Another month, another hot inflation number. On October 13th, the Year over Year inflation rate (CPI) came in at 5.4%, beating the prior print, and expectations, both of which were 5.3%. Core CPI, which strips out food and energy costs, came in at 4%, which was equal to expectations. The Personal Consumption Expenditure (PCE) measure of inflation came in at 4.4%, higher than the prior month’s 4.2%.
The Federal Reserve is expected to begin tapering its asset purchases (QE) prior to year-end 2021, tacitly admitting that inflation is less transitory than they predicted. They have committed to fully exiting asset purchases prior to raising interest rates. Even assuming a fairly aggressive taper timeline, this makes it unlikely that interest rate increases are likely prior to mid to late 2022.
Housing Starts declined by -1.6% from the prior month’s reading, coming in below expectations. This is likely influenced by the widely experienced supply chain issues and labor shortages in construction. New home sales jumped 14% to an annual rate of 800,000 – beating the prior month and the consensus.
The unemployment rate dropped from 5.2% to 4.8%, beating estimates of 5.1%. It currently stands at the lowest rate since March 2020, although significantly higher than the 3.5% pre-pandemic rate.
Third quarter GDP growth came in at 2%, significantly below the 6.7% growth achieved in the second quarter of 2021. The consensus expectation was for 2.7% growth, so the result was underwhelming, but also a bit of a relief. There was significant dispersion within expectations, with some accounting for a potentially negative print, signaling quarter over quarter economic contraction. Fortunately, this was not the case, but with ongoing labor market shortages, supply chain issues, and the likely reduction of monetary policy support, it will continue to be watched closely.
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