In The Know – May 17, 2024

We had a good bit of economic data that came out this week, the week that is ending May 17th of 2024. 

We got inflation data. We got PPI and CPI that came in pretty well in line with expectations. 

The headline number for CPI, that is consumer inflation, came in slightly less than what was expected. Core CPI came in as expected. So as of April 2024, headline CPI sits at 3.4% year over year. That means that the prices that consumers pay for the things that they spend money on have increased 3.4% higher than it was just last year. Now, that is down a tick from where it sat in March, it sat at 3.5%. Core CPI, on the other hand, came in at 3.6%, a little bit higher than the headline number, due to some things like rents and services inflation. It is down from 3.8% where it was in March of 2024. 

So services inflation is what is making inflation a bit sticky. Services inflation includes things like car insurance, housing inflation, and things like that. It is up 5.3% year over year, well over the 3.5% overall inflation that we see. Housing inflation is up in the mid-5% range, 5.4 to 5.8%, just depending on what metric that you’re looking at. So housing is costing more. That is a big chunk of most consumers’ monthly budgets. Car insurance 22.6% higher than it was year over year. 

Going into the goods number, we’ve seen a bit of deflation in goods prices. Year over year, the prices that we pay for goods is down 1.3%. So that’s helped to buffer that services inflation and help us to, at least for the time being, continue the disinflation. We’re not seeing prices go down overall, we’re seeing the rate of increase slow. And consumers don’t see inflation dropping into the Fed’s 2% target zone anytime soon.

The Federal Reserve bank of New York reported this week that the US consumers’ inflation expectations for the year ahead increased to 3.3%. So slightly down from where we sit right now. This is the highest number for consumer expectations since November and the year ahead price expectations rose across the board, namely for gas, for food, for medical care, college education and rent. Also, hopes are still not very high for potential homeowners.

The medium home price growth expectations increased to 3.3%. That’s the highest since July of 2022, after remaining unchanged at 3% for seven consecutive months. So consumers don’t see inflation with that 2% handle for several years. 

Inflation expectations at the three-year horizon decreased to 2.8% from 2.9, still almost a percentage point above where the Fed wants it to be. That’s where consumers see it being in the next year. And it also increased to 2.8% from 2.6% for the five-year horizon. So, consumers don’t see inflation hitting the Fed’s 2% zone anytime soon. Retail sales data also came out this week and was pretty soft.

In the first four months of 2024, headline retail sales are up just .3% and that is running below the rate of inflation, which in the first four months of the year is up 1.4%. You get inflation up over 4% if you annualize that first four-month inflation at 1.4%. 

Initial claims data. That’s unemployment data that comes out every week. The weekly report yesterday was the second in a row of claims looking to break out of that low 200,000 range that we’ve been in since the end of last year. For the week ending May 11, initial claims were 222,000, 2000 more than expected, but less than the 232 that we saw the week before. Some of last week’s increase can be blamed on New York workers who get to claim unemployment benefits while they’re on spring break. So that’s a very temporary thing and causes a little blip in the data.

The four-week moving average, though, did tick up to 218,000 from 215,000, and that’s the most since November of 2023. The four-week moving average gives us an idea of where claims are headed because it smooths out that week-to-week volatility. Continuing claims rose to 1.794 million from 1.781 million remaining near the highest since November 2021. So that continuing claims number is not subject to that quirk that we’re blaming on the New York data.

Mortgage rates are keeping folks in their golden handcuffs. Last week we saw rates averaging 7.02% for the 30-year fixed rate mortgage where it sits now, but it went from right around 3% over the last couple of years. This is creating the lowest turnover in the last 30 years. It’s also impacting home improvement retailer sales because they’re saying that, you know, people are not spending the money that they would normally spend when they’re getting their home ready to put on the market. So that is impacting their sales.

We do have a very mixed economy. It could still be described as good, though. The markets are reacting. All three stock indices ended in negative territory yesterday, slightly, however, the Dow hit a new milestone yesterday. The Dow rose as high as 40,051 on Thursday morning before pulling back to close under 40,000. But this is the first time that the Dow has ever hit 40,000.

It soared 40% from its low in September of 2022 and more than doubled since the spring of 2020 when our economy was virtually shut down because of COVID. It was a very scary time. If you got out, and never got back in, you missed a good run in the market. 

The Dow is up 5.8 this year, setting 18-record closes along the way, and the broader S&P and tech-heavy Nasdaq Composite are both up 11%. 

Next week we’re going to see the minutes from the FOMC meeting release and durable goods orders, and we’ll make sure that we keep you informed about that.

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