PPI: September's Figures: Expectations vs. Reality

The economic dashboard for September just rolled in, and if you’re looking for clarity, you’re probably going to need a new set of glasses. We’re staring down a data set that’s less a clear picture and more a Rorschach test, with conflicting signals popping up across the board. The Federal Reserve has been busy trimming borrowing costs, yet the housing market’s still doing its own thing, and inflation? Well, inflation seems to be playing a game of whack-a-mole. It’s enough to make you wonder if the economy is just making it up as it goes along.

Housing's Head-Scratcher: Rates Down, Prices... Still Soft?

Let's start with real estate, because that's where some of the biggest head-scratchers are. The S&P Case-Shiller US National Home Price Index nudged up a mere 1.3% in September. That’s not just a soft gain; it’s the weakest pace we’ve seen since mid-2023. And this is happening when the Fed’s benchmark lending rate is at its lowest point in three years. You’d expect the market to be popping champagne corks, right? Instead, buyers are apparently still on the sidelines, grappling with affordability issues. It's a classic case of supply-demand dynamics getting tangled up with buyer psychology, even with cheaper money on the table.

S&P Dow Jones Indices' Nicholas Godec pointed out that national home prices are still trailing inflation, with the Consumer Price Index running a full 1.7 percentage points ahead of housing appreciation. That’s the widest spread since June, and it’s widening. What does that tell you? Your house isn't keeping pace with your grocery bill. While the Fed is trying to ease the financial burden, the real cost of living is still outpacing one of the most significant assets for most Americans. It makes you question whether the Fed's rate cuts are truly hitting the mark where it matters most for the average household. Are we seeing a lag effect, or is there a more fundamental shift at play that even lower rates can't easily fix?

And then there's the geographic split, which I find genuinely puzzling. Chicago, New York, and Boston — the traditional, often pricier, urban centers — saw the strongest gains. Meanwhile, the "pandemic darlings" like Tampa, Phoenix, Dallas, and Miami are now experiencing outright price declines. This isn’t just a market correction; it's a reversion to pre-pandemic patterns, as Godec noted, where job markets and urban fundamentals dictate appreciation, not remote-work migration fantasies. It’s almost like the market decided to hit the reset button, but only for certain zip codes.

Inflation's Many Faces and Retail's Uneven Pockets

Now, let's pivot to the production pipeline and the consumer's wallet. The producer price index (PPI) for September came in with a headline increase of 0.3%, right on the Dow Jones consensus. But the core PPI, stripping out the volatile food and energy components, rose a mere 0.1%, below the 0.2% estimate. This could signal a cooling in pipeline inflation pressures. Emphasis on "could." Because while core figures look subdued, goods prices jumped 0.9% for the month—to be more exact, it was the biggest surge since February 2024. Services prices, on the other hand, were flat. This isn't a uniform cooling; it's a selective freeze, with certain sectors still running hot. Final-demand energy prices shot up 3.5%, driven largely by an 11.8% surge in gasoline. Food prices also rose 1.1%. So, the core might look docile, but the things people actually buy every day are still climbing. It's like saying the overall temperature in the room is stable, but the heater is on full blast in one corner and the AC is blasting in another.

Retail sales data added another layer to this mixed bag. Overall sales increased 0.2% in September, a bit softer than the 0.3% forecast. But sales excluding autos were exactly in line at 0.3%. What’s interesting is where people are spending. Miscellaneous retailers saw a solid 2.9% increase, and gas stations naturally saw a 2% bump because, well, gasoline prices went up. But sporting goods, hobby, and music stores saw a 2.5% decline, and online sales were off 0.7%. The bright spot? Eating and drinking establishments saw a robust 0.7% increase for the month, up 6.7% from a year ago. This is a classic indicator of discretionary spending, suggesting that while consumers might be tightening their belts on durable goods or online impulse buys, they’re still willing to shell out for experiences and social outings. Is this a sign of consumer resilience, or just a shift in priorities? It’s hard to tell when the overall sales figure is softer than expected.

And here’s the kicker, the methodological critique that complicates everything: the government shutdown. The September PPI release was delayed, the October PPI data may not even be released, and the October Consumer Price Index report was flat-out canceled. This isn't just an inconvenience; it’s like trying to navigate a ship through a storm when half your instruments are offline. How are we supposed to make informed decisions or accurate forecasts when crucial data points are simply missing? The market thrives on information, and right now, we’re operating with significant blind spots.

The Data Deluge, But No Clear Course

What we're left with is a mosaic of economic data that doesn't quite form a coherent picture. Home prices are weakening even as borrowing costs fall, indicating deeper affordability issues or a major shift in buyer psychology. Inflation is "cooling" in some areas, but everyday essentials like gas and food are still rising, driven by specific commodity surges. And consumer spending, while showing some strength in discretionary areas like dining out, is softer overall, with online and hobby sales taking a hit. All of this uncertainty is compounded by critical missing data thanks to the government shutdown, leaving analysts and investors alike in a kind of economic fog. It's not just about what the numbers say; it's about what they don't say, and what we can't even see. We're flying blind on key metrics, and that's a dangerous game in any market.