Friday Market Update: October 13th 2023

Will the Fed Raise Rates Again?

Happy Friday, Brian Manning, here with the weekly update. First of all, I just want to say that I really hope we see a very quick resolution to the situation in Israel right now. You know, what’s happening with Israel and Gaza, and just the Middle East is obviously very tense. It’s just not good for anyone, and my thoughts go out to them. And I just really hope to see a fast resolution there. 

Let’s see, I also want to go back to our jobs report from last week. So last Friday, we got our jobs report, and it came back as a blockbuster number. And I just want to like dial in a little bit more and get some feedback here. Okay. So this is for the month of September, jobs report came back. So there’s 336,000 jobs created in the month of September, estimates were for 170,000 new jobs. And the prior months were revised by another 119,000 jobs.

So you know, huge numbers, and definitely upside above expectations. But you know, they have these things called seasonal adjustments. So look at this, and they say, hey, what season are we in, based on the season that we’re in, you know, how many people would be hired or fires, let’s throw in the seasonal adjustment. And seasonal adjustment is kind of there to try and smooth things out and make it more consistent. So it’s not as erratic. 

But if we took out the non seasonal adjusted numbers, if we looked at non seasonally adjusted numbers, I should say, we saw a loss of 885,000 jobs. So that’s the first thing is it just seems like there’s a mismatch there. 

Another thing is, if we look at this 336,000 jobs that were created 70,000 jobs were teachers going back to work. I mean, I don’t know about you, but a teacher that was off for a summer, going back to work in the fall doesn’t seem like a new hire. Just seems like they’re going back to work, they just had their summer break. So there’s 70,000 jobs that were part of this 336,000, which I can’t say I would agree with.

Then we look at retail, so retail said we had 20,000 new jobs that were hired in the month. But the Challenger jobs report said that we’re seeing a sharp rise in retail layoffs, again, seems like a little bit of a mismatch. 

Then we got leisure and hospitality and leisure and hospitality has been kind of leading the way since COVID. That said it was up, but then we’re seeing hotel occupancy is declining. So you know, just a mismatch of information there. 

Then we look at what’s called the household survey. So household surveys is looking at households across the country. Unemployment rate remained flat here at 3.8%. But if we look at the household survey, this showed us that we lost 22,000 full time jobs. In the month of September, in the last three months, we’ve lost 692,000 jobs. So there’s been a decline there, we did see an increase. 

But the unfortunate part is the increase was with part time jobs. So maybe someone that couldn’t find a full time job, took a part time job. So that was up 151,000. And that’s so that’s not new, full time jobs. 

And then we look at multiple job holders. So you know, let’s just say someone has a job, it’s not paying them enough money, they need another part time job, like maybe driving for Uber. Now we have multiple jobs being counted there. There’s a part time or sorry, multi job holders. And that was up 123,000. So, you know, I just kind of feel like if we look under the hood here, the unfortunate reality is employment is not as strong as we think it is.

I bring this up because the Federal Reserve is looking at two items. They’re looking at inflation, and employment. And they’re still you know, some of them are full speed ahead. But it just doesn’t seem like the employment numbers are where they should be. 

Tuesday this week, though, we did get Federal, Federal Reserve Bank presidents and they did come out and say they think that maybe we don’t have to hike rates anymore, that the increase of yields, and the increase of interest rates in the markets kind of implemented on its own should be sufficient. Interesting to see. So now we’re starting to see more dovish comments, it’d be great to see if this carries over to other voting members.

Wednesday we got PPI. So PPI is producer price index. You know, this wasn’t really paid much attention to for quite a while because this measures inflation at a wholesale level. But producer price index wholesale costs were up to three tenths of a percent, and from five tenths of a percent. And the core number which excludes volatile items such as food and energy was up two tenths of a percent. So we saw a little bit of an increase there. 

That’s a slight and inflationary pressure. Who knows if that’s going to translate out to goods in the marketplace because I would have been a wholesaler were spending less money to create their goods, but they had would have to pass that savings on to us as the consumer to see if there’s a benefit there on consumer inflationary numbers. We’ll have to wait and see.

Thursday we got CPI. So CPI is a consumer price index. This measures inflation for us as consumers so this was for the month of September. So the headline number which includes volatile items, such as food and energy was up four tenths of a percent. So this number stayed constant. It didn’t change at all, it’s at a 3.7% inflation rate. 

The core rate though, which excludes volatile items, such as food and energy was up three tenths of a percent. So this has moved our inflation number from 4.3% down to 4.1. So we did see a decline there. Shelter inflation went from 7.3 down to 7.2.

What’s interesting, though, is that lodging away from home was up 7.3%. It’s interesting to see because you’re seeing hotel occupancy decline. If you look at places like VRBO, Airbnb, you know, you just look at their stock prices, you look at what’s happening in the vacation rental market, you’re seeing their prices decline, as well. So it’s interesting to see a decline in the marketplace. But in inflation reports, the numbers come out higher. 

The reason why is because they add in once again, this seasonal adjustment, and this seasonal adjustment was at 3.7%. So if we were looking at non seasonally adjusted lodging, away from home numbers, a big component of the CPI report, it was only up seven tenths of a percent. So this should have come down and had more impact on the on the CPI report, but it didn’t, you know, and this is just a quick graph of lodging away from home, it’s very highly volatile, it moves all the time. You know, it just it’s a very erratic number. But it’s impactful in the inflation report, then we look at shelter costs. 

So we’ve looked at this chart a bunch, we just keep updating it on a month over month basis, thanks to MBs highway, it shows you that, you know shelter costs had peaked here for us in January 2022. And they’re coming down shelter costs. So we look at rents are going up 3.1%. What we have to look at here is the blended rates. So the blended rate is what does it cost to renew your lease as a tenant and was a cost to take on a new lease as a tenant. So we look at the blended rates, they’re so blended rates are of 3.1%. But it shows in the CPI report that shelter costs are 7.2%. So there’s still a big disconnect there. But we have seen a turnover and it is moving lower. 

What’s interesting is if we look at real CPI costs, if we took this true number into effect that we didn’t look at the 7.2%. If we took this true number into account, CPI would actually be at 2.3% right now, which is really close to the Federal Reserve’s 2% target. So sometimes I’m just baffled by the data points that they look at, and that they’re not for looking. 

A little bit more insight into the CPI report, something I think it’s really interesting. You know, motor vehicle insurance accounts for three and a half percent of the core number. It’s interesting, because on a year over year basis of 19%, I’m just not quite sure why motor vehicle insurance is in fact, in the inflation report. 

I know it’s costly. We encourage consumers, but no matter what the Federal Reserve does, no matter how much they hike interest rates, it’s never going to have an impact on motor vehicle insurance, you can’t control hailstorms, flooding, loss of cars, accidents, etc. So it’s interesting to me that you’re seeing motor vehicle insurance increase, it cannot be impacted by a Federal Reserve’s monetary policy or hiking of interest rates. But it’s interesting to see that it’s so impactful in the CPI report, and there’s nothing they can do about it. So CPI, you know, it was an okay report, but definitely wasn’t a blockbuster report. It could have come back a little bit lower but still moving in the right direction. 

Today, Friday this week, we get Fed voting member, Patrick Harker, and his comments were that he thinks that interest rates should remain flat. He feels like they’ve already gone restrictive enough. They’ve hiked rates enough. Now let’s just let rates sit for a little bit. Let’s see what happens. That’s good news because next week, we have a lot of Fed speakers so we’re going to be curious to see what they say, especially leading into this Fed meeting coming into November. I’m around all weekend. You have any questions, let me know if you want to figure out how we’re closing purchase transactions in 14 days. Give me a call. I’d love to help you.

Happy Friday. Have a great day!



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