

Prices

Lumber futures:  Amid a cooling U.S. housing market, lumber prices slid to their lowest since June 18, 2020, to $391/1,000 board feet, approximately 77% lower than their all-time peak on May 7, 2021. The current price nears the 2019 average of $370/1,000 feet as U.S. housing activities plunged into a deep contraction.

CRB-BLS Metals Price Index:  The Metals Price Index has increased by 10% in the past month to $1,004/point from $913/point on Oct. 31--following a steady decline in metal prices since their peak on April 4, but they remained 27% above the 2019 average.

Freightos Baltic Index:  The Freightos Baltic Index further dropped to $2,433 per point on Dec. 7, down from its record high of $11,137 per point in September 2021 and down by almost 73% since the beginning of the year. However, the index remains almost 76% above its pre-pandemic (2019) average. The drop in global demand and ease in supply chain constraints are further depressing global shipping costs.

Gasoline prices:  With the decline in international crude oil prices, gasoline prices plunged close to 32% for the week ended Dec. 5 to $3.39 per gallon, from the all-time high of $5.01 on June 13, and by $0.14 compared with a week prior. A drop in global demand and the resumption of crude oil exports from Libya, together with an increase in production from OPEC+ countries, put pressure on prices. Gasoline prices are still $0.79 (30%) higher than the 2019 average price, before the pandemic set in.

Forward inflation expectations:  Five- and 10-year expectations for the Consumer Price Index climbed by five points each over the past week, to 2.32% and 2.39%, respectively, on Dec. 5. However, they have declined by 35 and 66 basis points from their April 21 peaks of 2.67% and 3.02%, respectively, mainly on the back of falling oil prices.

Labor market

Initial jobless claims versus Indeed job postings:  For the week ended Dec. 2, initial jobless claims increased by 5,000 as per market expectations, from the previous week, to 230,000, with claims largely stable throughout November at an average of 230,000 per week. The low claims indicate a still-strong labor market, with the unemployment rate currently at 3.7%, keeping wage gains elevated--a headache for businesses and the Fed. Indeed job postings remained elevated compared with Feb. 1, 2020. However, some air appears to be coming out of the hot jobs market. Job postings continued to decline through early December, down by 14.5 percentage points from their all-time high of 63.5% (above the Feb. 1, 2020, level) on Dec. 31, 2021. As of Nov 25, Indeed job postings are 49% above from the Feb. 1, 2020, baseline.