Egg Prices Drop, But Inflation Still Lingers

Eggspecations not being met, leading to egg on the face of the economy.

This week saw several extremely important events in the life of our nation. Not least of which was Pi Day, March 14^th (3.14). This is a close rival for top holidays of the year, just behind Star Wars Day, May the 4^th (be with you).  

• The USDA released data that showed the cost of white large shell eggs declined to $6.85 per dozen. This was a decline of $1.20 per dozen or about 15% from the prior read on February 28^th.   

• Markets were given updated inflation data for both consumers with the Consumer Price Index (CPI), and on the wholesale side with the Producer Price Index (PPI).   

• Small Business Optimism and Consumer Sentiment reports also gave us insight into how businesses and consumers are feeling about the health of the economy. 

NFIB Small Business Optimism Declines 

The National Federation of Independent Businesses (NFIB) Small Business Optimism Index dropped 2.1 points in February to a 100.7 reading. This shows a great deal of weakness, especially in the labor market.  

The survey of businesses asked several questions:  

• Those that expect the economy to improve fell 10 points to 37.  

• Plans to increase employment fell 3 points to 15, while job openings they couldn’t fill increased 3 points to 38.  

• Plans to raise compensation in the next 3 months fell 2 points to 18.  

This was solidly negative and reflects negative sentiment in the small business sector.   

Consumer Sentiment Hits a Low Point 

Consumers were also not feeling so great.  

The New York Federal Reserve (Fed) Bank’s Survey of Consumer Expectations saw added financial pressure to consumers.  

• Those that can’t make a minimum debt payment in the next 3 months increased from 13.3% to 14.6%, the highest since April 2020.  

• Those that expect their financial situation to worsen in the coming year increased from 20% in December to 27% in February.   

The University of Michigan Consumer Sentiment reading came in significantly lower than expectations.   

• Last month’s reading was 64.7% and expectations were for a slightly lower reading of 64.5.   

• This month, we were blown away by an actual reading of 57.9.   

Consumers who don’t feel good about their financial well-being are not going to spend money. Consumer Spending is one of the leading drivers of GDP (Gross Domestic Product – the nation’s income).  While this is negative for the economy, it does increase the likelihood of lower rates. 

CPI Report Shows Slight Inflation Cooling 

CPI for February showed overall inflation rose 0.2% for the month, lower than the 0.3% expectations. Yearly CPI also beat expectations dropping from 3% to 2.8%.  

• Out of the 0.2% increase, 0.03% of it was due to food cost increases.  

• Out of the 0.03% increase, almost all of it, 0.02%, was due to eggs. As we saw above from the USDA, we should see egg prices reflect lower in future readings.  

February’s Core reading, which strips out Food and Energy costs, rose 0.2% as well. The YoY number dropped to 3.1% from 3.3%.   

• Shelter accounted for 0.12% of the 0.2% increase and was by-far, the biggest component in this read.   

We are still waiting for the lag effect on Shelter to catch up to current rental rates. Rents have been declining but aren’t reflected in these Shelter numbers. If Shelter was reflecting current market, we would see Core CPI around 1.95%. That is right at the Fed’s target!   

PPI Report Shows Wholesale Inflation Slowing 

The PPI for February also showed some cooling.  

• Headline PPI was reported at 0%, lower than the 0.3% expected.   

• YoY PPI dropped to 3.2% from 3.7% in the prior month.   

• The Core rate was a negative 0.1%, crushing expectations of a positive 0.3%.   

• YoY Core droved to 3.4% from 3.8%.   

Rate markets should have loved this report. They were muted due to much of the declines being from profit margin compression rather than actual cost reductions.   

Looking Ahead: Fed Meeting & Key Reports. 

Next week is Fed Meeting week.  We will be listening closely to any hints on further rate reductions. 

Monday, March 17:  

• Retail Sales 

• NAHB Housing Market Index 

Tuesday, March 18:  

• Housing Starts 

Wednesday, March 19:  

• Fed Statement and Press Conference 

Thursday, March 20:  

• Initial Jobless Claims 

• Existing Home Sales