Evelyn Reynolds

The producer price index rose 0.2% in October, below the 0.4% estimate.
A significant contributor to the slowdown in wholesale inflation was a 0.1% decline in services, the first outright decline in that measure since November 2020.
On a year-over-year basis, PPI rose 8% compared to an 8.4% increase in September.
In other economic news, the Empire State Manufacturing Survey for November registered a reading of 4.5%, much better than the estimate for a -6% reading.

Wholesale prices increased less than expected in October, adding to hopes that inflation is on the wane, the Bureau of Labor Statistics reported Tuesday.
The produce price index, a measure of the prices that companies get for finished goods in the marketplace, rose 0.2% for the month, against the Dow Jones estimates for a 0.4% increase.

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Stock futures tied to the Dow Jones Industrial Average were up more than 400 points shortly after the release, reflecting market anticipation that cost of living increases not seen since the early 1980s were easing if not receding. However, market gains tapered through the day, with the Dow up just over 100 points late in the session.
On a year-over-year basis, PPI rose 8% compared to an 8.4% increase in September and off the all-time peak of 11.7% hit in March. The monthly increase equaled September’s gain of 0.2%.
Excluding food, energy and trade services, the index also rose 0.2% on the month and 5.4% on the year. Excluding just food and energy, the index was flat on the month and up 6.7% on the year.
“The PPI read certainly adds more fuel to the fire for those who feel we may finally be on a downward inflation trend,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley’s Global Investment Office.
One significant contributor to the slowdown in inflation was a 0.1% decline in the services component of the index. That marked the first outright decline in that measure since November 2020. Final demand prices for goods rose 0.6%, the biggest gain since June an traceable primarily to the rebound in energy, which saw a 5.7% jump in gasoline.

The deceleration came despite a 2.7% increase in energy costs and a 0.5% increase in food.
Inflation has soared during the pandemic era as supply chains could not keep with overheated demand for long-lasting big-ticket items, particularly those dependent on semiconductors. Economists generally expect that inflation has at least plateaued, though there are plenty of risks on the horizon, including a potential rail strike that could apply new pressure to supply chains.
The producer index is generally considered a good leading indicator for inflation as it gauges pipeline prices that eventually work their way into the marketplace. PPI differs from the more widely followed consumer price index as the former measures the prices that producers receive at the wholesale level while CPI reflects what consumers actually pay.
Hopes that inflation is at least slowing spiked last week when the CPI showed a monthly gain of 0.4%, lower than the 0.6% estimate. The 7.7% annual gain was a deceleration from a 41-year peak of 9% in June. Markets also soared following Thursday’s CPI release.
Federal Reserve officials have been raising interest rates in hopes of bringing down inflation. The central bank has hiked its benchmark borrowing rate six times year for a total of 3.75 percentage points, its highest level in 14 years.
Markets on Tuesday afternoon were pricing in about an 80% chance that the Fed would downshift in rate hikes in December, with a 0.5 percentage point increase after four straight 0.75 percentage point moves.
Vice Chair Lael Brainard said Monday she expects the pace of hikes soon will slow, through rates are likely to still go higher. She said the Fed can move to a more “deliberate” posture as it watches the impact of its rate hikes.
In other economic news Tuesday, the New York Fed’s Empire State Manufacturing Survey for November registered a reading of 4.5%, an increase of 14 percentage points on a monthly basis and much better than the estimate for a -6% reading. The index measures the difference between companies reporting expansion vs. contraction.
However, both the prices paid and received components saw increases, rising 1.9 points and 4.3 points respectively.

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Federal Reserve Vice Chair Lael Brainard indicated Monday that the central bank could soon slow the pace of its interest rate increases.
“I think it will probably be appropriate soon to move to a slower pace of rate increases,” she told Bloomberg News in a live interview.

Lael Brainard, vice chair of the US Federal Reserve, listens to a question during an interview in Washington, DC, US, on Monday, Nov. 14, 2022.
Andrew Harrer | Bloomberg | Getty Images

Federal Reserve Vice Chair Lael Brainard indicated Monday that the central bank could soon slow the pace of its interest rate increases.
With markets expecting a likely step down in December from the Fed’s rapid pace of rate increases this year, Brainard confirmed that a slowdown if not a stop is looming.

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“I think it will probably be appropriate soon to move to a slower pace of rate increases,” she told Bloomberg News in a live interview.
That doesn’t mean the Fed will stop raising rates, but it at least will come off a pace that has seen four consecutive 0.75 percentage point increases, an unprecedented pattern since the central bank started using short-term rates to set monetary policy in 1990.
“I think what’s really important to emphasize is we’ve done a lot but we have additional work to do both on raising rates and sustaining restraint to bring inflation down to 2% over time,” Brainard said.
Brainard spoke a week after the Fed took its benchmark interest rate to a 3.75%-4% targeted range, the highest level in 14 years. The Fed has been battling inflation running at its highest level since the early 1980s and continued at a 7.7% annual pace in October, according to the Bureau of Labor Statistics.
The consumer price index rose 0.4% last month, less than the Dow Jones estimate for 0.6%, and Brainard said she has seen signs that inflation is cooling.

“We have raised rates very rapidly … and we’ve been reducing the balance sheet, and you can see that in financial conditions, you can see that in inflation expectations, which are quite well-anchored,” she said.
Along with the rate hikes, the Fed has been reducing the bond holdings on its balance sheet at a maximum pace of $95 billion a month. Since that process, nicknamed “quantitative tightening,” began in June, the Fed’s balance sheet has contracted by more than $235 billion but remains at $8.73 trillion.

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Americans grew more worried about inflation in the October, with fears emanating primarily from an expected burst in gasoline prices.
A New York Fed survey showed inflation expectations for the year ahead rose to 5.9%, while the three-year outlook increased to 3.1%.
Home prices were expected to nudge higher by 2%, tied for the lowest since June 2020.

A Sheetz customer gets gasoline at a gas station in Plains, Pennsylvania, U.S. October 19, 2022. 
Aimee Dilger | Reuters

Americans grew more worried about inflation in the October, with fears emanating from an expected burst in gasoline prices, a Federal Reserve survey showed Monday.
Inflation expectations for the year ahead rose to 5.9%, up half a percentage point from September to the highest level since July, according to the New York Fed’s monthly Survey of Consumer Expectations. Three-year expectations also accelerated to 3.1%, while the five-year outlook rose to 2.4%, respective increases from 2.9% and 2.2%.

At the root of the heightened worries was an expected jump in prices at the pump, which have been declining over the past month.
Respondents think gas prices will increase by 4.8% over the next year, up from 0.5% in September for the biggest one-month increase in survey data that goes back to June 2013.
The year-ahead projection for food prices increased, with consumers now anticipating a 7.6% increase, up from 6.8% in September. The outlook for medical costs and rent were little changed, with the latter up 0.1 percentage point, while the expectations for college costs fell to 8.6%, a 0.4 percentage point decline from September.
The survey comes less than a week after the Bureau of Labor Statistics reported that inflation, as gauged by the consumer price index, rose 0.4% in October. That was lower than the 0.6% Dow Jones estimate for the monthly gain, while the annual rise of 7.7% was half a percentage point lower than the previous month.
Fed policymakers have been raising interest rates aggressively this year to bring down inflation. A series of increases has brought the central bank’s benchmark rate up about 3.75 percentage points, with markets expecting additional hikes into the early part of 2023.

The increases have had some impact already, particularly in the housing market, where 30-year mortgage rates around 7% have impacted sales and prices.
Home prices were expected to nudge higher by 2%, the same as September and tied for the lowest since June 2020.
The Fed’s efforts to cool the red-hot labor market also are projected to have some impact. Some 42.9% of respondents expect the unemployment rate to be up a year from now, representing the highest level since April 2020.
The survey, however, showed a median expectation for household income of 4.3% in the next year, a record level. Spending growth rose a full percentage point to 7%.
Credit is expected to be harder to come by — a record-high 56.7% think it will be more difficult to get financing a year from now.
A separate gauge released Monday from the quarterly Survey of Professional Forecasters also pointed to higher inflation coupled with lower economic growth. The survey sees GDP growth of just 1.6% this year and 1.3% in 2023, while CPI inflation is projected to be 7.7% in 2022 and 3.4% in 2023, up from previous estimates of 7.5% and 3.2% respectively.

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The University of Michigan Survey of Consumers posted a 54.7 reading for November, down 8.7% from the previous month’s reading and well below the estimate.
The survey noted a particular slide in views on spending for durable goods — big-ticket items such as televisions, kitchen appliances and motor vehicles. The index for that group fell 21%.

Shoppers are seen in a Kroger supermarket on October 14, 2022, in Atlanta, Georgia.
Elijah Nouvelage | AFP | Getty Images

Higher interest rates, a potential recession and persistently high prices made consumers substantially less confident about the current state of the economy as well as where things are heading, according to a closely watched sentiment gauge released Friday.
The University of Michigan Survey of Consumers posted a 54.7 reading for November, down 8.7% from the previous month’s reading of 59.9. That was well off the Dow Jones estimate, which forecast the number to be little changed at 59.5.

Along with that reading, the current economic conditions index fell 11.9% to 57.8. The index of consumer expectations, which looks at where respondents see things heading in six months, tumbled 6.2% to 52.7.
On an annual basis, the headline index reading fell 18.8%, while the current conditions measure was off 21.5% and the future expectations measure slid 17%.

The University of Michigan release comes a day after the Bureau of Labor Statistics reported that the consumer price index rose 0.4% in October, below the 0.6% estimate. That news set off a wild rally on Wall Street, where sentiment rang high that the Federal Reserve could ease the pace of interest rate increases as inflation shows signs of leveling off.
“For now, both inflation and higher borrowing costs are squeezing household spending,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “For low-income households in particular, higher prices for essentials limit discretionary spending, crimp savings, and contribute to higher credit card debt.”
The survey noted a particular slide in views on spending for durable goods — big-ticket items such as televisions, kitchen appliances and motor vehicles. The index for that group fell 21% as consumers were wary of rising borrowing rates and elevated prices.

Durable goods purchases have been on the decline since mid-2021, falling the past two quarters after exploding in the early days of the Covid pandemic.
“Better news on October inflation didn’t come in time to provide a boost to sentiment, which declined unexpectedly,” Baird added. “The economy may not be in recession, but for households struggling under the weight of higher prices, it certainly feels like it for many.”
Inflation expectations edged higher in the month despite October’s CPI reading, which showed that year-over-year prices rose 7.7%, compared to 8.2% the previous month.
The one-year inflation outlook rose to 5.1%, the highest level since July, while the five-year gauge rose to 3%, the highest since June. Those readings have remained in a tight range for most of the year, starting 2022 respectively at 4.9% and 3.1%.
But those are high by historic terms and come as the Fed has boosted its benchmark interest rate by 3.75 percentage points since March. Friday’s survey shows consumers, whose spending comprises 68% of U.S. GDP, are wary heading into the pivotal holiday shopping season.
“Consumers managed to hold their heads above water earlier this year when gasoline prices were peaking at well above $5 per gallon,” wrote Paul Ashworth, chief North America economist at Capital Economics. “But it will be harder for them to shrug off high interest rates given that the household saving rate is already at an unusually low level.”
The sentiment index reached its historic low in June as worries accelerate that the U.S. already was in recession or heading for one. GDP rose at a 2.6% annualized pace for the third quarter, helping to assuage some anxiety over a contraction after the first two quarters saw negative readings, but many economists still expect the U.S. to hit a recession in 2023.

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