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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.

Belated Buck Moon Edition

If you noticed the bright, full moon Sunday night, you may be aware that this issue is a few days late. If you didn’t notice the last full moon, allow me to share a photo of the moonrise behind the Statue of Liberty.

In this issue, we will catch up on the latest inflation data released since Sunshine Corner 2024:8. Inflation continues to trend down toward the Fed’s 2% target as shown by data releases since the last Sunshine Corner. Plus, recent events have improved the outlook for inflation going forward. Let’s get into it.

Good News on Consumer Inflation

The consumer price index (CPI) edged down in June. On a monthly basis, the CPI declined 0.1% in June 2024, while rising 3.0% over the trailing year. Gasoline prices declined by 3.8% for the month, more than offsetting increases in housing, food, and medical care costs.

The Core CPI, which excludes food and energy prices, increased by 0.1% over the month of June 2024. This follows a 0.2% increase in May. Core consumer price inflation was 3.3% over the year ending in June 2024.

The Personal Consumption Expenditures Price Index, or PCE, has drifted down to 2.6% over the year ending in May 2024, from a year-over-year peak of 7.1% in June 2022. Year-over-year Core PCE was even lower, measuring 2.4% inflation year-over-year as of May 2024.

Noted as the Fed’s preferred inflation measure, the PCE measures prices paid by consumers for goods and services tracked by the U.S. Bureau of Economic Advisors for gross domestic product accounting. The CPI measures price changes for a set basket of goods and services over time. Utilizing the PCE provides the Fed with an inflation measure that moves in real-time with consumer preferences.

Producer Prices are Still Sticky

On the producer side, however, prices for final demand are drifting in the wrong direction. The Producer Price Index (PPI) for Final Demand increased 0.2% in June. This follows no change in May and a 0.5% increase in April.

As a result, year-over-year PPI inflation was 2.6% through June 2024, which is the largest 12-month increase since March 2023. According to the Bureau of Labor Statistics July 12 release:

“Nearly all the June increase is attributable to a 1.9-percent jump in margins for final demand trade services. Trade indexes measure changes in margins received by wholesalers and retailers.”

Results from the July 2024 NABE Business Conditions Survey similarly point to upward pressure on prices for final demand with 57% of respondents reporting that prices charged by their firms rose in Q2 2024. This is up from 41% in the prior quarter’s survey and marks a record high for the survey’s seventeen-year history.

The Struggle is Real Retail Sales

When adjusted for CPI inflation, retail sales are softening more than headline numbers suggest.

The monthly retail sales report for June 2024 showed no change in sales over the month, for a year-over-year nominal increase of 2.0%.

Adjusting the series for consumer price inflation yields a 1.0% year-over-year decline in real retail sales. December 2023 was the last month in which real retail sales expanded year-over-year, at 1.3%. Inflation-driven sales growth is not a good sign for the economy.

A Good Sign for the U.S. Economy

The past few weeks have been a wild ride for U.S. presidential politics. Where it stands today, with Vice President Harris the likely nominee for the Democrats, is a good sign for the U.S. economy, especially the inflation outlook.

The Republican Party platform lists many economically destabilizing policy initiatives, such as carrying out the largest deportation operation in history, which is the second item on the agenda. This action would shrink the U.S. economy and create an inflationary spiral. The dramatic loss of workers and productivity would drive spikes in wages and prices. In addition to this plan, Trump and his party have expressed significant increases in tariffs, which also push inflation higher.

Adding Harris to the top of the Democrat ticket increases the odds that Americans will not have to face a manufactured and unnecessary inflation spike.

This is the best news I have heard in a while.

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. 🌞