Inflation Moderates But U.S. Housing Market Woes Continue

Evercore ISI’s latest economic report highlights stronger signals for the U.S. economy, reinforcing a bullish outlook despite ongoing inflation concerns. Inflationary pressure remains subdued with global commodity prices held in check, and U.S. demand destruction playing a key role in moderating prices. While commodity prices are restrained due to struggling economies in Europe and China, U.S. unit labor costs have also remained controlled, leading to a positive outlook on inflation. However, inflationary forces are not entirely subdued. Shelter costs, a key driver of consumer inflation, continue to edge lower, with Evercore’s proprietary survey of apartment rents indicating continued softness. The U.S. housing market has shown signs of weakness due to rising mortgage rates, which also had a distorting effect on claims data in recent months. Evercore economists remain optimistic, but acknowledge potential headwinds from these inflationary pressures. Market Overview:

• U.S. inflationary pressures remain controlled, bolstered by moderate commodity prices.
• Evercore’s survey shows continued softness in U.S. housing markets due to high mortgage rates.
• Global economic challenges in Europe and China keep inflation lower globally.

Key Points:

• Inflation outlook positive despite some persisting shelter costs concerns.
• Rising mortgage rates impact U.S. housing demand, adding economic pressures.
• Evercore remains bullish despite headwinds in some sectors like housing.

Looking Ahead:

• Economists expect inflation to remain moderate unless labor costs rise sharply.
• Global economic instability, particularly in Europe and China, could create new inflationary risks.
• U.S. housing trends will be watched closely as mortgage rates stay high.

While Evercore ISI’s economic report portrays a robust outlook for the U.S., the housing sector continues to show signs of distress due to rising mortgage rates. Commodity prices are expected to remain restrained due to weaker global demand, and inflation appears largely under control, with unit labor costs playing a key role. Nonetheless, shelter costs remain a concern for inflation watchers, particularly in markets tied to rent and housing. Looking ahead, Evercore’s economists maintain a positive long-term view but caution that global economic instability could present new risks. The housing market remains one of the most critical areas to monitor, especially if mortgage rates continue their upward trajectory, putting further strain on U.S. consumer demand.