Policy Backgrounders

The Weekly Round-Up: Developments on the Economy (November 18, 2022)

November 18, 2022

CED & ESF ECONOMIC & POLICY BRIEF

The Weekly Round-Up:

Developments on the Economy

November 18, 2022

This week CEOs and financial markets had mostly positive news about the US economy.

Retail sales in October rose 1.3 percent month-over-month to $694.5 billion and 8.3 percent from the previous year. Adjusted for inflation, sales were the strongest since February, rising 0.8 percent from September. While much of the increase was driven by higher gas prices, spending rose in many other categories as well. These sales figures were expectedly strong and above consensus expectation. Looking ahead, The Conference Board does not expect this strength to continue as inflation and interest rates weigh on customers.

Aggregate household debt balances rose $351 billion, or 2.2 percent, in the third quarter of 2022, reaching $16.51 trillion, according to data collected by the New York Fed. Mortgage balances rose $282 billion to $11.67 trillion, and auto loans rose $22 billion to $1.52 trillion. In percentage terms, the fastest-rising form of debt was credit card debt, which climbed $38 billion to $925 billion, showing consumers struggling with high inflation..

The Producer Price Index (PPI), which measures the selling prices received by domestic producers of goods and services, rose just 0.2 percent in October, following the same rise in September and no change in August. Core PPI, a measure which excludes volatile food, energy and trade services, rose 0.2 percent in October as well. The more modest increases of recent months are far slower than the increases experienced earlier in 2022 and in 2021 and suggest that inflationary pressures may be abating.

Monthly Federal Reserve data on manufacturing activity softened for October. Industrial production, which covers manufacturing, mining, and electric and gas utilities, decreased 0.1 percent. While manufacturing edged up by 0.1 percent, this was offset by a 0.4 percent decline in mining and a 1.5 percent decline in utilities. Capacity utilization, a measure that divides actual production by an estimate of sustainable maximum output, was flat for manufacturing but declined 0.5 percent for mining and 1.2 percent for utilities.

For more information on these and other events, please see below:

1. PRODUCER PRICE INDEX UP 0.2 PERCENT IN OCTOBER

2. RETAIL SALES RISE 1.3 PERCENT IN OCTOBER

3. HOUSEHOLD DEBT RISES 2.2 PERCENT TO $16.51 TRILLION

4. INITIAL UNEMPLOYMENT CLAIMS DECLINE SLIGHTLY

5. MANUFACTURING INDICATORS MIXED

6. FED VICE CHAIR TESTIFIES ON CRYPTOCURRENCY

7. FURTHER MIDTERM ELECTION RESULTS

8. MOUNTAIN VALLEY PIPELINE SUPPLEMENTAL EIS

9. MONKEYPOX UPDATES

1. PRODUCER PRICE INDEX UP 0.2 PERCENT IN OCTOBER

The Producer Price Index (PPI), measuring the selling prices received by domestic producers of goods and services, rose just 0.2 percent in October, following the same rise in September and no change in August. The modest increases of recent months are far slower than the increases experienced earlier in 2022 and in 2021; in the first three months of 2022, the index rose 1.2 percent, 1.1 percent, and 1.7 percent. Overall, over the last twelve months, producer prices have risen 8.0 percent, a decline from September’s 8.4 percent. Core PPI, a measure which excludes volatile food, energy and trade services, rose 0.2 percent in October as well and has risen 5.4 percent over the last twelve months.

The PPI for final demand goods rose 0.6 percent in October, the largest advance since June. In October, the PPI for gasoline rose once again by 5.7 percent, which accounted for 60 percent of the total increase in goods prices. Increasing goods prices were partly offset by a decline in the PPI for services of 0.1 percent in October -- the first full decline in that measure since November 2020 -- led by a decline in trade services of 0.5 percent and a decline of transportation and warehousing services of 0.2 percent. The PPI for services with these sectors excluded increased 0.2 percent.

2.  RETAIL SALES RISE 1.3 PERCENT IN OCTOBER

Retail sales in October rose 1.3 percent month-over-month to $694.5 billion and 8.3 percent from the previous year. Adjusted for inflation, sales were the strongest since February, rising 0.8 percent from September. While much of the increase was driven by higher gas prices, spending rose in many other categories as well. Spending on motor vehicles and parts also rose 1.3 percent in October from September, while retail sales excluding motor vehicles and parts rose by 1.2 percent. In services, spending in the category of “food services and drinking places” rose by 1.6 percent month-over-month, up from 0.9 percent in September. In its analysis of the retail sales figures, The Conference Board’s Economy, Strategy, and Finance Center describes the sales number as unexpectedly strong, and it does not expect this strength to continue as inflation and interest rates weigh on customers.

3. HOUSEHOLD DEBT RISES 2.2 PERCENT TO $16.51 TRILLION

Aggregate household debt balances rose $351 billion, or 2.2 percent, in the third quarter of 2022, reaching $16.51 trillion, according to data collected by the New York Fed. Mortgage balances rose $282 billion to $11.67 trillion, and auto loans rose $22 billion to $1.52 trillion. In percentage terms, the fastest-rising form of debt was credit card debt, which climbed $38 billion to $925 billion, showing consumers struggling with high inflation. Credit card debt has risen 15 percent over the past four quarters, the largest increase in twenty years. In the second quarter of 2020, personal saving reached a $4.8 trillion annualized rate, more than triple its typical figure. As many cash relief programs from the pandemic have been discontinued and many normal consumption patterns resume, consumers are saving comparatively less and borrowing more.

4. INITIAL UNEMPLOYMENT CLAIMS DECLINE SLIGHTLY

The Department of Labor reported Thursday that initial claims for unemployment insurance, a weekly indicator of labor market health, were 222,000 for the week ending November 12, a decrease of 4,000 over the previous week’s revised level, retracting some of last week’s increase. The 4-week moving average was 221,000. This level of claims is moderate by historical standards and below the July highs of 261,000. The Conference Board’s latest economic forecast shows the unemployment rate rising to 4.3 percent, well above its current level of 3.5 percent, by the second quarter of next year.

5. MANUFACTURING INDICATORS MIXED 

Monthly Federal Reserve data on manufacturing activity this week showed significant weak growth and declines in the sector. The Federal Reserve’s index of monthly industrial production, which covers manufacturing, mining, and electric and gas utilities, decreased 0.1 percent. Though manufacturing edged up by 0.1 percent, it was outweighed by a 0.4 percent decline in mining and a 1.5 percent decline in utilities. Capacity utilization, a measure that divides actual production by an estimate of sustainable maximum output, was flat for manufacturing but declined 0.5 percent for mining and 1.2 percent for utilities. The New York Fed’s Empire State Manufacturing Survey reported overall business activity edged slightly higher. The headline index climbed 14 points to 4.5, a return to positive territory from last month’s -9.1 figure. New orders, the most leading indicator of activity, declined slightly at -3.3, while the shipments index was 8.0, demonstrating falling demand and rising supply. Consistent with greater supply and lesser demand, inventories rose (16.5). The Philadelphia Fed’s Manufacturing Business Outlook Survey, which covers the Third Federal Reserve District, turned sharply negative at -19.4, the third consecutive negative reading and the lowest since May 2020. The index for new orders was little changed at -16.2, but the current employment index fell 21 points to 7.1. A positive figure means more participants are reporting rising employment than falling employment, but the decline in the index is consistent with firms slowing their pace of hiring.

6. FED VICE CHAIR TESTIFIES ON CRYPTOCURRENCY

Federal Reserve Vice Chair for Supervision Michael Barr testified before Congress this week, focusing on cryptocurrency and noting that “recent events remind us of the potential for systemic risk if interlinkages develop between the crypto system that exists today and the traditional financial system. Crypto-asset-related activity, requires effective oversight that includes safeguards to ensure that crypto companies are subject to similar regulatory safeguards as other financial services providers.” While this is “no easy task” and the Fed did not want to “stifle” innovation, Barr said that “when regulation is lax or behind the curve, it can facilitate risk taking and a race to the bottom that puts consumers, businesses, and the economy in danger and discredits new products and services with consumers and investors.” The Fed is working closely with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation on these issues, particularly as they relate to banks. Barr reiterated the Fed’s position on “stablecoins,” which “can be subject to destabilizing runs and require strong federal prudential oversight to mitigate their potential for economic harm. That is especially the case for stablecoins that aim to function as private money.” He endorsed legislative action on crypto-assets and stablecoins. Following the bankruptcy of cryptocurrency company FTX, the company said that “there could be more than one million creditors in its Chapter 11 cases.

7. FURTHER MIDTERM ELECTION RESULTS

Democrats retained control of the Senate after Catherine Cortez Masto won reelection in Nevada, ensuring 50 seats; the final seat will be decided in a runoff in Georgia on December 6. As of 3:00 PM Thursday, Republicans had gained control of the House with 218 seats, a gain of 9, with several seats not yet called. Speaker Nancy Pelosi will step down from House leadership, forcing an election for House Minority Leader. Secretary of State Katie Hobbs was elected Governor of Arizona, the third state to flip from Republican to Democrat. In state legislative races, Democrats gained control of the Michigan House and Senate and the Minnesota Senate and did not lose a state legislative chamber -- the first time the President’s party did not lose a state legislative chamber in midterm elections since 1934.

8. MOUNTAIN VALLEY PIPELINE SUPPLEMENTAL EIS

The US Forest Service issued a notice that it is preparing a Supplemental Environmental Impact Statement (SEIS) for the Mountain Valley Pipeline (MVP) project, which crosses 3.5 miles of Forest Service land. While the need to prepare an SEIS results from a January 2022 decision of the US Court of Appeals for the Fourth Circuit vacating the Forest Service’s two previous administrative reviews in 2017 and 2021, it is also notable that the agreement this summer between the President and Senator Joe Manchin (D-WV) which led to enactment of the Inflation Reduction Act included the Administration agreeing to support a bill reforming, permitting, and explicitly mentioned the MVP. However, the House declined to adopt a provision specifically permitting approval for the MVP as a part of its budget reconciliation resolution in September, leaving the Administration with a decision on whether or not to seek permitting the pipeline through an SEIS. The Forest Service now proposes to amend its relevant land management plan as necessary to permit the MVP to cross Forest Service land, under conditions to be determined through the SEIS. The agency expects to prepare a draft of the SEIS by January, which will be subject to a 45-day comment period, and to issue a final SEIS by Summer 2023.

9. MONKEYPOX UPDATES

As of November 16, the US has confirmed a total of 28,999 cases of monkeypox. States with the highest case numbers include California (5,547), New York (4,144), Texas (2,790), Florida (2,781) and Georgia (1,937). Globally, 79,655 cases have been confirmed, with 78,682 cases confirmed in locations that have not historically reported monkeypox. The countries with the highest case numbers include the US (28,999), Brazil (9,637), Spain (7,377), France (4,102), and the UK (3,703). A total of thirty-seven deaths have been reported in locations that have not historically reported monkeypox.

On Tuesday, the FDA issued an emergency use authorization (EUA) for Roche’s test for detection of DNA from monkeypox virus. Roche’s test is a real-time PCR test for the qualitative detection of monkeypox viral DNA in lesion swabs collected from individuals suspected of monkeypox virus by their health care provider. The tests will be reported on the Swiss company’s cobas system, which can also detect viral DNA from HIV, hepatitis B, and hepatitis C. "When multiple clusters of monkeypox virus infection were initially reported in countries where the disease is not endemic, Roche was among the first companies to address virus concerns with test kits," said Thomas Schinecker, CEO of Roche Diagnostics.