The Daily Tearsheet

Stocks are lower as oil prices continue to spike higher. Bonds and MBS are up as everyone was caught leaning the wrong way going into the jobs report.

Nonfarm payrolls fell by 92,000 last month, which was way below the street estimate of a 60,000 gain. December payrolls were revised down by 65,000 and January was revised down by 4,000. The unemployment rate ticked up to 4.4%. The labor force participation rate and the employment-population ratios declined by 0.1%.

The population was more or less unchanged, as was the labor force. About 185k less people were employed and the number of unemployed rose 200k. About 72k people exited the labor force.

Healthcare and social services payrolls declined slightly after a huge jump in January. Manufacturing was down as was leisure / hospitality. Average hourly earnings increased 3.8% on a YOY basis.

Retail sales fell 0.2% MOM in January, according to the Census Bureau. They were up 3.0% on a YOY basis. This number is not adjusted for inflation, so on a real basis they were up small. The Street was looking for a 0.4% decline so the number was a positive surprise.

Taxes and insurance now account for about 21% of the typical monthly mortgage payment. In some MSAs like Pensacola Florida, they account for 43% of the monthly payment. Places like California and Florida which are seeing more expensive natural disasters have been experiencing higher homeownership premiums. Other states like Illinois generally have high property taxes. HOA fees add another layer to higher costs.

Despite the sell-off in the TBA market, non-QM pricing has been holding in relatively well. This makes sense since SOFR futures are a better hedge than TBAs. SOFR is tied to short-term rates, not agency MBS. Given that we are seeing some delinquencies tick up in NQM, we might see a move in the basis (i.e. a credit move), but that wouldn’t be interest-rate related. Unfortunately basis risk is something secondary folks have to live with and it isn’t hedgeable.

Nonfarm productivity rose 2.8% in the fourth quarter, which was well above expectations and follows a 5.1% surge in the third quarter. Unit labor costs rose 2.8%.

The Spring Selling Season is underway, and sellers are re-listing homes that they took off the market last fall. Nearly 45,000 homes that were de-listed last year have been re-listed. Many pulled their homes off the market because they were unable to get the price they wanted. Despite lower supply, buyers are in a better position these days.

“Homebuyers are already scoring discounts because there are more homes for sale than people who want to buy them, and it’s possible those discounts will get bigger if relistings boost supply further,” said Redfin Senior Economist Asad Khan. “Some sellers will be more flexible on price when they relist since they’ve already been burned once. Buyers shouldn’t be shy about asking for concessions; even if the list price is high on paper, the seller may be open to negotiating.”

Stocks are higher this morning as oil prices continue to grind higher in response to the Iranian situation. Bonds and MBS are down again.

The services economy improved in February according to the ISM Services report. The index rose 2.2 points and hit the highest level since June of 2022. There was lots of good news in the report: New orders surged, while business activity and employment rose. Prices fell to the lowest level in 12 months.

“February’s Services PMI^® features the third month in a row with all four subindexes being in expansion territory, similar to a period from December 2024 through February 2025. Also, all 10 reported indexes were in expansion territory for the first time since March 2021. Further, eight of these indexes are on positive trends, with increases of as much as 11 percentage points over the last six months. The two indexes with negative trends over this time period are Prices, which has declined 6 percentage points, and Inventory Sentiment, which is down 0.4 percentage point. Although the Prices Index is still in expansion territory and in its longest streak above 60 percent since March 2023, February’s reading is its lowest in 11 months.

“The services sector is heating up, with the Business Activity, New Orders, and New Export Orders indexes at their highest levels since 2024, and the Backlog of Orders Index with its best reading since July 2022 (58.3 percent). The Supplier Deliveries Index is higher (and indicates slower deliveries) than its 12-month average, but the index has eased slightly since the previous month. Gasoline was noted by some respondents as a commodity up in price for the first time since February 2025, and copper was up in price for the third month in a row. Commentary on trade uncertainty increased, with respondents commenting that tariffs impacts have stabilized and are now embedded in supply chain costs. Although there were several comments on tariff uncertainty regarding the U.S. Supreme Court decision, there was no alarm regarding supply chain performance, suggesting that services companies have developed capabilities to routinely address shifts in tariff policies.”

On the subject of tariffs, note that a Federal Judge has ordered the US Government to begin refunding the tariffs it collected over the past year. This should be positive for big importers like Costco, WalMart, etc.

Layoff announcements declined 55% in February according to outplacement firm Challenger, Gray and Christmas. Layoff announcement fell on a YOY basis to 48,307. Hiring announcements remain muted however, which is consistent with the low hire / low fire environment the Fed has noted. Transportation and technology accounted for the lions share of the cuts.

“February’s dip is a nice reprieve from the elevated job cut plans to start the year. With U.S. involvement in a growing war in Iran, the end of Q1 may bring more layoff plans as companies tighten belts amid uncertainty and higher costs,” said Andy Challenger, workplace expert and chief revenue officer for Challenger, Gray & Christmas.

Separately, initial jobless claims fell to 213,000 last week.

Donald Trump officially nominated Kevin Warsh to succeed Jerome Powell as Fed Chairman. The nomination is not expected to be difficult, although Republican Thom Tillis is holding back support until the Department of Justice drops its investigation over Jerome Powell and the Fed Department renovations.

Stocks are flattish as the situation in Iran continues. Bonds and MBS are up small.

President Trump announced that US warships will escort Persian Gulf traffic through the Strait of Hormuz, which sent oil lower yesterday. The effects on shipping traffic are beginning to reverberate. The South Korean market fell 12% overnight.

The private sector added 63,000 jobs in February according to the ADP Employment Report. “We’ve seen an increase in hiring and pay gains remain solid, especially for job-stayers,” said Dr. Nela Richardson, chief economist, ADP. “But with hiring concentrated in only a few sectors, our data shows no widespread pay benefit from changing jobs. In fact, the pay premium for switching employers hit a record low in February.”

Education and health services accounted for the bulk of the job creation, while Professional / Business services declined. Construction payrolls also rose. Job stayers saw a 4.5% increase in compensation, while job changers saw a 6.3% rise.

The 63,000 increase was higher than expectations for ADP and also for Friday’s jobs report.

Minneapolis Fed President Neel Kashkari said that the Iran war clouds the monetary outlook for the Fed. “Is it going to look more like Russia-Ukraine, or is it going to look more like Hamas attacking Israel? Right now, it’s just too soon to know what imprint this has on inflation and for how long.” he said.

Kashkari added that he thinks monetary policy is generally in a good place and that the Supreme Court ruling on tariffs means that they aren’t going much higher from here.

Kashkari was against a rate cut in December, and will probably be against one in March. The Fed Funds futures are handicapping a negligible chance for a cut.

Mortgage applications rose 11% last week as purchases increased 6% and refis rose 14%. The refi index is 109% higher than a year ago. “Mortgage applications increased last week, driven by continued strength in refinance activity, as mortgage rates stayed near their lowest level since 2022,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Refinance applications increased for the fourth straight week to the strongest pace since 2022, with conventional refinances up 20%. The increase in the average loan size for refinances indicates that more borrowers with larger loan sizes are seeking to lower their monthly payments. Purchase applications also moved higher, with the week’s pace almost 10% ahead of last year’s pace, as lower rates and growing levels of housing inventory continue to support homebuyer interest.”

Stocks are lower this morning as fighting continues in the Persian Gulf. Bonds and MBS are down.

Energy prices are spiking higher as the fighting spreads in the Gulf and Iran threatens to set any ships on fire that pass through the Strait of Hormuz. The Strait of Hormuz sits between Iran and Oman and is about 21 miles wide at its narrowest point. The strait acts as a choke point for global oil supply, and much of the US Navy’s mission over the past 50 years has been to periodically shepherd oil tankers through the Strait whenever Iran gets a bug up its butt. About 20% of the global oil supply passes through the Strait of Hormuz, so any disruption there will send reverberations through markets.

Iran has attacked a gas facility in Qatar and an oil refinery in Saudi Arabia. Oil prices are up another 7% or so this morning, while natural gas futures are up 5% and gasoline futures are up a similar amount. The US gets almost all of its energy internally (the US is the Saudi Arabia of natural gas), so the threat of any sort of shortage isn’t there. The US oil market (WTI) is entirely separate from the oil that comes from the Gulf. That said, futures correlate so the US is seeing higher energy prices even though the action in the gulf shouldn’t affect anything here, at least in theory.

The US is demanding that Iran give up its nuclear ambitions, stop funding Hamas and Hezbollah, and stop trying to develop ballistic missiles. In return, the US would consider relaxing or ending sanctions. With Iran becoming increasingly isolated in the Gulf perhaps a new government will find that more palatable than the previous one did. Decades of sanctions has meant that Iran has been limited in its ability expand exploration and production and the country does represent a potential source of new global supply. So if the new interim government says “uncle” and Iran goes from chaotic evil to chaotic neutral this would be bearish for energy prices in general.

The ISM Manufacturing Index declined slightly in February as new orders and production expanded more slowly than January. In February, U.S. manufacturing activity remained in expansion territory, although growing at a slower pace than the month before. Of the five subindexes that make up the PMI^®, two (New Orders and Production) indicated slower growth compared to the previous month, and the Employment and Inventories indexes remained in contraction.

Most of the comments discussed the problems associated with tariffs, but this one had an interesting point on the employment market: “Business is improving by the week. Backlog is growing, and new opportunities are everywhere. Monthly shipments are still lower than planned, but improving. Over the past five years, we spent thousands trying to attract new employees and had almost zero responses. In the last six months, however, we’ve been able to hire experienced engineers, computer numerical control (CNC) operators, and young people wanting to become CNC machinists.” [Fabricated Metal Products]

The point about being able to hire skilled workers and young people entering the trades means that the prior lack of workers was a market issue, not a structural one. It sounds like more young workers are seeing college for what it is: a negative NPV investment for a lot of majors, and are reacting accordingly.

The S&P Manufacturing PMI shows a similar situation – manufacturing is still expanding, although the pace of expansion has slowed. Weather did have a negative impact on activity, although uncertainty in general from tariffs, to politics (and now geopolitical tensions) have dampened confidence and enthusiasm. “Meanwhile, although cost inflation remained elevated, often linked to tariffs, it is running lower than the peaks seen last year, and stiff competition has limited the pass through to selling prices, which rose in February at the slowest rate for over a year. While this is good news for inflation, it hints at downward pressure on profits.”

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Stocks are lower after the US decapitated Iran over the weekend. Bonds and MBS are down. Oil is up about 7%.

Welp. Did not have this on my 2026 Bingo card. Over the weekend the US and Israel attacked Iran and killed the Ayatollah Ali Khamenei and much of the Iranian leadership. The impact of this on global politics is hard to predict, let alone what it means for markets. Tehran has launched strikes on some of its neighbors, which poses the threat for a bigger confrontation. These strikes also isolate Iran in the Gulf, which looks to be a mistake. “Many people in the Gulf woke up Saturday pissed off at the United States and Israel, and went to sleep pissed off at Iran,” said William Wechsler, director of Middle East programs at the Atlantic Council in Washington and a former U.S. deputy assistant secretary of defense.

The most immediate impact will be the spike in the price of oil. Oil (both Brent and WTI) is up on the open. The big question is whether this is going to be sustainable. Note after the US captured Venezuelan President Maduro oil spiked momentarily and went back down. Since most of the US uses WTI oil and not Middle Eastern oil the US should be relatively insulated from any supply shocks, however WTI and Brent still correlate price-wise so we could be looking at higher oil (and gasoline) prices going forward. Needless to say this doesn’t help things on the inflation front and that will be another reason for the Fed to maintain the status quo.

The Chinese get a lot of their oil from two places: Iran and Venezuela. No doubt they are acutely aware of the message this all sends. Might China start dumping Treasuries in response? Something to watch.

The week ahead will be dominated by the jobs report on Friday. We will also get ISM data, retail sales and a slew of Fed speakers.

Construction spending rose 0.3% MOM but fell 0.4% YOY in December. Residential construction rose 1.5% on a monthly basis but declined 1.2% annually. Single family construction was up about 1.5%, but multifamily was roughly flat.

The Chicago PMI climbed to a 4 year high, driven by increases in new orders, production, employment and supplier deliveries. The employment subindex spiked, rising to the highest level since 2021.

Stocks are lower this morning as software stocks continue to get beat up. Bonds and MBS are up.

There is no obvious reason for the recent rally in bonds. It might just be a by-product of the stock market sell-off, but with credit problems in the PE space it could be a signal of something more significant. In mortgage land, any issues here will be felt first in non-QM lending.

Inflation at the wholesale level increased 0.5% MOM in January, which was above the Street 0.3% estimate. For the year 2025, final demand prices rose 2.9%. The PPI index which excludes food, energy and trade services rose 0.3% MOM and 3.4% YOY.

About 20% of the increase in services inflation was due to a 14% jump in the prices for professional and commercial equipment wholesaling. Goods inflation declined, which was mainly attributable to a drop in gasoline prices.

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Non-agency production continues its recent growth trajectory and the market is positioning for expansion. At the origination level, lenders with over $25 million of monthly non-QM production are exploring the transition from a best-efforts flow-business model, to mandatory single-loan or bulk-sales. Concurrently, larger aggregators and securitization conduits are actively seeking loans. Vendors, for their part, are supporting the sector and actively implementing services and pricing models to facilitate this evolution. The topic was extensively discussed at the recent MCT Exchange conference in San Diego. The featured session on non-QM lending included Wayne Liu of AmWest Funding, who detailed his 2025 experience and the success of the AmWest non-QM program. Wayne explained how AmWest utilized CME Group’s Eris SOFR swap futures rather than TBAs or US Treasury futures, as hedges for their loan inventory preceding securitization. He cited SOFR futures as a key element in AmWest’s hedging strategy which was fundamental in supporting the success of the firm’s securitization program. The underlying principle is straightforward: loans are a reflection of the cost of the warehouse lines required to fund the lending. Given that this cost of funding is SOFR-based, and that a non-QM eligible TBA is not available, loan inventory and pipeline interest rate risk may be easily and effectively hedged with Eris SOFR Swap futures.

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Chicago Fed President Austan Goolsbee said that rates can come down later this year: “I have ​some ​confidence rates can ‌come down several more times this year in 2026,” Goolsbee said in an interview on Fox News. “I ‌just don’t want ​to front ​load it ​too much before ‌we actually have ​the evidence ​that the inflation is headed” back down to ​the ‌Fed’s 2% goal.

“Several” is good. Three or more rate cuts. The Fed Funds futures have a roughly 50/50 chance for a rate cut in June, and the December futures see 2 cuts as most likely this year, with 3 cuts as the next most likely.

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Mortgage performance is holding up, according to the ICE First Look. “Mortgage performance held steady to start the year, with fewer early-stage delinquencies helping bring the national delinquency rate down,” said Andy Walden, Head of Mortgage and Housing Market Research at ICE. “At the same time, late-stage delinquencies and foreclosure volumes are both trending higher than they were a year ago. The data points to a market that remains resilient overall with most borrowers performing well while a subset faces increased payment pressure.” FHA is a known problem here.

That said, 90+ delinquencies and foreclosures are increasing. There are now 850k borrowers in the 90+ / active foreclosure category compared to 0nly 104k last year at this time. Fitch Rating’s DV01 data shows that DQs are picking up in non-QM lending.

Stocks are flattish after Nvidia reported earnings yesterday. Bonds and MBS are up.

Donald Trump’s State of the Union speech was short on details regarding housing affordability. He did mention the restriction on institutional investors owning property, which is mainly symbolic and won’t really affect housing prices.

Trump has directed the FHFA to allow the GSEs to buy mortgage backed securities in order to move down mortgage rates. He has also said he doesn’t want to see housing prices fall. No sane person should want to see housing prices fall, because that is a recipe for nasty recession – see Texas in the 1980s, 2008 in the US.

CPI shelter is more or less back to pre-pandemic levels, and that means the rate of change for housing is back to normal, but the absolute level is still elevated.

Since the absolute level is what people care about, and the rate of change is the lever the government has the most control over, there is a disconnect. It is a fact of life that housing prices shot up in the COVID era of easy money and QE, and there isn’t much the government can (or even should) do about that.

Ultimately there isn’t much the government can do. I have suggested a special LLPA for first time homebuyers, while others have suggested tinkering with capital gains taxes to alleviate the rate lock-in effect. Homebuilding is always a possibility, although the builders are sitting on the highest level of unsold homes since the 2008 crisis.

Finally, affordability is also hampered by taxes, insurance, HOA fees and rising maintenance costs.

It will take a period of house price stagnation, combined with rising wages to square the circle. It is an unsatisfying answer, but there really isn’t any policy lever that can do much more than small, symbolic measures.

Housing affordability decreased in January, according to the MBA. The national median mortgage payment (assuming they are referring solely to P&I) rose to $2,070 from $2,025 in December. “Housing affordability declined in January, with the national PAPI increasing for the first time in seven months and applicants’ median monthly payment up $45 compared to December,” said Edward Seiler, MBA’s Associate Vice President of Housing Economics and Executive Director of the Research Institute for Housing America. “While the median purchase application amount rose from $320,000 to $332,000, mortgage rates declined over the month. With mortgage rates mostly trending downward, and home-price growth flat or down in many markets, affordability conditions should improve in the months ahead as housing inventory increases.”

You can see the slow slog of improving affordabilty, which is being driven by lower mortgage rates and modestly increasing home prices.

St. Louis Fed President Alberto Musalem is generally optimistic about the economy overall and sees inflation returning to its 2% target in the second half of the year. “Half of that excess inflation comes from tariffs, as best we can measure it,” Musalem said. “I expect the part that is attributable to tariffs to fade as the year progresses and inflation to then resume a trajectory towards our 2 percent target.”

Stocks are higher this morning on no real news. Bonds and MBS are down. Market bellwether Nvidia reports after the close.

Home price appreciation decelerated in December, according to the Case-Shiller Home Price Index. For the year 2025, home prices rose 1.3%, the slowest growth since 2011. Inflation (including wages) outstripped home price growth, meaning that real home prices are falling. This is generally good news for affordability. The hip-to-be-square trade continues with New York and Chicago showing the best gains while Tampa, Phoenix, Dallas, and Miami posted losses.

“Two structural forces have reshaped the market over recent years: mortgage rates and inflation,” Godec continued. “The 30-year mortgage rate closed 2025 at 6.2%, well above the 4.8% 10-year average and a sharp contrast to the 3.9% average that prevailed from 2016 through 2020. Meanwhile, annual inflation for 2025 came in at 2.7% — modestly below the 3.1% 10-year average — but still outpaced home price appreciation by 1.4 percentage points, effectively eroding real home values for most owners. This marks a notable reversal: Over the prior decade, national home prices outpaced inflation by 3.7 percentage points annually, a dynamic that has quietly reversed, with real home price returns turning negative in June 2025.”

You can see the hip-to-be-square trade in the chart below (from the FHFA House Price Index) which shows YOY growth for different sections of the country:

First note the deceleration in growth from 2024 to 2025. The negative areas – the West Coast, Mountain states and Southeast were the high-flyers post COVID, while the Middle Atlantic (think NYC) and Midwest generally lagged the rest of the country post-2012.

Consumer confidence improved in February according to the Conference Board. Confidence is still somewhat soggy having been hit by labor market worries and general affordability problems. “Consumers’ write-in responses on factors affecting the economy continued to skew towards pessimism. Comments about prices, inflation, and the cost of goods remained at the top of consumer’s minds. Mentions of trade and politics also increased in February. Labor market mentions eased a bit in February, while observations about immigration increased somewhat.”

Mortgage application rose slightly last week as purchases fell 5% and refis rose 4%. The spring selling season is upon us. “Mortgage rates followed Treasury yields lower last week, with the 30-year fixed rate declining to 6.09%–its lowest level since September 2022. The decrease in rates was enough to drive a 5% increase in conventional refinance applications and a 26 percent increase in VA refinances,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase applications were down over the week but were 12 percent higher than a year ago, as the combination of lower rates and improving affordability conditions continue to support stronger demand than last year. The ARM share stayed above 8% , as ARM rates remained more than 80 basis points below conforming fixed rates. This is giving payment-sensitive borrowers or those seeking larger loans, an incentive to choose this product offering.”

The drop in purchase applications is interesting given what time of year it is. Part of the problem is that home sales are falling through. According to Realtor.com, nearly 1 in 7 purchase contracts have been canceled. San Antonio has the highest percentage – 21% – while other MSAs such as Atlanta, Cleveland, Riverside and Orlando are experiencing issues.

“More buyers are backing out,” said Alin Glogovicean, a Redfin Premier agent in Los Angeles, where 16.7% of home purchase agreements were cancelled in January, up from 15% a year earlier. “They’re second-guessing the wisdom of making a huge purchase when there’s a fear in the back of their mind about the state of the economy and the uncertainty of their finances. That’s particularly true when they’re first-time buyers who don’t have equity from a previous home sale, and they’re using most or all of their savings on a down payment.”

Appraisals are under increased scrutiny these days and I wonder if that is also causing issues. Big cities like Baltimore and Philly are getting hit hard as investors pull in their horns on non-QM products.

Stocks are flattish this morning after yesterday’s tech sell-off. Bonds and MBS are up.

The private equity stocks have been getting battered. Blue Owl is down 31% over the past month, Blackstone is down 24%, TPG is down 33%, Ares is down 27%. This is something to watch, as credit problems have a tendency to spread. The most likely impact will be in non-QM lending and it will show up in buyers DK-ing loan purchases or pushing buybacks.

In the meantime, I suspect we are seeing a slight flight-to-safety with lower Treasury yields and MBS spreads. This is good news for the Spring Selling Season.

Economic growth improved in January according to the Chicago Fed National Activity Index. Production and income indicators drove the increase. The CFNAI is a meta-index of some 85 different indicators so it is a good top-down snapshot of the economy.

Note that the baseline in this index is trend growth, not zero growth. So big downdrafts don’t necessarily mean we are seeing recession-level growth, just that growth is below trend.

Chicago Fed President Austan Goolsbee said that further rate cuts are not appropriate as inflation is still too high. “I feel that front-loading too many rate cuts is not prudent in that circumstance,” he said in remarks before the National Association for Business Economics at its annual gathering in Washington, D.C. “People express that prices are one of their most pressing concerns. Let’s pay attention. Before we cut rates more to stimulate the economy, let’s be sure inflation is heading back to 2%.”

Goolsbee had previously been leaning towards further cuts this year. These comments come after the Supreme Court decision blocking tariffs, so it is clear he isn’t putting much stock in a tariff-driven decrease in inflation.

Fed Governor Chris Waller intends to look through the tariff decision and wait until we get the next jobs report to discuss further rate cuts. “Traditional central bank wisdom suggests that we should ‘look through’ tariffs. I did this when they went up and will do so if they come down,” Waller said.

Late last year, the Fed was worried that the labor market was deteriorating, but a strong-ish January jobs report gave them some comfort that perhaps things were stabilizing. The February report will hopefully give confirmation on that.

Regardless of what Goolsbee and Waller say, financial stress will take precedence if the private equity problems spill over into the general economy.

Stocks are lower this morning after the Supreme Court blocked most of Trump’s tariffs. Bonds and MBS are up small.

The week ahead is relatively data-light, with the Producer Price Index as the main indicator. We will also get home prices and consumer confidence along with a bunch of Fed speakers.

The Supreme Court blocked most of Trump’s tariffs, saying that the executive branch had overstepped its authority by imposing tariffs without Congressional support. After the decision, the Administration imposed a 15% tariff on across the board, which will lower the global tariff burden generally from 16% to 13.7%. The new tariffs have a 150 day term and will expire without Congressional ratification. If that doesn’t happen then the US effective tariff rate will fall to something like 9%.

Ultimately, the Supreme Court decision should translate into lower bond yields, since tariffs were a key component in driving inflation. The muted reaction Friday indicates that either the decision was already baked in the cake, or it means that the decision won’t matter enough to make the Fed re-think its policy. Given that the tariffs have been in place for nearly a year, many businesses have already adjusted their buying practices to minimize the impact, so the change might not make much difference. The Yale numbers indicate that the impact will be minor.

New home sales fell 1.7% on a MOM basis to a seasonally adjusted annual pace of 745,000 units. This was up 3.8% on a YOY basis. For 2025, Census estimates that there were 679,000 new homes sold. At the end of the year, there were 472,000 homes for sale, representing a 7.6 month supply. We currently have a glut of new homes looking for buyers. The median new home price came in at $414,000 as builders focus on lower-priced homes.

Consumer sentiment was relatively flat in February, according to the University of Michigan Consumer Sentiment Survey. “Consumer sentiment stagnated this month with very little change, just 0.2 index points higher than January. All index components posted insignificant movements this month; overall, consumers do not perceive any material differences in the economy from last month. About 46% of consumers spontaneously mentioned high prices eroding their personal finances; readings have exceeded 40% for seven months in a row. Sentiment is about 13% below a year ago and 21% below January 2025. That said, views vary considerably across the population. A sizable month-to-month increase in sentiment for the largest stockholders was fully offset by a decline among consumers without stock holdings. Similar divergences were seen across income and education, where higher-income or college educated consumers exhibited increases in sentiment while lower-income or less-educated counterparts did not. With their much stronger income prospects and investment porfolios, wealthier and higher-income consumers feel better insulated from any possible risks to the economy.”

Inflation expectations moderated, with year-ahead expectations falling from 4.0% to 3.4% the lowest level since January 2025. Longer run expectations were flat at 3.3%.