Morning Report: Inflationary expectations decline

Vital Statistics:

S&P futures4,23424.50
Oil (WTI)92.41-1.53
10 year government bond yield 2.84
30 year fixed rate mortgage 5.39%

Stocks are higher as we finish up a good week of earnings. Bonds and MBS are up.

At least some good news on the home purchase front: Record numbers of homeowners are looking to relocate to cheaper locations, according to a study from Redfin. 33.7% of homeowners want to move somewhere new, compared to 26% pre-pandemic.

The places people are leaving are unsurprising: typically the expensive coastal cities, especially in California, where costs of living are sky-high. IMO, this is something that will remain given that work-from-home is now a permanent part of the landscape.

I suspect that this will actually be a huge boon to the economy, given that a historical source of friction (workers having to be near their place of employment) is no longer an issue. Think about how much productive time is wasted in commuting. This will be good for lower-cost areas, but probably not good for expensive coastal real estate.

Consumer sentiment improved in August, according to the University of Michigan Consumer Sentiment Index. Again, these indices are generally an inverse index of gasoline prices. Inflation expectations dropped, which is welcome and something the Fed pays close attention to.

Consumer sentiment moved up very slightly this month to about 5 index points above the all-time low reached in June. All components of the expectations index improved this month, particularly among low and middle income consumers for whom inflation is particularly salient. The year-ahead economic outlook rose substantially to just above its average reading from the second quarter 2022, while the two other expectations index components remain at or below their second quarter averages. At the same time, high income consumers, who generate a disproportionate share of spending, registered large declines in both their current personal finances as well as buying conditions for durables. With continued declines in energy prices, the median expected year-ahead inflation rate fell to 5.0%, its lowest reading since February but still well above the 4.6% reading from a year ago. At 3.0%, median long run inflation expectations remained within the 2.9-3.1% range seen over the past year. Uncertainty over long run inflation receded a bit, with the interquartile range in expectations falling from 4.7 last month to 3.8 this month, remaining above the 3.3 range seen last August. Still, the share of consumers blaming inflation for eroding their living standards remained near 48%.


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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