Portland Mortgage Market Update — April 26, 2024

News-wise, it was a pretty quiet week. All eyes were pointed towards today's PCE report. The PCE (Personal Consumption Expenditures) Price Index is yet another measurement of inflation and is the Fed's preferred measure of inflation vs the CPI (Consumer Price Index). Both the PCE and the CPI measure the costs of different goods and services, but the two reports weigh different items differently (for instance, CPI places more heavier weighting on rents) but the main difference is the CPI is based on a survey of what households are buying whereas the PCE is based on a survey of what businesses are selling. Since businesses in general would have a better gauge of the prices at which they are selling specific items, you can see why the Fed relies more heavily on that report while the CPI gets a more flashier media headline each month.

That being said, the PCE kind of dodged a bullet this week. The Q1 GDP report that dropped yesterday reported an increase in inflation. This shouldn't have been a surpise though; every CPI report we have seen in the past quarter showed higher than expected inflation data, so it tracks that the GDP report would do the same. The markets reacted negatively fearing today's PCE report would be much worse than expected, and rates increased as a result. However, today was not as bad as anticipated coming in at 2.8% vs an expected 2.6%. Of note in the report was the consumer spending increased at a higher rate than consumer wages, leading to the lowest savings rate since October 2022. This indicates that the US consumer is spending more than they are earning and that is propping up these inflationary numbers which cannot last forever. Mortgage markets are looking at this favorably and rates are improving this morning as a result.

Next week brings Jobs Week! If you have been following along you know that I have been hitting the Jobs Drum saying that the only way for rates to improve in the near term is for unemployment to rise above 4%. My prediction is that we will NOT break that 4% mark and the reports will still show a strong labor market, although one that is propped up by people having to work multiple jobs to make ends meet.