Consumer Prices Up 0.5% Last Month and 6.4% for the Year… The U.S. Bureau of Labor Statistics reported that prices rose a bit more than expected last month, with shelter prices up 7.9% over the year.
What it means— When the numbers were released, Fed Chair Powell likely said out loud, “I told you so.” The data gives the Federal Open Market Committee (FOMC) members firmer ground on which to stand when raising rates in March, while giving investors a bit of indigestion as they push the markets higher on the presumption that the Fed is all but done.
This should set us up for a volatile few months as we wait for more clarity on what the Fed will do. On the basis of reports from other sources like Zillow and Apartmentlist.com, rents should be decelerating and taking pressure off of housing services in the Consumer Price Index. That can’t happen soon enough.
Retail Sales Jump 3.0% in January and Are Up in Every Category… Retail sales blew past the estimate of 1.9% for last month, with sales excluding auto dealers and gasoline up 2.6%.
What it means— Bars and restaurants, the only service sector in retail sales, registered a 7.2% jump last month. It looks like we all went out to celebrate the New Year. Autos and fuel can have an outsized effect on retail sales, so looking at the number minus those categories provides a stabler measure. That said, the retail sales number, just like the jobs number, is revised each January. While this might not signal a new boom in the economy (because of revisions), it’s better than a negative number and adds fuel to our economic engine. That’s great for workers and businesses, but it will leave investors contemplating more Fed action as the bankers try to deflate demand, which might push long rates a bit higher and growth stocks lower.
Producer Price Index Jumped 0.7% in January After Falling 0.2% in December… The index measures the price changes for producers selling their goods. The annual change eased to 6%.
What it means— The bump in the Producer Price Index (PPI) last month was mostly due to the 5% rise in final demand for energy, while the final demand for foods dipped 1%. We wouldn’t normally include PPI but coming on the heels of CPI and with the Fed marching toward higher rates, every data point needs closer examination.
Shortly after the BLS released the PPI, Cleveland Fed President Loretta Mester noted that she thought a 50–basis point move could have been warranted at the February meeting and that the data released since then don’t change her view that rates should be over 5%. PPI and her comments pushed down the markets Thursday morning, as investors finally took the central bankers at their word. Elsewhere, St. Louis Fed President Bullard’s speech was similar adding to the market’s weakness on Friday.
Housing Starts Fell 4.5% in January, Are Down 21.4% Over Last Year… Permits rose slightly in January, by 0.1%, but are down 27.3% over last year.
What it means— Home builder sentiment picked up over the last two months, but that hasn’t translated into more inventory. Instead, builders are playing it safe by keeping their construction in line with falling demand, as mortgage rates hover north of 6%. The strategy appears to be working, as prices aren’t falling dramatically, even as the residential real estate market goes through the deep freeze.
Institutional investors have been major buyers converting inventory for sale to rental properties reducing “starter home” inventory. Homeowners that refinanced when rates were near 3% have no financial incentive to sell and buy at a higher rate. Selling prices are softening but not collapsing due to a lack of motivated sellers.
Ford Halts Production of EV F150 Lightning, as it Announces new Battery Factory… The company reported a battery issue with vehicles that have not been delivered but did not elaborate.
What it means— Ford sells the most popular EV pickup truck, but that’s because the other manufacturers, such as Rivian and Workhorse, are tiny producers. Ford, which started selling the F150 Lightning last spring, has sold only 22,000. This isn’t a knock on the company. They are doing something completely new. It’s normal to have setbacks and hiccups in production, quality, etc. As Ford works through these issues, it also is committing $3.5 billion to a new iron phosphate (LFP) battery factory in Michigan that will open in 2026.
Making batteries domestically and with LFP instead of cobalt-based technology will put Ford and some of its customers in line for bigger tax credits, but it doesn’t guarantee demand. LFP charges to 100%, which is good, but it gets less range per mile and doesn’t do well in the cold. Ford did a study and found that almost all of their E-Mach owners drive less than 35 miles per day and operate their vehicles in warmer than freezing weather—so, no problem! This assumes that a competitor won’t offer something better between now and then and that consumers are willing to make the tradeoff.
McDonald’s Surprised to Find Their McCrispy Chicken Sandwich Advertised Next to Road Sign for Crematorium…In Cornwall County, England, an advertising firm sold space on a bus stop to a McDonald’s franchisee.
What the people involved didn’t realize is that the ad for the McCrispy sandwich would be very close to a road sign pointing the way to a crematorium. Once a local news organization pointed out the irony of the placement, calls and comments flooded in. While some might have found it in poor taste, most of the commenters thought it was hilarious. One said the amount of humor depended on how long ago you had followed the road sign while wearing a black tie, and another repeated a McDonald’s slogan, “I’m lovin’ it.” Even the news outlet got in on the act, when the writer noted, “Rumours that [the ad] will be replaced by a poster advertising Burger King’s flame-grilled Whopper couldn’t be substantiated as we went to press.”
Data supplied by HS Dent Research
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