Mixed Inflation Signals and My Doppelganger


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April 16, 2023

THE TAXES ARE COMING!:  The tax deadline is Tuesday.  Because April 15 comes on a Saturday and April 17 is a holiday in Washington, D.C., we get a slight reprieve.  Tax day is April 18.  Don’t forget!

LATEST CONSUMER INFLATION DATA:  Last week, the latest monthly Consumer Price Index (CPI) number was released.  Prices in this closely-watched index rose by 0.1% in March after increasing 0.4% in February.  The 12-month measure of CPI dropped to 5.0%.  That number was 6% last month.  That looks great.  But hold on.  The core CPI number is CPI without energy and food.  The Fed pays closer attention to that index, and that increased slightly from 5.5% to 5.6%, so the news wasn’t all good.  The cost of shelter was the primary culprit for inflationary pressure last month.  That number moves more slowly, and with more of a lag, and the overall data suggests that price increases in the costs of shelter are showing signs of waning.  But it is a slow process.   

PRODUCER PRICES MODERATE:  The latest figures for prices paid by producers, the Producer Price Index (PPI) were released last week.  The monthly decrease in prices for suppliers fell in March by the most in nearly three years, an indication that inflation is moderating.  The PPI actually decreased by 0.5% last month.  The twelve month number was 2.7%, a significant decrease from the 4.9% figure that was recorded last month.  The PPI is often a leading indicator as to where the CPI will go.

MODEST GAINS:  Stocks were a bit higher this week as investors weighed the latest inflation data and likely next actions by the Fed.  There were mixed signals on inflation, but there was enough positive news to give stocks one strong day (Thursday), and that was enough to make the week positive. Strong earnings reports from the nations largest banks helped buoy stock prices, although those same banks pointed out the challenges to the U.S. economy in the near future.  Three more large financial institutions, Bank of America, Morgan Stanley and Goldman Sachs, all report their earnings this coming week.

LONGER-TERM PERFORMANCE:  Below are the annualized three-year and five-year numbers for these same indices.  

LABOR MARKET SOFTENING?:  239,000 claims were filed for initial unemployment claims last week.  This is still a healthy number, but it is the highest this number has been since January of 2022. (Source: dol.gov/ui/data.pdf)

EXPENSIVE HOUSES:  In March, the number of newly-listed houses for sale fell by 20.1% compared to one year prior.  Inventory of homes for sale is still historically low (down 50.9% from the first week in 2019).  There are a record number of houses under construction in the U.S. (1.69 million), so more homes are on the way.  But the cost of getting into a home has increased dramatically.  Two years ago, if you bought a $500,000 house, with a 20% down payment and a 3.06%, 30-year mortgage, your monthly principal and interest payment would be about $1,699 per month.  Two years later, prices are up 23% and mortgage rates are hovering in the mid-six percent range.  If you bought the same house now with a 30-year mortgage at 6.42% with 20% down, your monthly principal and interest payment would be $3,084, an 81% increase.  House prices are going to come under more pressure, and at least in some areas prices are likely going to decrease.

SMALL BANKS AND SMALL BUSINESSES:  The recent banking stresses have hit small and regional banks the hardest.  Regulators are going to be focusing on them.  A likely consequence is that small and regional banks will tighten credit requirements for making loans.  In the U.S., companies with fewer than 100 employees employ 35% of the private-sector workforce and generate a quarter of the gross output of the economy.  70% of lending to these companies comes from smaller banks, those with less than $250 billion in assets.  30% of these loans come from banks with less than $10 billion in assets.  According to an estimate by Goldman Sachs, bank stress is likely to reduce lending growth by 2-6%.  I was just talking to a small business owner that has recently landed three huge contracts and needs some bridge funding to get the company over the cash flow hump it will face to fulfill these contracts (once those contracts start paying, this company will be in awesome shape).  This is a fact pattern repeated every day in small business America.  I believe this particular entrepreneur will figure out where to get the needed liquidity, but I don’t think it will be from a traditional bank.  Small and regional banks are and always have been critical to our economy, and need to stay healthy. 

DALTON IN THE SPOTLIGHT:  Our physical offices are in West Chester, Pennsylvania.  We have leased space within a larger facility with shared conference rooms, kitchen and other facilities.  It is a wonderful community of businesses.  This past week, the community ran a spotlight on our newest employee, now a veteran of six months, Dalton Greiner.  Here are some things we learned about Dalton:

  • Fun Fact?  I used to be in a touring rock band.
  • What was your first job?  I was responsible for cleaning the butcher stations at a small Italian market. It was as glamorous as it sounds.
  • As a kid, what did you want to be when you grew up?  Allen Iverson 2.0.

“HAS ANYONE EVER TOLD YOU….?”:  I have been asked this same question at least a dozen times, so I guess there must be some resemblance.  The actual question I got yesterday (once again) was, “Has anyone ever told you that you look like Scott Van Pelt?”  We have the same hairline.  We are both kind of thin, and we both wear glasses, so I guess maybe.   I always thought I looked more like a combination of Jason Statham and Dwayne Johnson, but that’s just me.  (By the way, thank you for all the kind notes I got last week.  I am feeling much better after a week of taking it easy and, of course, meds.)

Have a great week!

Our mission is to help you see the objective, find the path, and navigate past the obstacles to a more prosperous future.

Douglas R. MacGray, J.D., C.F.P. ®
Stonecrop Wealth Advisors, LLC

Direct | Cell | Fax
(610) 628 4545

“A man has to live with himself, and he should see to it that he always has good company.” Charles Evans Hughes

“Do not wear yourself out to get rich; have the wisdom to show restraint.  Cast but a glance at riches, and they are gone, for they will surely sprout wings and fly off to the sky like an eagle.”  Proverbs 23:4-5 (NIV)

LATEST INFLATION DATA: bls.gov/news.release/cpi.nr0.htm AND wsj.com/articles/us-inflation-march-2023-consumer-price-index-fa6eba99
PRODUCER PRICES MODERATE: wsj.com/articles/supplier-prices-fell-in-march-adding-to-signs-of-moderating-inflation-20d61755?mod=Searchresults_pos1&page=1
 MODEST GAINS: wsj.com/articles/stock-futures-trade-mixed-bank-shares-rally-ee2e9ef7?mod=markets_lead_pos3 AND wsj.com/livecoverage/stock-market-news-today-04-14-2023-bank-earnings/card/aY8dtqMaeRRcGUKqlvKX?mod=Searchresults_pos2&page=1
EXPENSIVE HOUSES: https://calculatedrisk.substack.com/p/current-state-of-the-housing-market-ab1
SMALL BANKS AND SMALL BUSINESSES: goldmansachs.com/insights/pages/smaller-businesses-and-towns-are-likely-to-be-hit-hardest-by-bank-turmoil.html?chl=em&plt=briefings&cid=414&plc=body

(c) 2023 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved

*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets. 
*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States. 
*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets. 

Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission. 



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    Doug MacGray

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    April 17, 2023


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