Wednesday's Scoop: Cruising🌤️

Hey friend - here’s what you need to know today to inform your work, spending, and investments…

1. Living costs keep rising, but they’re not accelerating.

2. Americans cut back their spending last month amid rising prices.

3. Office buildings are falling behind on their debt payments.

Inflation Rate: +3.4% (YoY), +0.3% (MoM)
^{Policymakers aim for 2% YoY inflation. (April CPI)}

The cost of living keeps climbing, but at least prices aren’t accelerating. The Bureau of Labor Statistics' Consumer Price Index (CPI) increased by 0.3% in April after rising 0.4% in March and February. Over 70% of last month’s increase in living expenses came from higher shelter costs and gasoline prices, which rose 0.4% and 2.8%, respectively. Overall, living costs are still 3.4% higher than a year ago. Excluding volatile food and gas prices, so-called core inflation rose 0.3% in April, up 3.6% over the past year. Policymakers think 2% annual inflation is the ideal rate, so this is still trending in the right direction. While higher home prices and rental costs are still the most significant inflators, government home pricing statistics are always a little stale and funky. More real-time indicators from real estate and rental companies have shown a steep slowdown in nationwide home and rent price increases. Groceries, cars, and airfares got a little cheaper last month, though!

High price tags deterred shoppers last month, a warning sign for the economy. According to the Commerce Department, US retail sales were unchanged in April when economists expected 0.4% growth. Considering prices rose by 0.3%, inflation-adjusted spending fell in April. Shoppers purchased fewer cars and spent less online. Consumers power two-thirds of the economy, so economic growth depends on Americans spending more each month. Less consumer spending, slower hiring, and falling inflation are critical symptoms of a weakening economy.

30yr Mortgage Rate: 7.2%
^{That’s up from 6.6% a year ago. (MBA)}
Median Home Price: $393,500
^{That’s up from $375K a year ago. (Existing homes - NAR)}

Office buildings have a growing debt problem. Credit rating agency Moody’s reported that the percentage of commercial property office loans in delinquency rose to 6.4% in April, the highest level in six years. Borrowing costs have skyrocketed over the past few years, and refinancing loans will demand a hefty expense that many owners may not be able to cover, forcing sales at less-than-ideal prices. About a quarter of all office space loans are coming due this year, and office property values are already down 35% from their peak in 2022, thanks to hybrid work diminishing demand. It’s a problem that could have ripple effects through the economy.

The Market: ⬆️+1.2%
S&P 500: 5,308.15
1Mo: +5% | 1Yr: +28% | 5Yr: +86%

The market surged to a new record high on Wednesday as investors celebrated inflation and spending data that might encourage policymakers to reduce borrowing costs. Living costs are still rising but not accelerating. However, high prices have strained Americans' budgets and stalled spending. Slowing business and tame inflation are key ingredients for the Federal Reserve to loosen their restrictive economic policies and lower borrowing costs.