Any progress on inflation is welcome
Weekly Bond Commentary
The U.S. economy got a few good breaks last week, helping to ease concerns about what comes next.
Consumer prices (CPI) in October were unchanged and the year-over-year increase slowed from 3.7% to 3.2%. The closely watched core measure of prices, which excludes volatile food and energy prices, eased from 4.1% to 4.0%. Both these measures remain well above the Federal Reserve’s 2% target. But their steady progress reinforces the possibility that the economy may continue to slow gradually without causing sharp job losses, or more importantly, further Fed rate action.
Concerns about the strength of the consumer were mitigated somewhat by better-than-expected October retail sales. While headline sales fell 0.1%, the markets anticipated a drop of 0.3%, and September sales were revised higher. Declining gasoline prices, auto sales and building material store sales contributed to the decrease. The report implies real consumer spending started off the fourth quarter in the 2-2.5% range, down from the 4% gain in third quarter and consistent with other measures of the slowing economy.
Weekly jobless claims again rose last week, from 218,000 to 231,000. That’s a 15% increase over the last four weeks, but still well below the pre-Covid decade average of 311,000.
Lastly, Congress avoided a self-inflicted wound by passing a temporary funding bill to keep the government operating past year-end. Given the tumult of this year, Thanksgiving is coming at a good time.