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5/20 - 5/24

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Leading Economic Index

Another sign that the US economy is slowing - The Conference Board ​released their Leading Economic Index, which decreased in April by ​0.6%. After 22 months of negative readings in a row, this index turned ​positive in February, but they fell 0.3% in March and now 0.6% in April.

The Conference Board said that while the LEI’s six-month and annual ​growth rates no longer signal a forthcoming recession, they still point ​to serious headwinds to growth ahead. They project that real GDP ​growth will slow to under 1% over the Q2 to Q3 2024 period. If we do ​see the economy continue to slow and even recession like conditions, ​it would likely be helpful for inflation and Mortgage Rates.

Fed Governor Waller Comments

Fed Governor Waller, who is a voting member and one of the most influential Fed members, ​said that inflation is not accelerating and that the April CPI inflation reading was a relief.

He said that monetary policy is at an appropriate level to put pressure on inflation and does ​not think that further rate hikes are needed – This is similar to what Powell said at the last ​Fed meeting.

As we have been saying, Waller said the golden ticket for rate cuts is the unemployment rate ​– Waller said that in the In the absence of a significant weakening in the labor market, need ​to see several more months of good inflation data before I would be comfortable supporting ​an easing in the stance of monetary policy. We think that the key level would be 4.1% to 4.2% ​on the unemployment rate.

Waller also talked about the most recent jobs report and how it was weaker than expected ​and what the Fed wanted to see. However, he said that a reason for it was weaker ​Government job creations, which declined to 8,000…And he doesn’t think that will be ​repeated.

Over the last year Government jobs have accounted for 55,000 of the job gains on average ​per month. Fiscal 2024 (Oct 23 – Sep 24) State and local government hiring budget was an ​increase of 2.6% from the previous year. This would account for the above stated average of ​55,000 job creations per month.

Looking forward, fiscal 2025 budget (Oct 24 – Sep 25) has been reduced to a 1% increase, ​which would mean approximately 18,000 job creations per month in this category. This won’t ​take place until October, but we think that those government job additions will be slowing ​and consistent with weaker job growth overall and a higher unemployment rate.


Target announced that they are going to lower prices for up to 5,000 ​products, including food, drinks and other non-discretionary household ​items. This is due to competition from others like Walmart, Aldi, and Lidl. ​While we are seeing most of the inflation coming from rents and motor ​vehicle insurance, this should help inflation from the food aspect.

CoreLogic Rental Report

CoreLogic released their Rental Report for the month of March, showing ​that detached rent prices remained up 3.4% year over year. However, ​attached rental prices declined by -0.6% year over year, the first negative ​reading in 14 years.

While they don’t have a blended version, they do show that lower priced ​rentals rose 2% year over year, while higher priced ones rose 2.9%. So a ​blended version of this is around 2.5%, or possibly higher at 2.6% to 2.7% ​if there is more of a weighting towards higher priced. But that is still ​about half what we are seeing in the CPI report. And looking at the rental ​numbers within CPI over the last three months, it’s annualized at a rate of ​ we are not yet seeing the benefit of these lower rental prints in ​the CPI. Since this is where most of the inflation is coming from, we feel ​once again that it will take a rise in the unemployment rate to pressure ​the Fed to cut.

Existing Home Sales

Existing Home Sales, which measures closings on existing homes, fell 1.9% in April to ​an annualized pace of 4.14M units, which was slightly worse than expected. There ​was a slight higher revision to March, and when factoring that in, sales really fell ​closer to 1%. Sales are now down 1.9% year over year.

Sales hung in there pretty well considering the rise we saw in rates from February to ​April. Rates have come down since, which may lead to some stronger sales in coming ​reports.

Inventory increased 9% month-over-month to 1.21M units, which is a good thing ​because there is very limited supply, and this could lead to more sales. Inventory is ​now up 16% from the same time last year. There is a 3.5-month supply of homes, ​which is tight but up from 3.2 months, because 4.6 months is considered normal.

The median home price was $407,600, up 3.7% from last month and 5.7% from last ​year. For homes priced $1 million or more, inventory increased 34% from last year ​while sales increased 40% - This is largely due to a comeback in CA and is a big ​reason why the median home price rose so much.

Homes remained on the market for 26 days on average, down from 33 days in March. ​Even with more inventory, the speed at which homes moved increased, which shows ​strength.

First-time homebuyers accounted for 33% of sales, which is up sharply from 32% in ​the previous report. Cash buyers accounted for 28% of sales, unchanged from March. ​Investors made up 16%, up from 15% in last month’s report.

27% of homes sold above the list price, a slight decline from 29% in March, but still ​up from 20% in February.

Mortgage Applications

The MBA released their Mortgage Application data for last week, showing that purchases decreased 1% last week. Purchases are now down 11% from this time last year.

Refinances rose 7% last week and are up 21% from last year, influenced by the move lower in rates. Refinance activity made up 34% of applications, which was a big ​jump from Interest rates fell from 7.08% to 7.01% and are 0.3% higher than this time last year.

Initial Jobless Claims

Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, fell 8,000 to 215,000, which was 5,000 below estimates. The four-week ​moving average, which clears up some of the noise, is up to 220,000, the most in eight months. This is the “sample week” of Initial Claims that gets plugged into the BLS Jobs ​Report – While it’s just one component this low reading of 215,000 would point to strong jobs growth in the May report that we get the first week of June.

Continuing Claims, or those that continue to receive benefits after their initial claims, rose 8,000 to 1.794M, near the highest levels since November 2021 and still pointing to the ​fact that after someone is laid off, it’s much harder to find a job.

S&P Global Composite PMI Flash

The S&P Global Composite index rose from 51.3 to 54.4, which was more than three points hotter than estimates. The S&P Global does not include retailers like the ISM, and we ​have been seeing weakness there.

Even though US manufacturing has been weak, global manufacturing rose from 50 to 50.9, getting back into expansion territory. Services rose from 51.3 to 54.8, also stronger ​than estimates, although employment fell for the second month in a row. The stronger than expected report, along with a drop in Initial Claims, pressured Bonds lower.

New Home Sales

New Home Sales, which measures signed contracts on new homes, fell 4.7% in April to a 634,000 unit annualized pace, which was weaker than estimates of a gain. There ​was also a negative revision to March, and when factoring that in, sales really fell 8.5% from the originally reported March figure. Sales are now down 7.7% year over year. ​Remember, this report measured individuals shopping for new homes during April, when rates reached their peak.

There were 480,000 new homes for sale at the end of April, which was up from 470,000 in March. At the current pace of sales, there is an 9.1 month’s supply, which is up ​from 8.5. However, only 98,000 are completed, and when looking at the pace of sales vs homes that are completed (available supply), there is only a 1.85 months’ supply, ​up from 1.64 in March.

The median home price was reported at $433,500, which is down 1.4% from the previous report and up 3.9% year over year. The decline is not due to home prices falling, ​but rather more lower priced homes being built and selling, causing the median sale price to drop.

Fed Minutes

Keep in mind that the Fed Minutes were from the May 1 Fed Meeting, before we got a weaker than expected Jobs Report where the unemployment rate rose to 3.9%, and ​before the cooler CPI inflation report and negative Retail Sales number. Here are some of the notable comments:

Inflation is more persistent than previously expected, but would return to 2% over medium term. Recent data has not increased confidence in inflation. Some participants ​emphasized that the recent increases in inflation have been relatively broad based and therefore should not be overly discounted. (this doesn’t make sense as all of the ​inflation is coming from Shelter and Motor Vehicle Insurance – When removing those two items, inflation is only going up 0.27% YoY.

Labor market is coming into a better balance – cited declining job vacancies, a lower quits rate & a reduced ratio of job openings to unemployed workers. Expect consumers ​spending to slow – they pointed to increased usage of credit cards and buy-now-pay-later services, as well as increased delinquency rates for consumer loans.

Various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate (we all know after ​Powell and the slew of Fed speakers for the last few days that they all think policy is sufficiently restrictive and they are not going to hike again).

Bottom Line – The Fed continues to look in the rear-view mirror. They should know that inflation is only coming from two areas, motor vehicle insurance and shelter. They can’t ​do anything about the prior, and shelter costs are not reflecting market rents and are still lagging behind.

Durable Goods Orders

Durable Goods Orders in April rose 0.7%, which was much stronger than ​estimates of -0.8%.However, the previous reading of 2.6% was revised lower ​by 1.8% to 0.8%. When factoring that in, it’s as if today’s reading fell 1%, which ​was worse than expected.

Core Durable Goods rose 0.3%, which looked like it was stronger than ​estimates of 0.1%. But again, there was a big negative revision to the previous ​month of 0.3%, brining March to -0.1%. When factoring that in, it’s as if today’s ​monthly reading was a goose egg (0%), which was less than estimates.

Bottom Line – After dissecting the report and looking deeper than the ​headline, it was weak and is another sign that spending is slowing…First it was ​Retail Sales and now Durable Goods.