April Core PCE Could be Biggest in Decades

The market awaits the April Personal Income and Spending numbers later this morning but the biggest nugget will be the Core Personal Consumption Expenditures number (Core PCE). This is the Fed’s preferred inflation measure and the expected monthly gain of 0.6% would be the largest monthly gain in twenty years. The year-over-year rate is expected to be 2.9% and that would be largest print in nearly thirty years. Those expected eye-popping numbers are probably one reason we’ve heard a ton of Fed speak reiterating that those gains will be transitory. While we tend to side with the Fed in that regard it will be hard to totally dismiss moves of that magnitude but it will be interesting to see how investors react. If the numbers come as advertised they may still back-up yields a bit, again given the size of the price spikes. If PCE comes hotter-than-forecast, like CPI, we can expect a bit more enthusiasm to the selling but nothing too dramatic. For now, the market seems to be going with the Fed’s transitory characterization and that won’t change with this print.


Tracking Housing Affordability by City

It comes as no surprise to anyone following the housing market of late that price gains in many areas are solidly in the double-digit range annually, with western cities taking many of the top spots in the S&P CaseShiller 20-City Home Price Index. We thought we would drill down a little further and using the Burns Affordability Index look at cities ranked by least affordable to most affordable. The index uses a housing cost to income ratio and scaling from 0 to 10 with 5 representing the median level and 10 the least affordable.

As the table shows, and somewhat predictably, most of the least affordable areas are in the west but some other non-western cities pop into the top. Much has been made of Californian out-migration and that probably accounts for some of the price gains seen in areas like Salt Lake City, Seattle, Austin and Denver. That is more noticeable by looking at the placement of San Francisco. Other large and expensive metro areas like New York and Chicago are now in the category of Most Affordable. Again, much of this is probably due to out-migration from these large, expensive urban areas. The chart certainly provides a clearer view of where people are moving from and where they are moving to.


US Dollar Looks Poised to Begin Strengthening Again

On the same day that we get the largest Core PCE print in decades (remember it’s transitory), we did want to put out a Citi graph that shows the  trend in the US dollar and the impact that trend may have on future import and commodity prices. As the graph shows, since the start of April, the dollar has been in a weakening trend. This causes import prices and commodities, typically priced in dollars, to increase in cost. That obviously has fed some of the recent price increases seen in the CPI and PCE numbers but Citi points out that a reversal to a strengthening trend may be in its earliest stages. We’ve started to see that in some consolidating price action in lumber and copper, perhaps signaling that the recent run-up in several commodities may be near exhaustion, and the dollar regaining its footing will only further that trend.


Job Search Activity and UI Benefit Cancellations

With plenty of talk around the tightness in some quarters of the labor market being due to the generous $300/week unemployment benefits we came across this interesting look at online job search activity occurring during the time of state announcements cancelling the supplemental federal benefit. We’re up to 23 states now that have announced early suspensions. The graph tracks job search clicks in 22 of those states (excluding the late announcement by Florida), and compares the change in click activity to a baseline April 17-30 average. As shown, search activity spiked on the announcement day then within a week the activity returned to its April average. We’re not sure what to make of the pattern but the announcements are generating some initial activity. Either those looking found immediate employment, or they just returned to the couch. Maybe it’s a little of both?

 


Market Rates

Treasury Curve Today Chg Last Wk. LIBOR Rates Today Chg Last Wk. FF/Prime Rate Swap Rates Rate
3 Month 0.00% +0.01% 1 Mo LIBOR 0.09% -0.01% FF Target Rate 0.00%-0.25% 3 Year 0.435%
6 Month 0.02% Unchanged 3 Mo LIBOR 0.14% -0.01% Prime Rate 3.25% 5 Year 0.894%
2 Year 0.15% Unchanged 6 Mo LIBOR 0.17% -0.01% IOER 0.10% 10 Year 1.575%
10 Year 1.61% -0.02% 12 Mo LIBOR 0.25% -0.01% SOFR 0.01%

 

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Published: 05/27/21 Author: Thomas R. Fitzgerald