What a pot of gumbo can teach us about disinflation – while the CPI Index is a good measuring stick for the overall economy, a pot of gumbo has specific ingredients from different regions of the U.S. and can shed insight on ‘disinflation.’ Inflation causes prices go up; deflation causes prices go down. Disinflation means prices are still on the rise, but the pace of inflation is slowing down and approaching that magical 2%. Depending on what you are cooking you will see various states of inflation or disinflation. In this example we see that andouille sausage and flour (for roux) are both up year over year but are increasing at a slightly slower pace (disinflation). For the holy trinity (onion, celery, green bell) prices are actually 3% down from the end of 2022 (deflation). Total cost of the gumbo increased from $10 to $15 a quart (at this particular restaurant, a 50% increase!) and customers are asking for smaller, cheaper portions (inflation).
Mortgage Rates – increased slightly this week as the price of Mortgaged Backed Securities declined and moved out of the positive trading pattern we have held since early October. Rates are up about 0.375% From this time last year.
Jobs – The Bureau of Labor and Statistics reported 216,000 job creations in December which was higher than expectations. Inside the report were downward revisions which tempered the strong headline numbers. Since the beginning of the year job growth has been negatively revised an average of 40k per month, but markets initially respond to headlines. Weekly earnings increased by 0.1% and are up 3.8% year over year. The unemployment rate remained at 3.7 despite 683,000 job losses! The labor force decreased by 676,000 causing the unemployment rate to remain flat (although not for the right reasons).
Loan Performance – Core Logic’s loan performance insights Report showed that Mortgage Loans continue to perform extremely well. Folks who are 30 days or more delinquent remained at 2.8% while 90+ days late dropped 0.3% to 0.9% – the lowest level in 25 years. Foreclosure rates remain near historic lows at 0.3% (remember that over 1/3 of homes are owned without a mortgage).
Rents – Apartment List’s Rent Report showed that rents fell 0.8% month over month and are down 0.8% from this time last year. The CPI index is still showing positive rents so this metric will eventually come down and should lower inflation and eventually mortgage rates.
Manufacturing – the ISM Manufacturing Index rose slightly from 46.7 to 47.4 but remains in contraction (under 50) for the 14th consecutive month. Prices paid, which measures inflation, fell from 49.9 to 45.2, a good sign for inflation.
Mortgage Applications to purchase homes declined 5% from the previous reading and are down 12% year over year. Refinance volume fell 18% but remains up 15% year over year.