Happy Friday. Brian Manning here with the weekly update. Let's get right to it. Monday this week was a relatively quiet news day. Not a lot to talk about there because we got a big CPI report on Tuesday.

So, everyone was kind of waiting and getting into Tuesday to see what happens. Sure enough, Tuesday, we get the CPI report. So CPI stands for Consumer Price Index. For us as consumers, there's two major gauges of inflation. One is CPI, the other is CPE. This comes out once a month. This was for the month of January. So, the headline number in January was up a half a percent.

On a year-over-year basis, the headline number moved from 6.5% down to 6.4%. But financial markets did not like this because financial markets had an expectation that instead of being a 6.4%, that the number would have moved down to 6.2. Then, we have the core rate. So, the core rate strips out volatile items such as food and energy. That was up 4/10th of a percent for the month of January.

On a year-over-year basis, the core rate moved from 5.7% down to 5.6%. But expectations were that the core rate would move down to 5.5%. So, overall markets were not really thrilled with the CPI report that came out. Really what was hurting us in this report was energy prices and shelter costs. So, something I want to show you here is just going to be shelter costs and how this impacts the CPI report. So... CPI, 43% of it... a component in CPI is shelter.

What I want to look at here is first of what apartment costs are and what they were. So... So, in January of last year, you had apartment costs going up at a rate of 18%. But now, apartment costs have come down and apartment costs are only increasing at a rate of 3.3%. The challenge with CPI is that CPI is lagging data and CPI is looking from shelter costs from a year ago. So right now, the component of the CPI report, if you look at shelter costs, says that shelter costs are going up at a rate of 7.9%, but in reality, they're only going up the rate of 3.3%. So, shelter costs, again, 43% of this report are lagging.

So, for example, if you look at the shelter costs back in early of 2020 going into Covid, you had shelter costs dropping significantly. But... In the component here, you didn't see shelter costs drop until a year later. Then, in January 21, you started to see shelter costs skyrocket, but you didn't really start to see this impact until January 22. Then you saw a crest in shelter costs in January or beginning of 22 and now they've come down.

So, what we're hoping for is that the shelter component hopefully is at an apex right now and within the next month or two, since this is a twelve-month lagging piece of data that this is going to crest over and we're going to start to see this come down. When that starts to come down, it's going to be very impactful for CPI and it's going to be impactful for interest rates. So, this is definitely impacting and unfortunately, causing rates to be higher right now because of the lagging data here.

The other thing I want to show you is just what we have to look out for in the future, keeping an eye on inflation and how this is going to impact interest rates. So, every month we get inflation data that replaces information from the prior year. So, when we just got this inflation report on February 14th, the January inflation data that we got was actually really good. We were replacing a really high number good. So, remember it was up 4/10th of a percent. We were replacing a number that was up 6/10th of a percent.

But the shelter component of this was really low. So, we were replacing this low number with a high number. So, this negatively impacted the CPI report. I truly think that in February's reading that we get here on March 14th, we probably have a good reading there because we're replacing a high number in the CPI report and we're replacing a high number of shelter costs. March, I know that March is going to work very well in our favor because we're replacing a high number here... I'm sorry. Replacing a low number here for CPI, but we're finally starting to replace higher numbers again in the shelter component.

I really think we're going to see the difference is starting here, May 10th, because starting in May going forward, the numbers that we're replacing are high CPI numbers in inflation and we're starting to replace high shelter costs. So, if we're correct and we're hopefully starting to see the shelter cost because they lag by a year crest or apex here and start to come down, then the inflation reports that we start receiving in May going forward should be very beneficial for us and should have certainly positive impact on interest rates. So... That's what we're watching out for and we have to keep an eye on that.

Wednesday this week, we got retail sales. This is for the month of January. Retail sales were up 3%. Expectations was that retail sales would only be up 1.8%. You know, just keep in mind that retail sales for the month of November and December were actually low. So, really part of the question is if retail sales were up that high in January, was it because people were maybe at the mall, they had items to return and while there was a mall returning items they are spending more money? Hard to tell. There are really no facts there that we can figure out. But there was slightly higher than expected retail sales.

And then, also, we got Cass Freight shipping index. So, this was down 3.4% for the month of January. Cass Freight Shipping Index is an index that measures goods being moved around the United States when weas consumers are buying goods and is getting shipped from point A to point B. This is going to be a reflection of deflationary pressure because you're starting to see less movement of goods. And also, the cost of shipping went down as well.

Thursday this week, we got some housing info. This is all for new home sales. So, for new home sales, new construction delivery for 2023, we're on track for1.4 million homes to be delivered. This is actually going to keep inventory very tight because for new household formation, so, this is two people coming together to share expenses. 2023 target for new household formations is at 1.9 million. So, if you only have 1.4 million new homes coming into the marketplace and you have 1.9 million household formations, if this is going to keep housing very tight, it's definitely going to keep us from experiencing any kind of housing crash because you have people that may be holdout towards the end of Covid, now, they're starting to move in together and people are starting to think about buying homes again.

We also got builder sentiment. Builder sentiment is a gauge from 0 or 1 to 100. This moved from a gauge of 35 to 42. This was the largest increase in builder sentiment in ten years. One thing to keep in mind, though, is anything 50 and above is considered expansion. So, certainly, builders looking at this, we're not at an expansion level yet, but still, really great to see builder sentiment and their positive outlook on housing going forward. One more thing I wanted to show you as far as housing and this kind of plays into the builder's sentiment as well, is just vacancies, which think is really important also. So, if you look at vacancy levels in the United States for rentals, we're at really decades low.

This little blip right here, I wouldn't say these counts because this is the beginning of Covid and no one was moving good. We vacancies were certainly existing then, but right now, we're really approaching and we're at decade low levels of vacancies. So, there's not a lot of rental vacancies. And then this is for homeowners. So, this is homeowner vacancies as well. And this is an incredibly low number. So, you're not seeing a lot of vacant homes out there. You're not seeing a lot of people that need to drop their home listed prices or home for sale prices because of a vacancy; because vacancy levels here are at an all-time low.

Today for Friday, relatively quiet news day. Not a lot to talk about today. I'm around all weekend. I know it's President's weekend, but I'll still be working. If you have any questions, give me a call. If you want to go through our pre-approval process, I would love to help you. If you want to go throughout fast track pre-commitment process, we're closing purchase transactions in 10 days. We are starting to see more activity in the marketplace. More realtors that I talk with are seeing multiple offers. So, if you want to come in with the strongest offer possible, I can help you compete with cash. Give me a call on my cell phone, shoot me a text. I'd love to help you. Happy Friday. Have a great day.

-Brian

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