by Calculated Risk on 6/13/2023 08:52:00 AM

Here are a few measures of inflation:

The first graph is the one Fed Chair Powell has been mentioning.

Click on graph for larger image.

This graph shows the YoY price change for Services and Services less rent of shelter through May 2023.

Services were up 6.3% YoY as of May 2023, down from 6.8% YoY in April.

Services less rent of shelter was up 4.2% YoY in May, down from 5.2% YoY in April.

Will services ex-shelter inflation be persistent, or will it follow a similar pattern as goods?   This is a topic I discussed in Pandemic Economics, Housing and Monetary Policy: Part 2.

The second graph shows that goods prices started to increase year-over-year (YoY) in 2020 and accelerated in 2021 due to both strong demand and supply chain disruptions.

Durables were at 0.0% YoY as of May 2023, up from -0.2% YoY in April.

Commodities less food and energy commodities were up 2.0% YoY in May, down from 2.1% YoY in April.

Goods inflation was transitory.

Here is a graph of the year-over-year change in shelter from the CPI report (through May) and housing from the PCE report (through April 2023)

Shelter was up 8.0% year-over-year in May, down from 8.1% in April. Housing (PCE) was up 8.4% YoY in April, from 8.3% in March.

The BLS noted this morning: "The index for shelter was the largest contributor to the monthly all items increase, followed by an increase in the index for used cars and trucks."  Asking rent increases have slowed sharply, and these measures of shelter will decline soon.

by Calculated Risk on 6/13/2023 08:33:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent in May on a seasonally adjusted basis, after increasing 0.4 percent in April, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 4.0 percent before seasonal adjustment.

The index for shelter was the largest contributor to the monthly all items increase, followed by an increase in the index for used cars and trucks. The food index increased 0.2 percent in May after being unchanged in the previous 2 months. The index for food at home rose 0.1 percent over the month while the index for food away from home rose 0.5 percent. The energy index, in contrast, declined 3.6 percent in May as the major energy component indexes fell.

The index for all items less food and energy rose 0.4 percent in May, as it did in April and March. Indexes which increased in May include shelter, used cars and trucks, motor vehicle insurance, apparel, and personal care. The index for household furnishings and operations and the index for airline fares were among those that decreased over the month.

The all items index increased 4.0 percent for the 12 months ending May; this was the smallest 12-month increase since the period ending March 2021. The all items less food and energy index rose 5.3 percent over the last 12 months. The energy index decreased 11.7 percent for the 12 months ending May, and the food index increased 6.7 percent over the last year.
emphasis added

CPI was slightly lower than expected and core CPI at expectations. I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI.

by Calculated Risk on 6/12/2023 08:21:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Slightly Higher Ahead of Important Inflation Report

Mortgage rates drifted slightly higher this morning with the average lender moving up to the highest levels in nearly 2 weeks. Top tier 30yr fixed scenarios are effectively back at 7% for the majority of lenders. ... Tomorrow morning's Consumer Price Index (CPI) is one of the biggest sources of volatility for rates on any given month. The following afternoon, we'll get the Fed's verdict on the "pause/skip" in the rate hike cycle, which is currently what the market expects. [30 year fixed 6.94%]
emphasis added

Tuesday:
• At 6:00 AM ET, NFIB Small Business Optimism Index for April.

• At 8:30 AM, The Consumer Price Index for May from the BLS. The consensus is for 0.3% increase in CPI (up 4.9% YoY), and a 0.4% increase in core CPI (up 5.5% YoY).

by Calculated Risk on 6/12/2023 04:47:00 PM

From the Association of American Railroads (AAR) Rail Time Indicators. Graphs and excerpts reprinted with permission.

Total originated carloads on U.S. railroads rose 0.8% in May 2023 over May 2022, their third yearover-year gain in the first five months of 2023. Total carloads averaged 225,851 per week in May, down fractionally from the average for March and April.

U.S. intermodal originations in May 2023 were down 11.1% from May 2022, intermodal’s 15th straight year-over-year decline.
emphasis added

Click on graph for larger image.

This graph from the Rail Time Indicators report shows the six-week average of U.S. Carloads in 2021, 2022 and 2022:

U.S. railroads originated 1.13 million total carloads in May 2023, up 0.8% over May 2022 and the third year-over-year gain in the first five months of 2023. Total carloads averaged 225,851 per week in May, down fractionally from the average for March and April.

For 2023 through May, total U.S. carloads were 4.94 million, the most since 2019 and up 0.7% (33,332 carloads) over the same period in 2022.

The second graph shows the six-week average (not monthly) of U.S. intermodal in 2021, 2022 and 2023: (using intermodal or shipping containers):

Finally, intermodal. We don’t want to talk much about it because, while it has a very bright future, for now it’s depressing. U.S. railroads originated 1.19 million containers and trailers in May 2023, down 11.1% from May 2022. That’s intermodal’s 15th straight year-over-year decline. On the positive side, intermodal averaged 238,111 containers and trailers per week in May 2023, the most in six months. In 2023 through May, U.S. intermodal volume was 5.12 million units, down 10.9% (624,181 units) from last year and the fewest for the first five months of a year since 2013./blockquote>

by Calculated Risk on 6/12/2023 12:54:00 PM

CNBC's Carl Quintanilla posted this graph on Twitter this morning:

And he quoted Credit Suisse:

CREDIT SUISSE: “Our work indicates that YoY inflation is likely to fall to 4.2% in May, 3.2% in June .. this would represent one of the greatest drops experienced in a 2-month period over the past 70 years.”

This is very likely for both CPI and the PCE price index since energy and food prices soared in May and June 2022. As those data points are removed from the year-over-year calculation, the YoY change will decline sharply.

However, core inflation does not include food and energy, so we won't see as dramatic a decline in core CPI and core PCE.

Here is a table of the month-to-month price increases that will drop out of the year-over-year calculation in May and June.

This shows the large increases in May and June 2022 for CPI and the PCE price index.

It is likely that core CPI and core PCE will also decline year-over-year in May and June, but the decline will not be as sharp as for the headline inflation numbers.

by Calculated Risk on 6/12/2023 11:39:00 AM

Today, in the Calculated Risk Real Estate Newsletter: 2nd Look at Local Housing Markets in May

A brief excerpt:

This is the second look at local markets in May. I’m tracking about 40 local housing markets in the US. Some of the 40 markets are states, and some are metropolitan areas. I’ll update these tables throughout the month as additional data is released.

Closed sales in May were mostly for contracts signed in March and April. Since 30-year fixed mortgage rates were in the 6% to 6.5% range in March and April - compared to the 4% to 5% range the previous year - closed sales were down significantly year-over-year in May.
...
In May, sales in these markets were down 16.2%. In April, these same markets were down 23.6% YoY Not Seasonally Adjusted (NSA).

This is a smaller YoY decline NSA than in April for these markets, however seasonally adjusted, it is closer since there was one less selling day in April this year than in April 2022, but the same number of selling days each year in May.

Another factor in the smaller YoY decline was that sales were steadily declining last year due to higher mortgage rates. This graph shows existing home sales by month for 2022 and 2023, on a Seasonally Adjusted Annual Rate (SAAR) basis.

If sales were steady all year, the YoY decline would still decrease!
...
Many more local markets to come!

There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/

by Calculated Risk on 6/12/2023 08:17:00 AM

Altos reports that active single-family inventory was up 1.5% week-over-week.

Click on graph for larger image.

This inventory graph is courtesy of Altos Research.

As of June 9th, inventory was at 443 thousand (7-day average), compared to 436 thousand the prior week.   

Year-to-date, inventory is down 9.7%.  And inventory is up 9.3% from the seasonal bottom eight weeks ago.

The second graph shows the seasonal pattern for active single-family inventory since 2015.

The red line is for 2023.  The black line is for 2019.  Note that inventory is up from the previous two years (the record low was in 2022), but still well below normal levels.

Inventory was up 12.8% compared to the same week in 2022 (last week it was up 18.4%), and down 52.4% compared to the same week in 2019 (last week down 53.7%). 

It appears likely inventory will be down year-over-year in late June or early July.

Mike Simonsen discusses this data regularly on Youtube.

by Calculated Risk on 6/11/2023 06:12:00 PM

Weekend:
• Schedule for Week of June 11, 2023

Monday:
• No major economic releases scheduled.

From CNBC: Pre-Market Data and Bloomberg futures S&P 500 and DOW futures are mostly unchanged (fair value).

Oil prices were down over the last week with WTI futures at $70.17 per barrel and Brent at $74.79 per barrel. A year ago, WTI was at $121, and Brent was at $127 - so WTI oil prices are down over 40% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $3.57 per gallon. A year ago, prices were at $5.02 per gallon, so gasoline prices are down $1.45 per gallon year-over-year.

by Calculated Risk on 6/11/2023 08:11:00 AM

Most analysts expect the FOMC to "pause" raising rates at the meeting this week.  

In May, the wording of the FOMC statement suggested a likely pause in rate hikes at the June meeting this coming week, since the FOMC assessed the cumulative effects of previous rate hikes and the possible impact of tighter lending due to issues in the banking system:

"In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."
emphasis

On the meeting this week from BofA:

"We expect the Fed to maintain the target range for the federal funds rate at 5.0-5.25% at the June FOMC meeting, while it assesses monetary policy lags and bank stress. That said, a skip is not the same as a prolonged pause. With the debt limit increased and bank stress relatively stable - it may not be getting much better, but it also does not appear to be getting much worse - the Fed's primary concern remains inflation and it will be reluctant to say definitively that the hiking cycle is over. Hence, we expect the Fed to retain upward bias in its projected policy rate path and we look for the median FOMC member to forecast one additional 25bp rate hike by year-end, for a terminal target range of 5.25-5.50%. In addition, we think the median forecast for year-end 2024 will rise by 37.5bp to 4.5-4.75%, signaling increased willingness to maintain a "higher-for-longer" policy stance to bring inflation down with greater confidence."
emphasis added

And from Goldman Sachs economists:

The FOMC is likely to pause at its June meeting next week to let the haze clear before it considers another rate hike. The Fed leadership has signaled that it sees pausing as the prudent course because uncertainty about both the lagged effects of the rate hikes it has already delivered and the impact of tighter bank credit increases the risk of accidentally overtightening. ... We expect the median dot to show one additional hike to a new peak of 5.25-5.5%, in line with our own forecast.

Projections will be released at this meeting. For review, here are the March projections.  Since the last projections were released, the economy has performed better than the FOMC expected, and inflation was slightly above expectations.

The BEA reported real GDP increased at a 1.3% annual rate in Q1, and most analysts expect further upward revisions. Tracking estimates suggest Q2 GDP will be in the 1% to 2% range.  The FOMC will most likely upgrade their growth projection for Q4 2023.

GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1
Projection Date	2023	2024	2025
Mar 2023	0.0 to 0.8	1.0 to 1.5	1.7 to 2.1

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 3.7% in May. To reach the mid-point of the FOMC projections for Q4 2023, the economy would likely have to lose over 1 million jobs by Q4.   The FOMC will likely lower their unemployment rate projection for Q4.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2
Projection Date	2023	2024	2025
Mar 2023	4.0 to 4.7	4.3 to 4.9	4.3 to 4.8

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of April 2023, PCE inflation increased 4.4 percent year-over-year (YoY), up from 4.2 percent YoY in March, and down from the recent peak of 7.0 percent in June 2022.  The projection of PCE inflation for Q4 2023 will might be revised up slightly, however May and June 2022 PCE inflation was very high, and YoY PCE inflation will likely decrease sharply over the next two months.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1
Projection Date	2023	2024	2025
Mar 2023	3.0 to 3.8	2.2 to 2.8	2.0 to 2.2

PCE core inflation increased 4.7 percent YoY, up from 4.6 percent in March, and down from the recent peak of 5.4 percent in February 2022.; This remains a concern for the FOMC, however this includes shelter that was up 8.4% YoY in April (even though asking rents are mostly unchanged YoY). 

The projection for Q4 core PCE inflation will likely be revised up.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1
Projection Date	2023	2024	2025
Mar 2023	3.5 to 3.9	2.3 to 2.8	2.0 to 2.2

by Calculated Risk on 6/10/2023 02:11:00 PM

At the Calculated Risk Real Estate Newsletter this week:

• The "Home ATM" was Closed in Q1

• Could 6% to 7% 30-Year Mortgage Rates be the "New Normal"?

• Black Knight Mortgage Monitor: Home Prices Increased Month-to-month in April; Prices Unchanged YoY

• Early Look at Local Housing Markets in May

• Lawler: Census 2020, Population Estimates, and Population Projections: Challenges for Demographers

This is usually published 4 to 6 times a week and provides more in-depth analysis of the housing market.

You can subscribe at https://calculatedrisk.substack.com/

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