Latest / Markets with Megan: A Quick Financial Markets Update / Running on Empty: Inflation & Consumers | S3 E148 | 05-28-26

Transcript

Running on Empty: Inflation & Consumers | S3 E148 | 05-28-26 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: We've got a lot of information to cover today.
• 0:02
  Megan Horneman: It has been a very busy day from an economic data front.
• 0:05
  Megan Horneman: It's Thursday, May 28th, and this is Markets with Megan.
• 0:08
  Megan Horneman: If you like this podcast, you can subscribe to it.
• 0:11
  Megan Horneman: Hit that alarm bell at the bottom.
• 0:13
  Megan Horneman: You can also share it with friends, your family members, colleagues, anybody who really digs into some of this economic data and what does it truly mean, deciphering between those headlines and what the actual underlying data means for you and your investments.
• 0:26
  Megan Horneman: So let's dig right in.
• 0:28
  Megan Horneman: First of all, we got basically I'm going to break it into three parts housing, inflation, and the economy.
• 0:33
  Megan Horneman: From a housing standpoint, new home sales came out.
• 0:37
  Megan Horneman: They did fall the most that they have in three months.
• 0:40
  Megan Horneman: There was a decline in three out of the four regions.
• 0:43
  Megan Horneman: That's the Northeast, Midwest, and South.
• 0:45
  Megan Horneman: The only area that saw an increase was the West.
• 0:48
  Megan Horneman: The biggest takeaway out of this report is that the median price of a new home sale jumped 8% in the month alone.
• 0:57
  Megan Horneman: This is the most that we've seen since April of 2019.
• 1:01
  Megan Horneman: This is not good news from an inflation standpoint as we get into that data.
• 1:06
  Megan Horneman: Inflation.
• 1:06
  Megan Horneman: So inflation for April, we've got the Fed's preferred core PCE measure.
• 1:11
  Megan Horneman: This is what the Fed likes to look at.
• 1:13
  Megan Horneman: It did rise relatively in line with expectations, but remember, expectations were already high.
• 1:20
  Megan Horneman: We saw at the core level inflation is rising 3.3% on a year-over-year basis.
• 1:26
  Megan Horneman: That's the highest since 2023.
• 1:29
  Megan Horneman: The headline rose 3.8%.
• 1:32
  Megan Horneman: That's the highest also since 2023.
• 1:35
  Megan Horneman: Now at the core level, we've talked about this.
• 1:38
  Megan Horneman: This has been driven by software, technology, also healthcare and financial services.
• 1:43
  Megan Horneman: The software and technology has been the increase in prices that we have because of the disruptions with the Iranian, the war with Iran.
• 1:50
  Megan Horneman: And headline also that was driven by gasoline.
• 1:53
  Megan Horneman: Again, a war impact.
• 1:56
  Megan Horneman: We also saw in that same report that real personal spending is getting squeezed by these higher costs.
• 2:02
  Megan Horneman: So consumer spending, when you adjust it for inflation, only rose 0.1% in April.
• 2:08
  Megan Horneman: And real disposable income, so again, adjusting for inflation, that fell for the third consecutive month.
• 2:16
  Megan Horneman: The last time we had three consecutive months of declines in real disposable income was at the end of 2021, early 2022.
• 2:25
  Megan Horneman: Again, that was after the COVID-related inflation spike.
• 2:30
  Megan Horneman: The savings rate, because consumers are having to dip into savings to pay for these higher costs, that plummeted to 2.6%, the lowest we've seen since 2022.
• 2:41
  Megan Horneman: And if you look at these new home sales data, inflation, when we get the consumer price index, it has a big portion of that as housing.
• 2:48
  Megan Horneman: So when you're looking at those medium home prices jump like that, that's just likely to filter into those inflation data as we get that in the in the coming weeks.
• 2:57
  Megan Horneman: Now, from an economic standpoint, we got the second reading on the first quarter GDP.
• 3:02
  Megan Horneman: Again, it's backward looking, but it was revised lower from 2% to 1.6%.
• 3:08
  Megan Horneman: The two main reasons were weaker consumer spending at 1.4% on a quarter over quarter basis.
• 3:15
  Megan Horneman: That's the weakest since the first quarter of last year.
• 3:18
  Megan Horneman: And then also slightly lower non-residential fixed investment.
• 3:22
  Megan Horneman: So this is where the CapEx spending for AI falls.
• 3:26
  Megan Horneman: Even though it was a little bit less than the original forecast, it still is rising 7% on a quarter over quarter basis.
• 3:33
  Megan Horneman: We also got that preliminary durable goods number.
• 3:36
  Megan Horneman: This goes into GDP for the second quarter.
• 3:39
  Megan Horneman: That was for the month of April.
• 3:41
  Megan Horneman: And the headline level that jumped 7.9%, the best in 11 months.
• 3:46
  Megan Horneman: Now it was primarily led by defense spending, which rose 7% in April following the 26% increase in March.
• 3:54
  Megan Horneman: This is all defense spending related to the war with Iran.
• 3:58
  Megan Horneman: Now at a dollar level, it's at the second highest level on record.
• 4:02
  Megan Horneman: So what does this data mean here for the second quarter?
• 4:05
  Megan Horneman: Right now, that durable goods numbers, those were strong.
• 4:08
  Megan Horneman: So that's um feeding into some of the expectations for the second quarter.
• 4:12
  Megan Horneman: If you look at the Atlanta Fed GDP model, that's showing that growth is tracking about 3.8% for this quarter.
• 4:19
  Megan Horneman: Now, this what does this mean for the Fed, for the markets going forward, for the economy?
• 4:24
  Megan Horneman: It's a very mixed economic picture right now.
• 4:26
  Megan Horneman: Obviously, consumers are strained by the higher prices.
• 4:29
  Megan Horneman: Equity markets are still making record highs.
• 4:31
  Megan Horneman: That's because there is expectation this war will end soon.
• 4:35
  Megan Horneman: The expectation for the Fed is now that they may have to hike interest rates.
• 4:39
  Megan Horneman: We don't think these inflation numbers are done.
• 4:42
  Megan Horneman: We've said this repeatedly, even if the war were to end today, there is a bottleneck that will take time to clear out of that strait of hormones.
• 4:50
  Megan Horneman: Prices will remain elevated until we can completely normalize that.
• 4:53
  Megan Horneman: And we've seen, if we've seen anything in the past, it does not happen overnight.
• 4:57
  Megan Horneman: So be prepared for some more higher inflation numbers.
• 5:00
  Megan Horneman: We're not so sure yet the Fed's going to have to hike rates this year.
• 5:05
  Megan Horneman: We would lean to a higher probability that they would hike than cut.
• 5:08
  Megan Horneman: We definitely don't think there's cuts on the table, but we want to see a little bit more inflation and then what does uh materialize with the talks we've seen with the White House and Iran.
• 5:17
  Megan Horneman: That's all we have today.
• 5:18
  Megan Horneman: If you want a history of our podcast, you can go to marketswithmegan.fm.
• 5:22
  Megan Horneman: Thank you.