Thursday's Scoop: Bumpy🌤️

Hey friend - markets will be closed Monday for the US holiday honoring Martin Luther King Jr. We will return with your regularly scheduled scoops on Tuesday.

Here’s what you need to know today…

1. Unemployment remains low.

2. Living costs are still climbing but much more slowly.

3. Manhattan rents are rising again.

S&P 500: 4,780.24
1Mo: +3% | 1Yr: +20% | 5Yr: +79%

The market didn't move much today after the December inflation report mostly came through as expected. The cost of living keeps inching higher but at a slower pace, much closer to what policymakers want to see.

Unemployment is still very low. The Labor Department reported initial jobless claims dropped slightly again last week to 202,000, the lowest level in months and in line with a healthy economy. The number of people receiving unemployment benefits for consecutive weeks fell as well. The unemployment rate remains near record lows.

Living costs keep climbing but at a much slower pace. The Bureau of Labor Statistics' Consumer Price Index (CPI) increased by 0.3% in December after rising 0.1% in November, up 3.4% from last year. Prices at the pump rose a little, and egg prices surged 9% due to an avian flu outbreak, but veggies and cereal got a little cheaper. Higher home prices and rental costs are still the most significant inflators, but government home pricing statistics are always a little stale and funky. More real-time indicators have shown a steep slowdown in nationwide home and rent price increases.

America’s most expensive rental market is getting more expensive. Rent prices in Manhattan rose by 1.3% in December for the first month since July, according to Miller Samuel and Douglas Elliman Real Estate. Rental costs have fallen from their records last summer due to ample supply on the market, but leasing demand has remained strong. People still want to live in the Big Apple.

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What is the Consumer Price Index (CPI), and why does it matter?

The Consumer Price Index (CPI) is one of the main ways economists track inflation. Inflation is the rate at which things get more expensive. The CPI looks at a set basket of stuff your average consumer spends money on and tracks how much it costs each month. The rate of change is inflation.b

One important thing to know: inflation is often quoted as an annual number, like "inflation rose 3.2% in October." In periods where inflation is changing rapidly, the monthly rates of change may be more informative than the annual rates. If prices rose by 0.6% in one month and 0.4% in the next, inflation declined, regardless of the change over the prior twelve months. The annual number helps us remember the pain we've experienced, but monthly numbers help us understand what's happening today.

Prices rarely go down. It's normal for things to get more expensive. You'll never be able to buy a Coke for a quarter again, but that's okay. Low inflation (~1-2% per year, 0.0-0.2% per month) is standard and almost unnoticeable. High inflation, like following the pandemic, with prices of essential goods going up nearly 7-10% per year, is a problem. It's unmanageable, especially if our incomes aren't rising in tandem. Low inflation, where incomes keep up or outpace rising living costs, is the goal for economic policy, not zero or negative inflation.