ECONOMIC REVIEW

  • Consumer prices rose more than expected in March as inflation heated up for a second straight month.
    • The headline Consumer Price Index (CPI) rose to 3.5% year over year, while the core CPI remained at 3.8%. Compared to last month, headline and core prices both increased 0.4%.
    • All readings were higher than their respective forecasts.
  • The Producer Price Index (PPI)increased 0.2% for the month, less than the 0.3% estimate.
    • However, on a 12-month basis, the PPI rose 2.1%, the biggest gain since April 2023.
  • In the week ending April 6, initial jobless claims were at a level of 211,000, a decrease of 11,000 from the previous week’s revised figure.
  • Consumer sentiment moved sideways for the fourth straight month in April, according to the preliminary report for the Michigan Consumer Sentiment Index. The index fell 1.5 points (-1.9%) to 77.9 from the March final. The latest reading was below the forecast of 79.0.

How do inflation readings, initial jobless claims, and consumer sentiment impact you?

  • Consumer inflation remained persistently high last month, boosted by gas, rents, auto insurance, and other items.
  • This was followed by higher-than-expected producer prices. Because producer prices measure price changes before they reach consumers, some people see it as an earlier predictor that CPI could continue to rise.
  • A hotter-than-expected inflationary reading will likely give the Federal Reserve (Fed) pause as it considers interest rate cuts.
  • Initial jobless claims measure the number of individuals who filed for unemployment insurance for the first time during the past week. This number continues to be low, indicating that the labor market remains strong.

The Michigan Consumer Sentiment Index is a monthly survey of consumer confidence levels in the U.S. about the economy, personal finances, business conditions, and buying conditions. While higher than any reading seen in 2022 or 2023, the 2024 numbers are still off the pre-pandemic levels of 90-100.

LOOK FORWARD

  • This week, we will receive data on housing starts, building permits, and retail sales.

How do housing data and retail sales impact you?

  • Housing starts tracks how many residential buildings began construction in the preceding month. The data is divided into single-family homes, residences with 2-4 units (condos or townhouses), and structures with 5+ units (apartment complexes). Housing starts coupled with building permits provide insight into future construction activity that will take place and thus are an excellent marker of future home building. Both of these numbers trended higher last month, and we will look for that trend to continue.
  • Consumer spending makes up 70% of economic activity, and therefore, we should examine March’s retail sales numbers to see if the data demonstrate steady spending by consumers who continue to benefit from a strong labor market and real wage gains.

MARKET UPDATE

Market Index Returns as of 4/12/2024WTDQTDYTD1 YR3 YR5 YR
S&P 500-1.52%-2.44%7.86%25.50%9.04%13.88%
NASDAQ-0.45%-1.23%7.97%34.00%5.76%16.13%
Dow Jones Industrial Average-2.36%-4.54%1.32%13.99%6.23%9.86%
Russell Mid-Cap-2.64%-4.21%4.03%17.22%3.40%9.41%
Russell 2000 (Small Cap)-2.91%-5.68%-0.80%13.23%-2.16%6.22%
MSCI EAFE (International)-1.12%-2.45%3.20%9.63%3.07%6.31%
MSCI Emerging Markets-0.34%-0.06%2.30%7.27%-5.26%1.61%
Bloomberg US Agg Bond-0.70%-1.75%-2.52%-0.55%-3.26%0.09%
Bloomberg High Yield Corp-0.58%-1.07%0.39%8.96%1.63%3.76%
Bloomberg Global Agg-0.99%-1.68%-3.73%-1.89%-5.55%-1.44%

OBSERVATIONS

  • All three US large cap equity indices posted negative returns last week with the Dow Jones declining -2.36%. This is the second straight week of negative returns for major equity indexes. The S&P 500 posted a -1.52% return, and NASDAQ outperformed relative to the other two indexes with a -0.45% return.
  • Mid-caps returned -2.64%, and small caps returned -2.91%, both underperforming the S&P 500 Index.
  • International equities posted a -1.12% return for the week and underperformed emerging markets, which posted a negative return of -0.34%.
  • Major bond indices declined for the week as yields across the treasury curve rose.
    • The US Agg posted a -0.70% return and lagged High Yield and Global bonds.
    • High Yield, which is less sensitive to interest rates, outperformed with a -0.58% return.

BY THE NUMBERS

  • How could Iran’s attack on Israel affect gas prices: Iran last night launched more than 300 drones and missiles in retaliation for an apparent Israeli strike on an Iranian embassy two weeks ago. Iran’s attacks caused minor damage at one military base. The bigger question for American consumers is how will this impact gas prices. The average price for a gallon of regular gas in the U.S. was $3.63 as of Sunday, according to AAA, up almost 4 cents from a week before and 22 cents from a month earlier. The price was down 3 cents from a year ago, however. With oil prices up over 20% so far in 2024, any further escalation in the Middle East could send prices even higher, ultimately resulting in higher gas prices.
  • Economics of the Eclipse: Americans are treating the eclipse like the YOLO moment it is and spending big: It’s projected to deliver a $6 billion infusion to the US economy—not far off the combined impact of Taylor Swift’s Eras Tour ($5.7 billion) and the 2023 Super Bowl ($1.3 billion). Millions are making a vacation out of it, shelling out for flights, hotels, and tickets to viewing parties along the path of totality. And cities big and small are at full capacity. Indianapolis was preparing for 500,000 visitors—more than 7x the attendance of the Super Bowl it hosted in 2012. Niagara Falls is estimated to have hosted up to 1 million people for the eclipse. It typically gets 14 million visitors throughout the entire year.

Reprinted with permission from BTN. Copyright © 2021 Michael A. Higley.