Consumer sentiment is being driven by inflation and stocks but is worse than warranted. Consumer prices increased at an 8.6% annual rate in May, and many Americans are now starting to forgo some purchases and outings. Consumers are also suffering through a reverse-wealth-effect as stock prices have dropped and there is concern about home prices.
The stock market is a stronger predictor of broader household spending a year out than the consumer expectations index. A sanity check tells you that this just isn’t right – this is not the worst economy in 70 years! But, negative sentiment may mean that consumers are unwilling to spend down their excess savings.
- The economy looks resilient and inflation is coming down. We added 372K jobs (estimate was 250K). Wage growth dropped from 5.3% to 5.1%.
- The 10-year yield is down to 3.1%.
- The S&P 500 is up 6% from its June low
- A drop in raw-material prices – corn, wheat, copper, cotton, lumber, etc. – is stirring hopes that a significant source of inflation pressure might be starting to ease. Oil and natural gas prices have dropped recently.
- The FOMC minutes indicated that officials agreed that they need to raise rates above the neutral rate if inflation doesn’t abate.
- The Fed is still on track to raise rates 75 bps in July. The jobs report didn’t change that.
- There is hope for lower inflation resulting from lower commodity prices and the shift from goods to services.
- According to NAR, the typical monthly mortgage payment was $1,842 in May, up from $1,297 in January and $1,220 in May 2021
- The number of active listings in June was 34% lower than June 2020 and 53% lower than June 2019.