Fraudulent jobless claims in Massachusetts have cast a shadow on the nature of economic data gathering and reporting, though there had been no shortage of skepticism beforehand – in terms of statistics published by the federal government. Things have grown increasingly political in recent years, while a drop-off in business participation and declining consumer respondents threaten to dampen the effectiveness of sample sizes. It’s a pretty big deal as many decisions are based on the numbers, like policy choices at the Federal Reserve to C-suite strategies that form the foundation of the U.S. economy.

‘Data dependent’: The phrase is one that’s often used at the central bank, though many are quick to flag subsequent forecasts made by Fed – like Powell’s infamous “transitory” call from 2021 – that didn’t quite pan out. It’s not only that many economic reports have to be sourced from survey and industry sources, but numerous figures are calculated based on past assumptions or derivatives of data. Agencies seek to adjust for imbalances by applying different weights to respondents or including third-party information, which some say makes thing better reflect the general population and others say erode trust in institutions.

This can impact key reports like nonfarm-payrolls, consumer confidence and sentiment, as well as retail sales, but we’ll examine the popular consumer price index in the age of inflation. CPI uses a “basket of goods” approach that aims to compare the costs of various consumer goods and services, with 80,000 items included in the report. Each month, data collectors from the Bureau of Labor Statistics call, visit, or check the websites of thousands of retail stores, professional offices, and other establishments to assess nationwide price information. Still, several statistical adjustments are made, like accounting for the changes in the quality of goods, substitution, and other weightings.

Earlier this year, the Labor Department put greater importance on the shelter component of CPI, which accounts for more than a third of the overall figure and has been in the spotlight over “owners’ equivalent rent.” It also lessened its focus on things like used cars, which recently underwent its own methodology refresh. The survey last year incorporated third-party data to ease the burden on respondents, like information from the J.D. Power Information Network that measures changes in vehicle prices, further dividing investors on what should be factored into their decision-making.

 

US Economy

 

  • Economists continue to boost their forecasts for core inflation this year.

 

 

  • The COVID-era surge in corporate margins has been an important driver of consumer inflation.

 

 

  • Cyclical components drove the recent CPI decline, but structural inflation remains sticky.

 

 

  • Significant improvements in global supply chain conditions have been pulling inflation lower.

 

 

  • Wholesale used vehicle prices were lower again this month.
  • The GDPNow model is tracking Q2 growth at 2.9% (annualized).

 

 

  • The consensus estimate is well below that figure but is in positive territory.

 

 

  • The market expects a soft landing.

 

 

  • Fed officials are indicating that there will be no rate increase in June.

 

Source: AP News   Read full article

 

 

  • Mortgage rates have been climbing again. Up to 6.63% now
  • Depressed mortgage applications point to downside risks for new home sales

 

 

  • The number of houses constructed for rental purposes has surpassed those built for sale.

 

 

  • Redfin’s index of home price appreciation suggests further price declines in April (year-over-year).

 

 

  • Rents have significantly outpaced household incomes.

 

 

  • The decline in small business hiring plans points to higher unemployment this year.

 

 

  • The yield on the June 8th T-bill is nearing 6%. Worries about the Shutdown.

 

 

  • For years, numerous forecasts have projected an imminent overtaking of the US GDP by China’s booming economy. Yet, these predictions may not pan out as expected. China’s economy confronts a myriad of significant challenges, including an apparent end to the housing boom and a declining labor force, which will hinder anticipated growth.

 

 

  • This projection from Capital Economics does not foresee China’s economy surpassing that of the US for decades, a stark contrast to prevailing forecasts.

 

 

  • The May flash PMI report from S&P Global showed a contraction in US factory activity.

 

 

  • But service-sector growth strengthened.
  • This divergence is a global phenomenon, with the Eurozone, the UK, Japan, and Australia experiencing similar trends.

 

 

  • The manufacturing export orders index is crashing.

 

 

  • Factory input costs are now falling.
  • Employment in both manufacturing and services remains robust.
  • Fewer companies are boosting wages.
  • Price pressures are easing.

 

 

  • Office vacancy rates have been climbing.

 

 

Market Data

 

  • High-dividend stocks have been widening their underperformance.

 

 

  • Equity valuations keep rising despite deteriorating liquidity.

 

 

  • The S&P 500 resistance is holding amid debt ceiling concerns.

 

 

  • Fund flows do not support the recent gains.

 

Source: Goldman Sachs; h/t @t1alpha

 

  • The 2023 earnings estimates have been robust for the top ten stocks but not the rest of the index.

 

 

  • Profit margin forward estimates by sector:

 

 

  • This Nasdaq rally has been quite narrow.

 

 

  • By the way, the dot-com era’s relatively narrow rally ended badly.

 

 

Quote of the Week

 

“If you’re not having fun, you’re doing something wrong.” – Groucho Marx

 

Picture of the Week

 

Saksun, Faroe Islands, Denmark

 

 

 

All content is the opinion of Brian Decker