Inflation Hope Spotted In Fed Surveys

Although it’ll invariably be lost in the shadow of the August CPI report, it’s worth noting that regional Fed surveys released on Thursday offered some hope on the inflation front.

The prices paid gauge in the Empire poll dropped to just 39.6 for September, the lowest since December of 2020. The decline from August, some 16 points, extended a precipitous plunge. Just five months ago, the gauge was perched above 86.

At the same time, the prices paid gauge in the Philly survey dropped to 29.8 from 43.6 in August. It too has fallen markedly from this year’s nosebleed highs.

Taken together (figure above), the gauges do suggest pipeline inflation pressure is easing, consistent with the outsized drop in the ISM manufacturing prices gauge. The Empire survey described “a significant and ongoing deceleration in price increases.”

Prices received fell to 23.6 in the New York survey, the lowest since early 2021. The Philly counterpart rose.

Also notable: The headline Empire general business conditions print improved smartly, jumping 30 points to -1.5. That was far better than expected. The new orders gauge moved back into positive territory, and the outlook improved, although at 8.2, it “suggest[ed] little optimism.”

In the Philly survey, the current activity index dropped back into negative territory, the new orders gauge remained negative, and the shipments index dropped. The commentary on prices was constructive, but cautious.

“Firms continue to report overall increases in prices… but indicate less widespread increases compared with the previous month” the accompanying color said. The drop in the prices paid index was the fifth consecutive. This month’s decline put the gauge back “near its long-run non-recession average.

Taken with Thursday’s update on retail sales, the data suggested both price pressures and consumption are cooling. But, again, the numbers weren’t likely to move any needles given the CPI overshoot and proximity of the September FOMC.


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10 thoughts on “Inflation Hope Spotted In Fed Surveys

  1. I still believe the Fed will succeed in engineering a soft(ish) landing. Given the unprecedented nature of the pandemic and Russia’s invasion of Ukraine, that would be no small thing. If I’m right, I look forward to a lot of crow-eating by Powell-/Fed-bashers. (But not holding my breath.)

      1. I was thinking about Xi’s trip to Kazakhstan and Russia.

        His first international trip in ages, and he chooses Kazakhstan with its 30 BN bbl oil reserves and 5 TR cu meters gas reserves, and their joint statement emphasizes China’s commitment to the sovereignty of this former Soviet state and neighbor of Russia. Wonder what Putin thinks about China’s sphere of influence and protection growing to Russia’s border, when Russia cannot even protect Armenia from Azerbajian.

        As for Xi’s statement on Russia, re-emphasizing their friendship and cooperation on matters of joint interest, with Xi not mentioning Ukraine at all and Putin acknowledging China’s “questions and concerns” on Ukraine while thanking China for its “balanced position” on the topic, seems a bit . . . less . . . than the previous “no-limits friendship”.

        Having just met with Putin, Xi is “on the hook” if his cornered comrade does something crazy like use nuclear weapons . . . which Putin’s mouthpieces have noticeably NOT been talking about lately.

        My speculation is that Xi told Putin his Special Military Debacle is now harming Chinese economic and geopolitical interests, and used the Kazakhstan trip to remind Russia that China has other sources of oil and resources.

        1. Xi’s communist virtues speech at the conference I am now thinking differently of.
          I hope Putin understands that Xi is not throwing him under the bus but having him drive the bus off a cliff.

  2. Also consistent with the softer PPI. The concern is the torch passing to services and wages. +24% over 5 years wage increase for railroad workers (+4.4% annualized).

    CPI is, crudely, similar parts goods, shelter, and services.

    Goods inflation can go flat or negative in coming quarters.

    OER seems to lag house prices by a year, see 1990 2002 2006 peaks of OER YOY to 1989 2000 2005 peaks of Case-Shiller National Index, with the latter recently peaking April 2022.

    Eyeballing the CPI basket, I think about 2/3 of services ex-shelter have significant demand elasticity. If consumers are pinched, they will trim “recreation services” (3% of basket), “lodging away” (1%), personal services (1%), some “public transportation” (1%), etc.

    So I think the fight against inflation is hardly hopeless, at least in the US. But, as oft-discussed, Pain Will Be Required.

    1. My guess (emphasis) is the goods third goes ex-inflation in next couple quarters, the shelter third sees inflation peak in 2Q23 ish, and the services third gets worse until the recession bites harder and then starts receding, maybe by mid 2023 ish?

      To my not-an-economist mind, this seems sort of consistent with Fed cranking FF rate until 1Q23 then holding pat.

      Having built up 400 bp+ of rates and burned off close to $1 TR of balance sheet by mid year, the Fed will have some firepower for the recession.

      If commodities (energy and ag) get hot again, that would be a risk to this optimistic inflation-to-peak scenario. I am concerned at various ag cmdty charts starting to turn up again. I also went through recent food presentations and all the packaged food guys see input cost inflation getting no better in the coming quarters (interestingly, SYY sees the opposite). As for energy, I’m bullish on US NG and while oil is acting bad, storage keeps declining and SPR releases are ending soon.

      1. I’m not sure shelter will take that long to turn. Where I live, in KC, the rate of new construction is huge, new houses and apartments spring up like volunteer corn. All of a sudden, things aren’t selling so fast. In my subdivision the developer is raising the total number of homes by 40% but the last 5 or 6 haven’t sold in months on the market. Real estate guys have always overbuilt during their opportunities. With mortgage rates high and a fast growing supply, prices will have to start falling soon.

        1. I just bought a roll of romex wire for $20 cheaper than I did two weeks ago. Roughly 15% price drop. There’s too much data lag in the CPI numbers the FED relies on, it’s already here

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