High Inflation


Overview: It was another extremely volatile week for mortgage markets. Most of the movement was offsetting, however, and mortgage rates ended just a bit higher.

 

The Personal Consumption Expenditures (PCE) Price Index is the inflation indicator favored by the Federal Reserve because it adjusts for changes in consumer preferences over time. In August, core PCE was up 4.9% from a year ago, a little more than expected. For comparison, the annual rate of increase was below the Fed's target level of 2% during the first three months of 2021. One of the primary goals of the Fed's aggressive monetary policy tightening is to bring inflation back down to its target level.


A couple of other significant economic indicators released this week by the Institute of Supply Management (ISM) revealed mixed results. The national manufacturing sector index fell to 50.9, which was well below the consensus forecast and the lowest level since May 2020. By contrast, the national services sector index came in at 56.7, exceeding the consensus forecast. Levels above 50 indicate that the sectors are expanding. These reports reflect the recent shift in consumer spending from goods to services.


The latest data from the Job Openings and Labor Turnover Survey (JOLTS) report indicated that the Fed may be making progress on one of its major goals. At the end of August, there were 10.1 million job openings, far below the consensus forecast of 11 million, and down sharply from 11.1 million in July. A lower level of openings reflects a weaker labor market, as companies are more easily able to hire enough workers with the necessary skills. Fed officials have repeatedly stated that the labor market needs to become more balanced to help bring down wage inflation, and this data suggests that the tightness seen in recent months is beginning to ease.

 

Core PCE (annual % change)

 

Week Ahead


October 7 —Employment Report

October 13 — Consumer Price Index (CPI)

October 14 — Retail Sales report