Latest Inflation Numbers and Discussion

[JoeWras]

The data is quality. The change in the basket and the methodology changes for some items (shelter, for example) has lead to some distrust.

The great thing about shelter is both the hawks and doves are pissed about it depending on the timeline in the housing cycle.

 

[MichaelB]

The data is quality. The change in the basket and the methodology changes for some items (shelter, for example) has lead to some distrust.

The great thing about shelter is both the hawks and doves are pissed about it depending on the timeline in the housing cycle.

You make a good point that shelter is complex and difficult to comprehend. It’s also heavily methodological, which means that month to month changes are less meaningful and longer term trends are more relevant and significant.

The biggest flaw in inflation measurement is that trends and changes don’t easily fit narratives, and people are more inclined to believe the narratives. Inflation measurements also are intended to apply to the economy as a whole and cannot be applied to describe individual circumstances. It’s a statistical measure.

 

[CaptTom]

Feel free to provide legitimate, data based examples showing errors in these measures.

Every single time I purchase anything.

Given the choice, I'd prefer real-life experience over some theoretical basket of goods concocted by politicians and academics with their own agendas. Recent history has proven my point, over and over.

I'm sure the numbers are internally consistent, but if they don't match reality then there must be something wrong with the assumptions.

 

[momoney]

It's not being fudged. It's being updated from monthly estimates to actual reported numbers. Every month the US Labor Department makes estimates of the employment situation. Once a year, in August, the Labor Department compiles actual employment numbers from all 50 states from the past 12 months and retroactively makes a one time annual adjustment to the previous 12 months.

If there was a different way of measuring employment and if the current metric for calculating employment were to be changed then there would be no way to directly compare past data with the future employment data.

Shouldn't the predictive models be improving? Seems like that data could easily be real time if they wanted it to be?

 

[Qs Laptop]

Every single time I purchase anything.

Given the choice, I'd prefer real-life experience over some theoretical basket of goods concocted by politicians and academics with their own agendas. Recent history has proven my point, over and over.

I think you are conflating the inflation numbers with the unemployment numbers. This thread is about inflation numbers but it got sidetracked on the unemployment report adjustment.

 

[Gumby]

Latest BLS release: CPI in August was 314.796 = 2.53% inflation year over year.

Consumer Price Index Summary - 2024 M09 Results

www.bls.gov

If the trend continues next month, the 2025 Social Security COLA will be 2.5% and the inflation component of I-Bonds will be 1.98% as of November 1, 2024.

 

[JoeWras]

It felt a bit mixed since core is sticky. Overall good news because -- at least this month -- it shouldn't cause any drastic Fed moves. A 0.25% drop is very likely with more to follow.

Unemployment is the other factor for the Fed. Although it is going up, our non-profit is still struggling to fill jobs (they would best be classified as hospitality employees). The employment situation is not common among the many different classes of jobs.

 

[Montecfo]

Well regarding the jobs numbers, I have no doubt the BLS is receiving good and accurate DATA. The problem appears to be they are not getting as much of it as it needs, at least in the the establishment survey.

I have read that since the pandemic (and it pains me that so often time is measured starting then) response rates have been sharply lower. This means more ESTIMATION is necessary. And, based on the sharpness of the revisions and their rather consistent downward slope, the estimation is seldom hitting as close to reality as one would hope.

Just as one example: June 2024 was the most recent fully reported month for which all revisions (except the one per year revision) are in.

It was originally reported at 206k. After two revisions it is now reported as 118k jobs, or closer to half the number originally reported.

So how useful was that 206k? TR hat was believed to be a very strong report at the time and it influenced policymakers. Now, I do not suggest these numbers are intentionally "fudged". But I suggest very strongly they have not been reliable.

I do wish we had more accurate tools for gaining a grasp on the state of our economy. This is no doubt a difficult task and I do not minimize that at all. But it is also important.

 

[MichaelB]

Well regarding the jobs numbers, I have no doubt the BLS is receiving good and accurate DATA. The problem appears to be they are not getting as much of it as it needs, at least in the the establishment survey.

I have read that since the pandemic (and it pains me that so often time is measured starting then) response rates have been sharply lower. This means more ESTIMATION is necessary. And, based on the sharpness of the revisions and their rather consistent downward slope, the estimation is seldom hitting as close to reality as one would hope.

Just as one example: June 2024 was the most recent fully reported month for which all revisions (except the one per year revision) are in.

It was originally reported at 206k. After two revisions it is now reported as 118k jobs, or closer to half the number originally reported.

So how useful was that 206k? TR hat was believed to be a very strong report at the time and it influenced policymakers. Now, I do not suggest these numbers are intentionally "fudged". But I suggest very strongly they have not been reliable.

I do wish we had more accurate tools for gaining a grasp on the state of our economy. This is no doubt a difficult task and I do not minimize that at all. But it is also important.

Month to month employment numbers should always be taken with a grain of salt. Longer term trend data is more reliable and meaningful.

Nonetheless, this is a good point. Revisions over the past year and a half have been both greater and more negative than in previous periods. In addition to poor survey response, part of this may be the increase in self-employment and contract work, and part may be the continuing budget constraints facing the BLS. It also may be that the BLS estimates have greater error in early stages of a business cycle.

It’s certainly the top 2 or 3 greatest priorities of the BLS.

 

[Montecfo]

Well it is nice to see the yield curve is beginning to un-invert, or revert finally. And doing so in the usual fashion (short rates drop faster than long rates but all drop). The 2 year yield now below the 10 year yield.

There was quite a a bit of chatter some time ago that this time the reversion would be with long rates going higher. Certainly not seeing that, and people holding on for higher and higher rates have certainly gotten an expensive lesson, at least to this point.

Of course the un-inversion of the yield curve is often a prelude to recession. Can't say it won't be this time but we will see. Fed needs to thread the needle.

 

[Chuckanut]

Predictions of recession have been premature for several years now. One will happen. Maybe soon. With the government running 2 trillion dollar deficits, I can’t image it would be very severe. But, I don’t know anymore than the people who predicted last year’s recession that never appeared.

 

[Qs Laptop]

Predictions of recession have been premature for several years now. One will happen. Maybe soon. With the government running 2 trillion dollar deficits, I can’t image it would be very severe. But, I don’t know anymore than the people who predicted last year’s recession that never appeared.

"Economists have predicted thirty seven of the last four recessions."

 

[MichaelB]

Predictions of recession have been premature for several years now. One will happen. Maybe soon. With the government running 2 trillion dollar deficits, I can’t image it would be very severe. But, I don’t know anymore than the people who predicted last year’s recession that never appeared.

At some point they are reclassified from “premature” to “wrong”, and I think that point has been reached and passed.

 

[Montecfo]

Inverted yield curve suggests recession. Timing is usually tied to when it un-inverts.

Of course unprecedented deficit spending may be distorting these signals.

But a recession will come. Depth and exact timing TBD.

 

[Gumby]

......

But a recession will come. Depth and exact timing TBD.

So will an ice age. If you wait long enough, virtually anything that has happened will happen again.

 

[audreyh1]

Stay tuned for Fed meeting results coming up in two days!

I’m always curious to see how much has been baked in. Sometimes there is even a reversal (buy the rumor, sell the news).

 

[SecondCor521]

Stay tuned for Fed meeting results coming up in two days!

I’m always curious to see how much has been baked in. Sometimes there is even a reversal (buy the rumor, sell the news).

My guess on what's baked in:

25bps - Market expected at least this much; disappointment, moderate down day.
50bps - Market pleasantly surprised, solid up day.
75bps - Market scared of recession only the Fed knows about, significant down day.

Subscribe to my newsletter for more details.

 

[Montecfo]

The 2 year Treasury suggests the market sees the Fed as well behind the curve. The spread between the Fed funds rate and 2 year is supposedly at an all time record at about 1.6 points or so.

So the market is expecting markedly lower rates. The Fed *seems* likely to disappoint. If so, we could see yet another interim modest buying opportunity for those still sitting in cash.

It will be interesting to see what happens but if it is more than 25 bp I will be surprised.

 

[skipro33]

I thought the treasury said they were going to meet at least 3 more times before the end of the year. If that's true, then 25bp this time around is anticipated, with further adjustments as needed at their future meetings.

Yup, they meet:
1. Sept 17/18
2. Nov 6/7
3. Dec 17/18

 

[SecondCor521]

I agree that 25bps is the most likely outcome. But I think there is a minority of people who are guessing/hoping/preferring a larger cut.

 

[Montecfo]

In my view a 50 bp cut is appropriate, but doing such a cut suggests they should have cut in July. They tend to prefer a steady path and not to seem to prefer not to highlight mistakes (my view only).

Also, it might seem political to do a 50 bp cut and since we know they are not, again that suggests 25 bp.

But who knows? A Fed governor recently signalled openness to 50 bp.

 

[SecondCor521]

My guess on what's baked in:

25bps - Market expected at least this much; disappointment, moderate down day.
50bps - Market pleasantly surprised, solid up day.
75bps - Market scared of recession only the Fed knows about, significant down day.

Subscribe to my newsletter for more details.

I was wrong about my 25bps prediction. To be kind to myself, the betting markets this morning had it at 55/45 between 50 and 25, so basically a coin flip.

They did 50bps, and market is solidly up.

Of course the press conference can always have an impact. I think that starts in half an hour.

 

[gianmatt]

Rates are UP across the board. Market thinks 50bps was too much and will lead to more inflation.

 

[MichaelB]

The airwaves and inter webs will now be full of commentary, most of which will be noise. This is just one more data point in the giant graph of life …

 

[GenXguy]

Rates are UP across the board. Market thinks 50bps was too much and will lead to more inflation.

Yeah, it's too much. It figures. They were way too late getting started and slashing too soon too early.