Crystal ball
Andrey Popov – stock.adobe.com
As we approach the end of the year, the economic history of the United States continues to evolve, marked by subtle changes and new patterns. In our ongoing series, we reunite with CloudQuant CEO Morgan Slade to dive into the latest macroeconomic developments, guided by CloudQuant’s core CPI forecast and other key data insights.
Gary Drenik: Welcome back, Morgan. Their core CPI forecast for last month was 3.95% year-on-year growth, with the actual figure coming in close to the right level at 4.0%. How do you assess the coming November figures?
CQ forecast vs. actual year-over-year change in core CPI
CloudQuant
Morgan Slade: Thanks, Gary. Our forecast for November is for core CPI growth of 3.8% year-on-year, slightly below the previous month’s actual figure. This is consistent with a broader trend of cooling inflation across all sectors, which is an important factor as we approach the next Federal Reserve meeting on December 12th and 13th. The actual numbers for November will be released on the first day of the Fed meeting, December 12th.
Drenik: Recent reports suggest consumer prices have stabilized over the past month. Can you explain how this impacts the Fed’s rate hike decisions?
Slade: Absolutely. We have observed that the rise in consumer prices has stalled, particularly in sectors such as automobiles and aviation, coupled with a slower increase and in some cases even a decline in housing and services costs. This trend is crucial because it indicates the possible peak of the Fed’s rate hike cycle. Investors seem to think we may have reached a peak in interest rates too, as major stock indexes such as the Nasdaq and S&P 500 posted significant increases when October CPI results were released on November 14th.
Drenik: Hopefully they’ve been keeping an eye on your forecast to position themselves before release! How does this supposed end to interest rate hikes affect the overall sentiment in America, especially given the significant price increases since 2021?
Slade: Interestingly, despite the decline in inflation, many Americans remain cautious. The price increases since 2021, initially caused by pandemic-related disruptions and later by increased demand, have left a lasting impact. We’re seeing a gradual separation in consumer confidence data from Prosper Insights & Analytics, as higher-income households increased last month while lower- and middle-income households remained relatively flat. In all cases, there is still a long way to go before we reach pre-pandemic levels.
Prosper – consumer trust
Prosper Insights & Analytics
Drenik: I’ve heard a lot about housing in the last month, there’s a shift in the rental market, isn’t there?
Slade: That’s right. We see a dichotomy where rents for existing tenants increased by about 5% between July and September, while rents for new tenants actually fell by 2.2% compared to last year. This is a significant shift from last year’s figures, when rents for new tenants increased by 13.7%. We’ve been seeing this trend in private data for over half a year now, but it’s finally starting to show up in Department of Labor data. We’ve touched on the difference between private and public data in articles over the past few months, and economists and policymakers are keenly aware of it, but it’s still reassuring to see the data back it up. This slowdown in the rental market is an important indicator that could point to an overall easing in inflationary pressures.
Drenik: How do these spending patterns influence consumer confidence and vice versa?
Slade: While consumer confidence appears to be stagnating, particularly among middle and lower income groups, it is important to note that this has not been a reliable indicator of consumer spending in the post-pandemic period. Interestingly, since 2004, around 40% of consumer spending has been accounted for by households with annual incomes over $200,000, highlighting the inequality in purchasing power across income levels.
Drenik: Finally, could you say something about supply dynamics and workforce development? What has been the impact of the pandemic “supply shock” now that we are a little further out?
Slade: Surely. This year we were able to observe a significant easing of delivery bottlenecks and an increase in productivity, especially in the second half of the year. Factors such as increasing immigration, higher labor force participation and a boom in new housing construction contribute to this development. Even though unemployment has increased, the increase has been so slow that we still see good chances for a soft landing. We’ll have to watch to see if the hiring decline we’ve seen in LinkUp’s job posting data has any lasting impact. These developments are crucial for the moderation of goods prices, rents and wages and thus influence the general development of inflation. We are currently on track for the largest annual peacetime slowdown in inflation.
Drenik: Thank you, Morgan, for these insights. It is clear that while the path ahead remains complex, understanding these nuanced economic shifts is key to navigating the future. We look forward to seeing how your core CPI forecast performs this month!
Slade: Always a pleasure, Gary. At CloudQuant, we remain committed to providing data-driven insights to help interpret these evolving economic landscapes.
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I cover consumer-focused insights and analysis that provide leaders with the solutions they need to execute their strategy. I am CEO of Prosper Business Development, where we have been market leaders for more than 20 years, developing contemporary solutions to help Fortune 500 companies manage changes that impact their business. I started in the radio industry.
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