• Health conditions continued to improve with a steady decline in average daily new cases, hospitalizations, and deaths.

• Higher prices and borrowing costs are affecting economic activity through early February, causing the New York Federal Reserve's Weekly Economic Index to decelerate from 1.8% to 1%.

• Though overall inflation readings have moderated somewhat through early February, continued tightness in the labor market will add upside pressure on wages this year.

Virus and mobility

COVID-19 cases:   Health conditions continued to improve throughout the country with a steady decline in average daily new cases, hospitalizations, and deaths over the past two weeks. Daily new cases (seven-day average) fell to 36,675 (as of Feb. 13) from 53,800 on Jan. 23, and are significantly below the average new cases last June to September. Meanwhile, daily hospitalizations decreased notably to a daily average of around 29,000 from 50,000 in early January, along with reduced death rates.

People-facing COVID-19-sensitive

OpenTable:   Nationally, as of Feb. 8, seated diners reservation data moderated to 2% above its pre-pandemic baseline after rising to an 8% gain since our last publication. States such as New York and Illinois continued to see lower reservations--at 20% and 29% below the baseline, respectively. Florida, Georgia, and California stayed well above the baseline. The decline in hotel reservations perhaps signals the slowdown in household spending as consumers become more price-sensitive after the holiday spending splurge, despite resilient labor market conditions.

Air traffic:   As of Feb. 6, passengers passing through TSA checkpoints have increased by 34% year over year and are more than 15% above the level at the same date in 2020. Air traffic continues to see solid gains as health conditions improve and mobility increases. Business activity has increased as more companies return to in-person meetings.

Hotel occupancy:   The hotel occupancy rate for the week ended Jan. 28 increased to 56.3%, the highest level since Dec. 10, after sliding to 43.9% during the last week of December. The latest occupancy rate, however, remained 10 percentage points lower than the 2019 average. For full-year 2022, hotel occupancy was at 62.7% on average.

Current and future activity

Weekly Economic Index (WEI):   Recent WEI data displays a slowdown in activities after almost returning to pre-COVID-19 levels. The WEI for the week ended Feb. 4 was 1% year over year, compared with an average 1.8% throughout the fourth quarter and 1.5% pre-pandemic. If we compare this with the previous week, the WEI inched down by 11 basis points, largely owing to declines in retail sales, consumer confidence, and fuel sales, and a rise in initial unemployment insurance claims, which more than offset increases in steel production, tax withholding, railroad traffic, and electricity output.

Taiwan Purchasing Managers' Index (PMI) measures:  S&P Global Taiwan Manufacturing PMI fell to 44.3 in January 2023 from 44.6 in December, in contraction territory for the eighth straight month on weaker business conditions. The Taiwan Manufacturing PMI continued to deteriorate in December into a deep contraction, to 39.8--the lowest since the data became available in 2012--suggesting persistent weakness in manufacturing. Manufacturing activity was down by almost 16.4 percentage points since the beginning of the year (when the index was at 56.2) and by 28.9 percentage points since its record high in April 2021 (of 68.7). This latest reading suggests a broad-based weakness from new orders, production, prices, supplier deliveries, and employment.

U.S. PMI measures:   The U.S. services PMI rebounded strongly at the start of the year--increasing by 6 percentage points to 55.2 in January, the highest monthly gain since June 2020, after falling into contraction territory in December. The January increase was supported by both new orders and business activities. New orders index increased by 15.2 percentage points after sliding 10.8 points in December, with 11 industries experiencing an increase. Conversely, U.S. manufacturing PMI declined another 1 percentage point to 47.2 in January, in contraction territory for 3 straight months. New orders, a leading indicator in our Business Cycle Barometer report, have been in contraction territory since September.

Raw steel capacity:  Raw steel capacity utilization increased to 74.1% for the week ended Feb. 4, from 73.1% the previous week (highest weekly reading since Nov. 5). This was almost 8.2 percentage points below the 2019 average and 7 percentage points lower than the same period the previous year. Capacity utilization has been gradually increasing for the past four weeks, following a sharp drop in utilization throughout November and December.

Home mortgage applications:   For the week ended Feb. 3, the mortgage purchase applications index was up 3.1%, after plunging 10.3% the preceding week, according to the Mortgage Bankers Assn. This came amid a drop in the 30-year mortgage rate, which fell for the fifth straight week, to 6.18%. The mortgage rate had risen to 7.16% in October. The Refinance Index also climbed 17.7% from the previous week. Purchase applications were still down by 32% over last year--indicating that housing activities remained weak.

Johnson Redbook Same-Store Sales Index:   The Same-Store Sales Index averaged 6.3% in January (year over year, four-week moving average), well below its all-time high of 18.5% in January 2022. And in December last year, the average growth of the index was 7.5%. This comes after retail sales fell for two straight months through December, according to Census data. Deceleration in retail sales at the start of the year indicates that consumers are holding back spending amid higher prices and borrowing costs.

Rigs count:   The number of active drilling rigs in the U.S. in the week ended Feb. 3 was 599, down by 10 from the previous week and by 174 from the 2019 average of 773. Compared with the same period last year, the rigs count was up by 102–-reflecting an increase in investment in the U.S. oil and gas sector.

Consumer confidence:   The University of Michigan Consumer Sentiment Index's preliminary reading for February rose by 2.3% from the previous month, to 66.4, amid easing inflationary pressures and a strong labor market. The February reading was the highest in the past 13 months and remained 7.4 points above the 2022 average reading of 59. While the January Conference Board Consumer Confidence Survey dipped modestly by 1.2 points after increasing by 6.9 points in December, it also remained above its 2022 average, suggesting the mood of the consumer improved in the past two months.

Prices

Lumber futures:   The lumber prices jumped 36% to $469.5/1000 board feet as of Feb. 7, after nosediving to $345/1000 board feet on Jan. 11. The recent decline in mortgage rates gave new home sales a lift. Further, mortgage rates have come down considerably in the past two months.

CRB-BLS Metals Price Index:   The Metals Price Index increased by 7.8% on Feb 7, to $1091.3/point this year from $1,011.6/point on Jan. 1. In addition, metal prices have increased by more than 20% since the Chinese economy reopened from its zero COVID-19 policy in November, as Chinese demand is likely to increase.

Freightos Baltic Index:   The Freightos Baltic Index further declined to $2,008 per point on Feb. 7, a long way from its record high of $11,137 per point in September 2021. However, the index remains almost 46% above its average from 2019, before the pandemic. Lower global demand and easing supply chain constraints are further depressing global shipping costs.

Gasoline prices:   Gasoline prices reached $3.44 per gallon for the week ended Feb. 6, down 31% from the all-time high on June 13. Faltering global demand, the resumption of crude oil exports from Libya, and a production hike from OPEC+ countries are all pressuring prices. Prices are still 32% higher than 2019 average price levels.

Forward inflation expectations:   Five-year inflation expectations declined since Jan. 26, by 12 basis points, to 2.22% on Feb. 7, while 10-year break-even inflation expectations are broadly moving sideways. They are down by 45 and 71 basis points from their April 21 peaks of 2.67% and 3.02%, respectively, mainly on the back of declining oil prices and overall inflation. University of Michigan Consumer Sentiment reports that the one-year inflation gauge dropped to a two-year low of 3.9% from 4.4% in December, and well below its 41-year high of 5.4% early last year. The five- to 10-year inflation index held at 2.9%, although below its 11-year high of 3.1% in last June and January.

Labor market

Initial jobless claims versus Indeed job postings:   For the week ended Feb. 4, initial jobless claims rose by 13,000 to 196,000, a little higher than expectations but well in recovery territory. Still, low claims report continues to highlight that the labor market is still strong. Meanwhile, indeed job postings have been moderating, but remained elevated. The January payroll date came in much stronger than market expectations, adding 517,000 jobs, with the unemployment rate down by 0.1% to 3.4%, a 54-year low.