Consumer Price Index Up 0.3% Last Month, Up 3.4%Over Last Year… While still well above the Fed’s 2% target, inflation appears to be falling slowly.
What it means— This is where people who are not in the statistical weeds say, “Hmm.” If prices are rising, just not as quickly as before, don’t we still have inflation? It’s not as if prices are falling, so stuff costs more than last month and last year. Given the inflation-lashing we’ve endured over the last three and a half years, any inflation is like pouring salt in a wound.
Investors took it as a good sign, but shelter costs are up 5.5% over the last year, so the average American is likely to be grumpy. People won’t be happy with the economy until they see prices plateau on menus and in stores. And heaven forbid they look for a new car; those prices are out of sight. Producer Price Index Jumps 0.5% in April, Although It Rose 2.2%Over the
Last Year… Inflation in services, hotel accommodations, and portfolio management pushed the Producer Price Index (PPI) higher.
What it means— The PPI is considered a foreshadowing of what will happen to consumers as the changes ripple from producers to retail buyers. While the 2.2% annual bump wasn’t huge, the monthly pop of 0.5%made investors take notice. Taken together, PPI and CPI show that inflation might be falling, but not quickly. The central bankers likely are wondering if they will lower overnight rates this year at all.
Fed Chair Thinks Inflation Will Ease and Rates at Worst Will Stay in Place… In Amsterdam, Fed Chair Powell told the audience he expects inflation to move down and he doesn’t expect the Fed to hike rates.
What it means— Well, we’re a long way from last December, when many people were asking if the Fed would cut rates five or six times in 2024. Probabilities favored getting two or three cuts, but we suggested back then and since that we should listen to Chair Powell. He does everything but write his own newspaper articles to make sure investors aren’t surprised.
When he says he suspects the bankers will remain in place, we should listen to him. When he says inflation is coming down but slower than they’d like, he’s probably giving it to us straight.
There is a caveat in commercial real estate (CRE). Loans made in the late 2010s and 2020 have interest hedges that are coming due now and soon will have mortgages due (typically, on interest-only balloon loans). When we see cracks in the CRE market, which will affect regional banks, the Fed will have to act. It’s unknown what they will do, but they won’t sit around while banks go under. After all, the Federal Reserve Bank was created by and is owned by the banks. it just happens to have a Congressional mandate.
Retail Sales Were Flat in April, Up 3.0%Over Last Year… Economists estimated retail sales were up 0.4%.
What it means— Consumer spending is slowing down. The retail sales aren’t adjusted for inflation, but the metrics aren’t identical. We can’t just subtract inflation from retail sales growth to arrive at a tight statistic, but in general, we know that consumers grew their spending at about the same rate as inflation. Unless we see an uptick in earnings, this looks like a top for GDP growth. It doesn’t mean we will have a recession, just that the economy will be stuck in the mud for a bit.
Housing Starts Increased 5.7% in April but Were 0.6% Lower Than at This Point in 2023… Permits fell 3% from the rate last month.
What it means— Would-be homebuyers are still waiting for more inventory. The latest housing starts don’t paint a pretty picture. To top it off, the 30-year mortgage rate dipped under 7% TO 6.84%, making the competition fiercer among buyers. Rising prices are keeping inflation high and the Fed in a holding pattern. While higher rates might break the impasse between sellers and buyers, it doesn’t seem to be in the cards… yet. We’ll see after we get a look at reports on new-home and existing-home sales this week.
Tax Policy Think Tank Uses Van Halen Trick To Make a Point… When working with concert promoters, Van Halen had many technical issues to address in their contracts. To make sure that the promoters were thorough, the band would include deep in the contract a clause that the tour bus had to be stocked with M&Ms, only with all the brown ones removed. A principal at a tax-policy think tank remembered the story and did the same thing.
When the think tank updated its privacy policies, the organization promised to send a good bottle of wine to the first person that brought it to their attention. It took three months. The question is not why it took three months but why that person was perusing the updated privacy policies of a tax think tank.
The Van Halen angle may be just an urban legend, but the thing with the tax-policy think tank definitely occurred.
Data supplied by HS Dent Research
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