Rocket Fuel Newsletter – 04/29/2024
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The Kentucky Derby takes place this weekend; from favorite Fierceness to longshots Lucky Jeremy and Grand Mo the First, the actual names of the horses are always a topic of conversation. Believe it or not, the rules are quite strict for how a horse is named.
In this edition: how to go from chemist to successful broker, GDP news and the final installment of our deep dive into inflation.
Afterward, read up and take a quiz on how to name your own racehorse!
Fuel Up! 🚀 Â
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From Chemist To Broker?
In the latest episode of Build-A-Broker: The Journey, meet Christian Bachelder, a former chemist whose analytical skills have shaped his success in the mortgage industry and led to the growth of his team of over 40 mortgage loan originators at his brokerage, One Mortgage.
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Don’t Miss The Next Pro Performance Training!
Want to use social media more effectively and reduce unproductive scrolling and likes to generate more purchase wins? Attend our next Pro Performance Sales Training and level up your social media marketing skills. Learn how to create a community on social media that turns into leads, which results in more closed transactions.Â
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U.S. GDP Drops In Q1
The United States underperformed expectations for GDP last quarter – posting a 1.6% growth rate (which is less than inflation), a drop from 3.4% in the previous quarter and missing economist projections of 2.2%.
Consumer spending and housing investment drove the increase while both inventory investments and our sheer volume of imported goods chipped away at any further growth.
Detroit Brings The Energy For The NFL Draft
Detroit broke the NFL Draft record for attendance as fans flooded the Rocket Mortgage campus downtown to see who their teams’ general managers would select to set the course for their respective franchises.
With the success of the draft, is it fair to take a beloved nickname away from the Dallas Cowboys?
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Inflation Today
In part one of our inflation series, Inflation 101, we dove into what inflation is and its key drivers. In part two, we dove deeper into the different reports that when viewed together tell the story on inflation.
In part three, we’ll look at inflation today, the economic factors affecting it and what needs to happen to get us to the Fed’s magic number of 2%.
From the latest Consumer Price Index (CPI) readings, inflation is currently at 3.5% (March), it has been a bumpy ride getting to this point though; over the last four years, CPI has varied by 9%!
- Low: 0.1% (May 2020)
- High: 9.1% (June 2022)
These metrics can be seen in the 5-year look back at CPI, in the graphic below.
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The quick rise of inflation from early 2020 to mid-2022 propelled the Federal Reserve to rapidly increase interest rates in hopes of getting CPI down to their targeted 2%. CPI as of late has leveled out around 3% – 4% over the past year, which has been surprising, even for the Fed.
Heading into this year and for most of quarter 1, many Fed officials assumed inflation would continue to decrease toward that 2% mark, stating that they even expected rate cuts to happen in the latter half of 2024. Inflation has had other ideas, though, which has resulted in Jerome Powell publicly revising his optimistic point of view toward rate cuts he expects this year.
So, why has inflation been so hard to lower all the way down to 2%?
The likely reason it is so hard to get inflation down to 2% has to do with disinflation. Disinflation is any period where the pace of inflation slows, not to be confused with deflation, which is a drop in prices.
Recall from part 2 that the Personal Consumption Expenditures Price Index (PCE) reflects changes in prices of goods and services purchased by consumers by measuring the average prices that people pay for them. Looking at PCE data for the last 50 years below, prices of goods (purple) and energy (gray) tend to be the most volatile of the four categories, sometimes being over 5% one month and near 0 the next.
Prices of housing (blue) and services (red) tend to be much less volatile.
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This can be further seen in the below graph from the St. Louis Fed that shows the three most recent periods of disinflation. The far-right graphic is the one we are in today; we can see both housing and services have remained at a high inflation rate.
The key point in the graph below is June 2022 when inflation hit its peak, and this is the point where all four subcomponents converge at the 1.0 mark on the y-axis. Anything preceding that point contributed to the rise of inflation, while inflation began to taper off after that.
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The quick rise and fall of inflation from 2020 – 2022 can be heavily attributed to energy and goods price volatility, while housing and services have kept inflation elevated above the 2% because they move much slower when it comes to interest rate increases.
Simply put, to reach the Fed’s magical 2% inflation threshold, energy and goods inflation rates need to hold stable, and there needs to be continued declines in both housing and services inflation.
That may have to wait another month. March PCE (minus food and energy) came in slightly above expectations at 2.8%, compared to the consensus estimate of 2.7%, and directly in line with the 2.8% reading from February. Services – which includes the housing subcomponent – rose 4.0% from March 2023, and when energy is added back in, that component rose 2.6% year-over-year after substantial drops over the past 5 months.
Based on these findings, it looks like more work for the Fed to hit that 2% goal, and more time we’ll have to wait for the rate cuts we’ve been hoping for all year.
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Big shoutout to college and pro football analyst Kirk Herbstreit for joining Fawaz for the latest Pro Talks from the NFL Draft in Detroit!
In case you missed it, you can watch Pro Talks here!
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- US Economy Slows In First Quarter; Inflation Flares Up
- Pending Home Sales Increase In March 2024
- US Weekly Jobless Claims Unexpectedly Fall
- HUD Kicks Off A Series Of New Actions To Help Communities Fight Extreme Heat
- Consumer Financial Protection Bureau’s April 2024 Supervisory Highlights
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Ali W., Jen Richards and Matt Sands all finished last week’s puzzle in less than 20 seconds, with Ali’s time trumping all. Kudos to the other 10 solvers who finished in less than a minute!
This week’s puzzle gets 2 Rockets out of 5.
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