Where is Inflation, Really?

This week began with the Presidential Inauguration and the Martin Luther King, Jr. holiday both falling on Monday. Despite the almost constant headlines of Executive Orders coming from the White House, the economic news was calm this week. The markets are seeing much of what has been expected and is already “priced in” to the current rates. This week did show us another round of Jobless Claims and Existing Home Sales reports. A lesser-watched report from CoreLogic may also be giving us some insight into future inflation reports. 

Jobless Claims Reports: Highest Levels Since 2021 

Initial Jobless Claims, measuring first-time individuals claiming unemployment benefits, increased by 6,000 to 223,000. Continuing Jobless Claims, measuring individuals that are continuing to claim unemployment benefits, rose by 46,000 to 1.899M.  

The 1.899M continuing claim number is one of the highest levels since 2021.  

Remember, this excludes people who are actively searching for work. State laws can vary, but this usually includes contacting at least five (5) potential employers each week to seek interviews or applications. Based on this, we can conclude that the number of people who are continuing to remain unemployed may be higher than 1.899M. It is clearly difficult to get a new job once you become unemployed. 

December Existing Home Sales: Potential Signal of Good Things to Come 

December’s Existing Home Sales data was released on Friday. Normally, the end of the year is a bit sluggish for the housing market. This December saw a 2.2% monthly increase to 4.24M units sold, a yearly increase of 9.3%. This was very strong for a traditionally slow period.  

Some other key statistics worth calling out: 

• The inventory of homes available to sell fell 13.5% monthly but was still up 16.2% yearly.  

• Despite this large increase, the overall supply of homes available was 3.3 months, when 4.6 months is considered a “normal” market.  

• 16% of homes are still being sold above their list price.   

Additionally, I want to share an interesting graphic showing that we are currently at the lowest home sales in many years. Going back to 2008 and the Great Recession, we found this same level, which was followed by a steady increase. This bodes well for our future housing market. 

A Few More Reports Worth Discussing 

There were a couple of other reports of note this past week.  

The University of Michigan published its Consumer Sentiment Index for January 2025.  

• This benchmark fell from 74 to 71.1, indicating that consumers aren’t as confident with their personal outlooks for the future.  

• One interesting data point in this report was that 47% of consumers expect unemployment to rise this year. This is the highest since the pandemic.  

• Remember, higher unemployment will lead to better rates and will push the Fed to continue cuts. 

The Philadelphia Federal Reserve released its Q3 2024 Insights Report.  

• It showed that credit card delinquencies are rising and that 10.8% of people with a credit card balance are making only the minimum payment.  

• This is the highest level since 2012, when they started to track this data. 

CoreLogic reported that blended (both new and renewal) lease rents rose by 1.5% in November vs 1.7% in November.  

• The two inflation reports that we track, CPI and PCE (the Fed’s favorite measure for inflation), both contain shelter costs as a major component.  Core CPI has Shelter being 46% and Core PCE has Shelter being 18%.  

• Based on the most recent reports, CPI is using 4.6% for Shelter, and PCE is using 4.8% for Shelter.  

• As we can see, this is significantly higher than the 1.5% shown currently by CoreLogic.  

• Even the Federal Reserve has acknowledged the significant “Lag” in their Shelter numbers. If they magically caught up to today’s real numbers, we would see Core PCE at 2.2% and Core CPI at 1.8%.  

• The Fed wants us to be at 2%. Once their Shelter numbers catch up, we will be almost there. 

Looking Ahead

 Next week is action-packed with the Fed meeting and PCE: 

Monday, January 27:

• New Home Sales 

Tuesday, January 28

• Durable Goods Orders 
• Case-Shiller Home Price Index 
• FHFA House Price Index 

Wednesday, January 29

• Fed Meeting Results and Press Conference 

Thursday, January 30

• Initial Jobless Claims 
• Gross Domestic Production (GDP) 
• Pending Home Sales 

Friday, January 31

• Personal Consumption Expenditures (PCE)  the Fed’s favorite inflation measure 

With all the news expected to come out, we could see some swings in interest rates.  Make sure you have a conversation with your Loan Officer to have a plan.