With the release of the CPI and PPI data, much of the broader market has been anticipating the potential cooling of inflation numbers month-to-month and those expectations have been met. There’s a consistent trend of inflation slowing down which brings a greater potential for the end of any rate hikes from the Federal Reserve, signaling a soft-landing for the economy which has been touted by Jerome Powell. With a soft landing, it does also signal a strong potential for the Federal Reserve to begin lowering rates in the coming future. 

Consumer Price Index

Despite the report beating inflation expectations and leading to optimistic outcomes for a future soft-landing for the economy, there is still plenty to be cautious about with the reports also signaling the largest reduction was due to the price of gasoline declining significantly from the prior month. The overall cost of living has remained stable and not increased, but there is still plenty to look out for with the coming reports.

?       The consumer price index was flat in October from the previous month but increased 3.2% from a year ago.

?       Excluding volatile food and energy prices, the core CPI rose 0.2% and 4%, against the forecast of 0.3% and 4.1%. The annual rate was the smallest increase since September 2021.

?       The flat reading on the headline CPI came as energy prices declined 2.5% for the month, offsetting a 0.3% increase in the food index.

Producer Price Index
The Producer Price Index for final demand fell 0.5 percent in October, seasonally adjusted, after advancing 0.4 percent in September, the U.S. Bureau of Labor Statistics reported today. (See Table A). The October decline is the largest decrease in final demand prices since a 1.2-percent drop in April 2020. On an unadjusted basis, the index for final demand rose 1.3 percent for the 12 months ended in October.

Primary Mortgage Market Survey Index
The last 3 weeks have seen a week-to-week decline in rates.

?       15-Yr FRM rates seeing a week-to-week decrease by -0.05% with the current rate at 6.76%.

?       30-Yr FRM rates seeing a week-to-week decrease by -0.06% with the current rate at 7.44%

MND Rate Index

?       30-Yr FHA rates increased week to week seeing a -0.21% increase for this week. Current rates at 6.70%

?       30-Yr VA  rates increased week to week seeing a -0.02% increase for this week. Current rates at 6.72%

Jobless Claims
Weekly jobless claims have exceeded expectations this week, with it showing a slight uptrend. Initial Claims have increased to 231,000 compared to the expected claims of 220,000. The prior week was 218,000. 

What’s Ahead
Thanksgiving week, being next week will see a reduction in the data release schedule. The largest ones will be U.S. leading economic indicator reports, with the usual initial jobless claims, and lastly the final consumer sentiment report for the quarter.

This week’s most significant data offered preliminary numbers for manufacturing and services PMI (Purchasing Managers Index). Both can serve as a forward indicator for the economy while providing insight into the current state of the cost of living for the service industry. While manufacturing met an expected rise for the end of October, services saw a contraction, falling to 46.6 from 49.3. Readings below 50.0 can be a sign of a downturn for the economy, particularly given the time of the year.

Mortgage Applications & Rates Indices
MBA Mortgage Applications Index saw a reduction of -1.0% in applications for the week, with rates once again increasing again week over week.

Primary Mortgage Market Survey Index

• 15-Yr FRM rates are seeing a week-to-week increase by 0.11% with the current rate at 03%.
• 30-Yr FRM rates are seeing a week-to-week increase by 0.16% with the current rate at 79%

MND Rate Index

• 30-Yr FHA rates increased week to week with a -0.08% decrease for this week. Current rates at 32%
• 30-Yr VA rates increased week to week with a -0.11% decrease for this week. Current rates at 33%

Personal Income & Spending

Personal income increased $77.8 billion (0.3 percent at a monthly rate) in September, according to estimates released today by the Bureau of Economic Analysis (table 2 and table 3). Disposable personal income (DPI), which is personal income less personal current taxes, increased $56.1 billion (0.3 percent), and personal consumption expenditures (PCE) increased $138.7 billion (0.7 percent).

• The PCE price index increased 0.4 percent.
• Excluding food and energy, the PCE price index increased 0.3 percent.

Key point: Personal income increased in September and spending accordingly rose, moving into October. This increase in income and spending is expected moving into the Holiday season. This is a strong sign for the Advanced GDP numbers for the remainder of the year.

Job Claims
Those who applied for unemployment benefits last week fell to a nine-month low of 188,000, subverting expectations that layoffs would rise as the U.S. interest rates continued to increase.
Initial Claims were 210,000 compared to the expected claims of 210,000. The prior week was at 211,000.

What’s Ahead
This week’s scheduled economic reports include ISM manufacturing data, S&P U.S. Manufacturing PMI, and Job Openings. The stronger data points of U.S. non-farm payrolls are coming at the end of the week on Friday.

Last week’s scheduled economic reporting was limited due to the U.S. Labor Day holiday on Monday. The Federal Reserve released its Beige Book report and weekly readings on mortgage rates and jobless claims were also published.

Federal Reserve Releases Beige Book Report

The Beige Book report is a summary of information supplied to Federal Reserve policymakers by their business and professional contacts. Highlights of September’s Beige Book report included:

• Accelerated leisure spending by consumers boosted economic growth during July and August.

• Non-essential retail sales slowed, but the economy was boosted by a final stage of post-COVID-19 pent-up demand.

• Prices for consumer goods fell faster than in many other sectors.

• Auto sales rose due to better inventories available to consumers but increased sales were not connected with rising consumer demand for vehicles.

• Rising business costs reduced profit margins.

The Beige Book report is published eight times a year before scheduled meetings of the Federal Reserve’s Federal Open Market Committee.

Mortgage Rates, Jobless Claims Fall

Freddie Mac reported lower mortgage rates last week; rates for 30-year fixed-rate mortgages averaged 7.12 percent and were six basis points lower than in the previous week. Rates for 15-year fixed-rate mortgages were three basis points lower and averaged 6.52 percent.

Initial jobless claims were lower with 216,000 first-time claims filed as compared to the prior week’s reading of 229,000 initial jobless claims filed. Analysts expected a reading of 230,000 new jobless claims filed.

What’s Ahead

This week’s scheduled economic reports include readings on inflation, U.S. retail sales, and the preliminary monthly report on consumer sentiment. Weekly readings on mortgage rates and initial jobless claims will also be released.

Last week’s economic reporting included readings on inflation, consumer sentiment, and weekly readings on mortgage rates and jobless claims.

Inflation Rate Holds Steady in July

Month-to-month inflation rose at a pace of 0.20 percent in July and met analysts’ expectations. There was no change in the pace of month-to-month inflation from June’s reading of 0.20 percent growth. The Consumer Price Index also reported that year-over-year inflation reached 9.10 percent, which was the highest reading since reaching a 40-year high in mid-2022.

Core inflation, which excludes volatile food and fuel prices, was unchanged from June’s month-to-month pace of 0.20 percent growth. July’s month-to-month reading matched analysts’ expectations. Year-over-year core inflation dipped slightly to 4.70 percent in July as compared to June’s reading of 4.80 percent year-over-year inflation.

Federal Reserve leaders said that they would continue monitoring domestic and global economic developments along with financial and economic data before determining whether or not to raise the Fed’s key interest rate range.

Mortgage Rates, Jobless Claims Rise

Freddie Mac reported higher mortgage rates for the third consecutive week. The average rate for a 30-year fixed-rate mortgage approached seven percent and rose by six basis points to 6.96 percent. Rates for 15-year fixed-rate mortgages rose by nine basis points to 6.34 percent.

248,000 initial jobless claims were filed last week, which surpassed expectations of 231,000 new claims filed and the previous week’s reading of 227,000 first-tine jobless claims filed.

University of Michigan Consumer Sentiment Survey

In other news, the University of Michigan released its monthly preliminary reading on U.S. consumer sentiment.

Consumer sentiment rose to an index reading of 72.0 in August as compared to the July reading of 71.6.  The majority of.consumers surveyed indicated that the economy improved in the three months leading up to the survey., Component readings included consumer sentiment index readings for current economic conditions and economic conditions within the next six months. The survey reading for consumer sentiment about economic conditions over the next six months fell to an index reading of  67.3 from the July reading of 68.3 Readings over 50 indicate that most consumers are confident about current economic conditions.

Joanne Hsu, the University of Michigan’s director of consumer surveys, said: “…In general, consumers perceived few differences in the economic environment from last month, but they saw substantial improvement relative to just three months ago.”

What’s Ahead

This week’s scheduled economic reporting includes reading on housing starts and building permits issued, the minutes of the Federal Reserve’s recent meeting of its Federal Open Market Committee, and weekly readings on mortgage rates and jobless claims.