Running on Empty: Inflation & Consumers | S3 E148 | 05-28-26

Inflation pressures are continuing to build, consumers are feeling squeezed, and the Federal Reserve may be forced to stay higher for longer.

In today’s episode of Markets with Megan, Megan lays out a massive day of economic data covering housing, inflation, consumer spending, GDP, and what it all means for markets and interest rates.

🏠 Topics Megan Covers:
• New home sales fell sharply across most regions
• Median new home prices surged 8% in one month
• Core PCE inflation rose 3.3%, the highest since 2023
• Headline inflation climbed to 3.8% year-over-year
• Real disposable income fell for a third straight month
• The savings rate dropped to its lowest level since 2022
• First quarter GDP was revised lower from 2.0% to 1.6%
• Durable goods orders jumped 7.9%, boosted by defense spending
• Why the Fed may lean closer to rate hikes than rate cuts

While markets continue hitting record highs, the underlying economic data tells a much more complicated story. Consumers are struggling with higher prices, inflation remains sticky, and disruptions tied to the Iran conflict continue filtering through energy costs and supply chains.

So, what does this mean for investors? Watch now!

Listen to past episodes:
https://marketswithmegan.fm

#Inflation #FederalReserve #InterestRates #HousingMarket #GDP #StockMarket #Investing #Economy #OilPrices #ConsumerSpending #Fed #MarketsWithMegan

https://youtu.be/Jb1pek9wG6E

Disclaimer:  material was prepared by Verdence Capital Advisors, LLC (“VCA”). VCA believes the information and data in this document were obtained from sources considered reliable and correct and cannot guarantee either their accuracy or completeness. VCA has not independently verified third-party sourced information and data. Any projections, outlooks 
or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. This material is being provided for informational purposes only and is not intended to provide, and should not be relied upon for, investment, accounting, legal, or tax advice. Past performance is not a guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance 
that the future performance of any specific investment, investment strategy, or product or anynon-investment related content, made reference to directly or indirectly in these materials will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any 
discussion or information contained in this report serves as the receipt of, or as a substitute for, personalized investment advice from VCA. Due to various factors, including changing market conditions and/or applicable laws, the c...

Transcript

Welcome And How To Follow

Megan Horneman 0:00

We've got a lot of information to cover today. It has been a very busy day from an economic data front. It's Thursday, May 28th, and this is Markets with Megan. If you like this podcast, you can subscribe to it. Hit that alarm bell at the bottom. You can also share it with friends, your family members, colleagues, anybody who really digs into some of this economic data and what does it truly mean, deciphering between those headlines and what the actual underlying data means for you and your investments. So let's dig right

New Home Sales And Price Spike

Megan Horneman 0:28

in. First of all, we got basically I'm going to break it into three parts housing, inflation, and the economy. From a housing standpoint, new home sales came out. They did fall the most that they have in three months. There was a decline in three out of the four regions. That's the Northeast, Midwest, and South. The only area that saw an increase was the West. The biggest takeaway out of this report is that the median price of a new home sale jumped 8% in the month alone. This is the most that we've seen since April of 2019. This is not good news from an inflation standpoint as we get into that data.

Core PCE Inflation And Consumer Squeeze

Megan Horneman 1:06

Inflation. So inflation for April, we've got the Fed's preferred core PCE measure. This is what the Fed likes to look at. It did rise relatively in line with expectations, but remember, expectations were already high. We saw at the core level inflation is rising 3.3% on a year-over-year basis. That's the highest since 2023. The headline rose 3.8%. That's the highest also since 2023. Now at the core level, we've talked about this. This has been driven by software, technology, also healthcare and financial services. The software and technology has been the increase in prices that we have because of the disruptions with the Iranian, the war with Iran. And headline also that was driven by gasoline. Again, a war impact. We also saw in that same report that real personal spending is getting squeezed by these higher costs. So consumer spending, when you adjust it for inflation, only rose 0.1% in April. And real disposable income, so again, adjusting for inflation, that fell for the third consecutive month. The last time we had three consecutive months of declines in real disposable income was at the end of 2021, early 2022. Again, that was after the COVID-related inflation spike. The savings rate, because consumers are having to dip into savings to pay for these higher costs, that plummeted to 2.6%, the lowest we've seen since 2022. And if you look at these new home sales data, inflation, when we get the consumer price index, it has a big portion of that as housing. So when you're looking at those medium home prices jump like that, that's just likely to filter into those inflation data as we get that in the in the coming weeks.

GDP Revision And Durable Goods Surge

Megan Horneman 2:57

Now, from an economic standpoint, we got the second reading on the first quarter GDP. Again, it's backward looking, but it was revised lower from 2% to 1.6%. The two main reasons were weaker consumer spending at 1.4% on a quarter over quarter basis. That's the weakest since the first quarter of last year. And then also slightly lower non-residential fixed investment. So this is where the CapEx spending for AI falls. Even though it was a little bit less than the original forecast, it still is rising 7% on a quarter over quarter basis. We also got that preliminary durable goods number. This goes into GDP for the second quarter. That was for the month of April. And the headline level that jumped 7.9%, the best in 11 months. Now it was primarily led by defense spending, which rose 7% in April following the 26% increase in March. This is all defense spending related to the war with Iran. Now at a dollar level, it's at the second highest level on record. So what does this data mean here for the second quarter? Right now, that durable goods numbers, those were strong. So that's um feeding into some of the expectations for the second quarter. If you look at the Atlanta Fed GDP model, that's showing that growth is tracking about 3.8% for this quarter. Now,

What It Means For Fed And Markets

Megan Horneman 4:20

this what does this mean for the Fed, for the markets going forward, for the economy? It's a very mixed economic picture right now. Obviously, consumers are strained by the higher prices. Equity markets are still making record highs. That's because there is expectation this war will end soon. The expectation for the Fed is now that they may have to hike interest rates. We don't think these inflation numbers are done. We've said this repeatedly, even if the war were to end today, there is a bottleneck that will take time to clear out of that strait of hormones. Prices will remain elevated until we can completely normalize that. And we've seen, if we've seen anything in the past, it does not happen overnight. So be prepared for some more higher inflation numbers. We're not so sure yet the Fed's going to have to hike rates this year. We would lean to a higher probability that they would hike than cut. We definitely don't think there's cuts on the table, but we want to see a little bit more inflation and then what does uh materialize with the talks we've seen with the White House and Iran. That's

Wrap Up And Where To Listen

Megan Horneman 5:18

all we have today. If you want a history of our podcast, you can go to marketswithmegan.fm. Thank you.