Consumers Are More Optimistic About The Economy Than Market Professionals Believed 24 Hours Ago | (12.9.22)
"Doing the best at this moment puts you in the best place for the next moment." - Oprah Winfrey
What You Need To Know Today:
• We received an updated month-over-month (MoM) Producer Price Index (PPI) reading this morning, providing us with another look at where inflation stands. According to the Bureau of Labor Statistics, MoM PPI came in at 0.3% — higher than the market expectation of 0.2% and in line with the last MoM reading of 0.3%.1 Further, Core PPI came in at 0.4%, above the market expectation of 0.2% and the last reading of 0.0%. Remember, these figures are important as they are one of the leading indications of consumer inflation. Ultimately, when producers charge more for goods and services the higher costs find their way passed down to the end consumer (you) — this is the measure of that impact. Lastly, while PPI measures the price changes of goods in the intermediary stages of production and includes products such as refined sugars, leather, paper, and basic chemicals, Core PPI measures finished goods and is generally the reading economists refer to when referencing PPI statistics.
TL;DR — Month-over-month inflation came in higher than anticipated. Next week’s Fed meeting should be really interesting…
• The University of Michigan released an updated (preliminary) Index of Consumer Sentiment Survey reading which came in at 59.1 — beating both the pre-report market expectation of 56.9 and last month’s reading of 56.8.2 This survey is derived by directly contacting approximately 500 consumers and asking respondents to rate the relative level of current and future economic conditions. It is designed to give market participants a “pulse” on what the people are feeling. Financial confidence is one of the most significant factors when trying to forecast consumer spending, which as you know, is a major factor in overall economic activity.
TL;DR — Consumer sentiment remains more positive than what the market has been pricing in.
• The University of Michigan also published its updated inflation expectations survey this morning which came in at 4.6% — moderately down from last month’s reading of 4.9%.3 This figure is derived by surveying consumers and asking them where they expect prices for goods and services to be 12 months in the future. Again, this shows us that consumer sentiment/outlook is actually more positive than what the market seems to be pricing in. However, how accurate is consumer sentiment with regard to real inflation? Some believe that the Fed might be paying too much attention to the opinions of just 500 people…
TL;DR — Consumers believe that 12 months from now inflation will have been 4.6% year over year.
Chart Of The Day:
The percentage of U.S. homeowners between the ages 25-34 has been on a decline since 2007 following only a moderate gain between 2000-2007. As you can see from the data below, the velocity of this decline was accelerated between 2008-2015 which was largely driven by a few factors including stricter lending practices/credit standards, substantial increases in home prices, increases in average student loan debt, and the general delay of major life events that are often precursors purchasing a home (such as getting married). While the post-COVID-19 pandemic world is not yet captured in this dataset, we can infer from outside research that these conditions have not improved. For instance, we know from Tuesday’s Homepage that the average age of first-time home buyers has only gone up over this period of time implying that the trend of delayed major life events has continued. Moreover, lending/credit standards remain strict (which is honestly a good thing), home prices have risen at an unprecedented pace, student loan debt continues to be out of control, and wages have not kept up with the cost of goods and services (inflation). Quite frankly, younger adults are at a massive disadvantage when it comes to homeownership — which ultimately means they are at a disadvantage when it comes to building wealth. Purchasing a home can and should be one of the most powerful wealth-building tools available to individuals and families. If you are a real estate or financial services professional who works on the “retail” side of the business please do your younger clients a favor and spend extra time with them covering the importance of homeownership — specifically, financially responsible homeownership. It could be one of the most significant conversations they ever have for their future financial health.
% U.S. "Young House Occupants" Who Owned/Rented Homes Between 2000-20194
TL;DR — Younger adults are struggling to purchase homes. They need guidance, not just salespeople. If you are a real estate or financial services professional you have the ability to help them.
Source: Bureau of Labor Statistics: Producer Price Index News Release summary.
Source: University of Michigan: Surveys of Consumers.
Source: University of Michigan: Surveys of Consumers.
Source: U.S. Census Bureau, 2000-2019 American Community Survey 1-year estimates.