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Sunshine Corner is SRR Consulting’s bi-monthly newsletter with updates, news, and Sara's views on the US economy and commercial real estate.
Issue 2024:6 June, new moon
The Fed’s preferred inflation measure for April was released last Friday; tomorrow is the April jobs report; and the FOMC is set for a rate decision next week. Let’s get into it.
Inflation keeps chugging along.
April 2024 personal consumption expenditures (PCE) inflation was 0.3% for the third consecutive month. Core PCE inflation over the month ticked down to 0.2% in April from 0.3% in February and March. On a year-over-year basis, PCE inflation was 2.7% and Core PCE inflation was 2.8%.
If you expect the Fed to cut rates next week, this is not good news.
The annual numbers are closer to 3% than 2%, aka the Fed’s target, and they aren’t budging. Plus, annualized core PCE inflation was higher in the first quarter of 2024 (3.2%) than in the second half of 2023 (1.8% each quarter). The slight decline for core PCE in April is a good indicator that progress is continuing, but I believe the Fed wants more progress before cutting rates.
Also notable in this release is the slight monthly decline in real disposable personal income and real personal consumption expenditures. Both were down 0.1% in April. Consumers are still spending, but growth in April was down when adjusted for inflation.
If you expect the Fed to eventually cut rates in 2024, this is good news.
Cheers to the strong labor market!
Payroll employment has expanded by 982,000 jobs to date in 2024, compared to 1.2 million jobs in the first four months of 2023. Not too shabby.
In the first 21 weeks of 2024, initial unemployment insurance claims averaged 213,000 per week, compared to 217,000 per week over the same period in 2023. Looking good.
On June 4, the job openings and labor turnover survey (JOLTS!) reported a stable quits rate, or the number of employees who quit as a share of employment. This is a proxy for employee confidence and, with the quits rate at 2.2% for six months, employee confidence about quitting for a new opportunity has not changed.
The May jobs report tomorrow will likely show another month of gains in the 170,000-to-200,000 range. My expectation is lower than the trailing 12-month average of 233,500 jobs per month, but in-line with gains for April and strong enough to keep the unemployment rate below 4%.
So, about that rate cut…
SRR Consulting expects the federal funds rate to stay in the current range of 5.25% to 5.50% after the FOMC meeting concludes next week.
As noted in the first issue of this newsletter, I expect the federal funds rate to stay put until core inflation is trending below 3%. We’re not there yet, but we’re close.
April core PCE inflation hit an important mark at 0.2% because, if this pace were to continue for 11 more months, the annual rate would be 2.4%.
I’ll be watching this monthly inflation measure for stability or continued softening as I consider the potential for a cut in July or September.
Labor market conditions are also critical to watch due to the Fed’s dual mandate on employment and prices.
All appears well, but the lagged impact of rate hikes will become more pronounced the longer that rates stay elevated. If the unemployment rate moves up above 4% quickly, I expect the Fed will shift focus, making a rate cut more likely.
Thanks for reading!
Fun Facts: Sunshine marks the start and end of each day and illuminates the moon to mark the start and end of each month. New data covering the economic and demographic drivers of real estate performance are released at differing monthly and quarterly cadences such that an important data release occurs at least once a week. It is chaos. To build this newsletter's calendar, I chose to follow sunshine and release this newsletter twice per month, at the start (new moon) and end (full moon) of a lunar month. Problem solved. 🌞