Economic Update – Week of October 18, 2020

  • Consumer Prices are rising…FAST!!
  • Retail spending saw a V-shaped recovery, but can it last?
  • Low inventory, low mortgage rates, and a large pool of buyers means higher prices and less days on market

Consumer Price Index  

The Consumer Price Index (“CPI”) rose 0.2% in September and up 1.4% from a year ago.  Energy prices rose 0.8% in September, while food prices were unchanged.  The “core” CPI (which excludes food and energy) rose 0.2% in September, and up 1.7% from a year ago.  Inflation was on the rise in the third quarter, as the CPI rose at one of the fastest 3-month paces since before the last recession.  Over the past three months, consumer prices are up at a 4.7% annualized rate (well above the Federal Reserve’s inflation target of around 2%).  However, don’t expect this to change the Fed’s plan to keep short-term rates near zero for the foreseeable future.  Coming off historically large increases in July and August, “core” inflation has been rising at the fastest pace since the early 1990s.  Anticipate inflation continuing to rise in the months ahead toward the 2% – 3% annual pace of inflation that was in effect before the Coronavirus wreaked havoc on our economy. 

 Retail Sales

The U.S. Census Bureau reports that retail sales surged in September, growing 1.9%.  The increase in sales in September was led by autos, clothing & accessory stores, restaurants & bars, and general merchandise stores.  The only decline was for furniture, electronics & appliance stores.  Its important to remember, back in April, retail sales were down 19.9% from a year ago.  Now, in September, retail sales are up 5.4% from September 2019.  For more perspective: from February (before the COVID shutdowns started) to the bottom in April, retail sales fell 21.7%.  Now, with the increase in September, we are 4.2% higher than the February mark, meaning retail sales have had a full V-shaped.  Although retail sales have snapped back quickly to pre-crisis levels and far faster than expected, many economists still worry a letdown is coming.  As reported last week, people are returning to work at a slower pace, the coronavirus is spreading rapidly again, and Washington has failed to pass a second coronavirus-relief bill, triggering new worries about the health of our economy.  In fact, many economists have openly urged the federal government to pass another major financial relief bill to prevent the recent economic progress from stalling.

Weekly Housing Trends

The National Association of Realtors (NAR) issued its latest weekly housing trends, which is always closely watched by investors as a barometer on the retail residential market.   According to the NAR, the median listing price grew at 12.9 percent over last year, marking the 21st week of accelerating prices and a new high-mark for price growth in NAR’s weekly data (which goes back to 2017).  During a normal year, asking prices begin to dip going into the fall buyers disappear and sellers have to do more to attract a buyer from a smaller pool of shoppers.  But trends are meant to be broken in 2020.  The typical September asking price remains at $350,000 nationally, on par with peak summer home prices.  In contrast, new listings are down 7%.  This is because the number of sellers deciding to put their home on the market remains limited, but the drop in new sellers is not as large as the overall decline in inventory.  Total inventory is down 38%, leaving few options for buyers.  But with high interest from buyers and limited new listings, the total number of homes available for sale continues to shrink.  For the third week in a row, the pace of decline was improving.  Traditional homes are moving fast as the average time on the market is 13 days faster than last year.

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