As US inflation persists in 2022 at levels not seen since the 1980s, the US Inflation Tracker captures the trends that provide context in today’s economy.
We are seeing plenty of signs that the labor market is beginning to cool. Jobless claims are drifting higher, quit rates are beginning to fall, and average weekly hours worked are slipping, to name a few indicators. Retailers noted during first quarter 2022 earnings calls that they are overstaffed, indicating a need to right-size their workforce. The May jobs report confirmed this, with retail shedding over 61,000 jobs during the month of May. This slowing can be seen in wage momentum, with the 3-month annualized rate dropping from 6.08% to 4.34% over the last 5 months.
Key takeaway: The labor market looks to be cooling, and that should help take the pressure off rising aggregate incomes and ultimately cool off demand pressures.
Wage Momentum Starting to Slow
Average Hourly Earnings (12/31/17–5/31/22) Source: Natixis IM Solutions. FactSet
The fly in the ointment for inflation: housing. Most recently, the housing component within the CPI basket had been strong but not accelerating. This changed in the latest print, with housing showing signs of accelerating, sparking concerns that inflation may be much stickier than expected. While this may prove to be a headache for the Federal Reserve, we highlight the following: Core CPI (Consumer Price Index) carries a much heavier weight to housing than does core PCE (Personal Consumption Expenditure index). Weights of Rent and Owners’ Equivalent Rent carry account for almost 40% in the core CPI basket while core PCE holds just a 17% contribution.
Key takeaway: The Fed’s preferred metric resides with core PCE, and the housing component will certainly create significant divergences between the two readings.
Housing Market Pressures
Contribution of Housing to Monthly Core Consumer Price Inflation (1/31/19–5/31/22) Source: Portfolio Analysis & Consulting. Bloomberg.
US Inflation Tracker – June 2022
This in-depth chart deck highlights historical data related to:
• Personal consumption
• Inflation surprises
• Goods and services
• Base effects and surges
• Supply chain, shipping, and restocking
• Housing market pressures
• Wage pressures
• Inflation expectations
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