CloudQuant’s Alt Data Crystal Ball Predicts Core CPI To Decline As Interest Rate Hikes Take Hold

Leadership Strategy CloudQuant’s Alt Data Crystal Ball Predicts Core CPI To Decline As Interest Rate Hikes Take Hold Gary Drenik Contributor Opinions expressed by Forbes Contributors are their own. Following New! Follow this author to stay notified about their latest stories. Got it! Sep 23, 2022, 10:00am EDT | New! Click on the conversation bubble to join the conversation Got it! Share to Facebook Share to Twitter Share to Linkedin Crystal Ball AdobeStock_88536683 Last month we checked in with CloudQuant’s CEO, Morgan Slade, and he bucked the trend saying we would see an uptick in Core Inflation, which proved to be prescient.

Earlier this week the Fed delivered another dose of medicine to the patient who ails from a myriad of supply constraints against a backdrop of stubborn demand. What remains to be seen is how the patient reacts to the strong medicine prescribed by the Fed. We check in with CloudQuant, a purveyor of Alternative Data to see what their cornucopia of data and analytics are telling them.

Gary Drenik: Great to see you again Morgan. Nice job with the contrarian call last month on Core Inflation, it clearly caught the market by surprise! Let’s get down to business, what are you seeing out there in the world? Morgan Slade: Thank you, Gary, it’s great to be back with you. Overall, our data tells us that the Fed is slowly making progress towards letting steam out of the demand side of the equation.

Our future spending plans data from Prosper Insights & Analytics September Survey shows that consumers are pulling back marginally with their spending plans. Consumers across all income levels continue to spend more on groceries than they anticipated due to higher food prices. If you are Fed Chairman Powell, you might view this disconnect between expected and actual grocery bills as a good sign that consumers are underestimating inflation—you know inflation is here to stay when they start expecting to pay more.

Drenik: Interesting, how do your models show gas prices are impacting the economy? Slade: The release of crude from the Strategic Petroleum Reserve combined with some demand destruction has resulted in a favorable backdrop for energy prices. However, the release of the reserves is set to expire around the time of the election in November, so it will be interesting to see if inventories continue to build. It is hard to know what the supply/demand balance will look like this winter.

We know European Natural Gas supplies will be running short which will feed into higher electric bills as well. Drenik: So, it sounds like the backdrop for energy inflation is still strong? Slade: That’s correct, we think the relief we’ve seen could be short-term. Looking at the disappointing crop harvest in the US will also be supportive of prices.

So, the commodity inputs continue to be inflationary over the next few months. MORE FOR YOU 5 Cognitive Biases Blocking Your Success Preparing To Go Public: An Overview Of The IPO Process Immigrants Hope Registry Saves Immigration Bill Drenik: What other factors do you consider? Slade: We look at spending behavior on big-ticket items such as cars, houses and furniture, labor market demand, and price expectations. Tightening credit standards and the increase in yield on the ten-year and thirty-year government bonds have increased mortgage rates from around 3% during Covid-19 to 6.

5-7. 5%. This is tamping down home price inflation to some degree, but this won’t show up in CPI for about a year.

In the near term, we are looking for signs in the labor market for progress. Drenik: Got it, so higher mortgage rates will take some time to impact inflation. Interesting, so what does the data say about the labor market? Slade: We leverage real-time job posting data from LinkUp to monitor jobs posted by public and private companies worldwide.

In the US labor market (Figure 1), we see a weakening net demand from employers. On one hand, another data source we look at shows an increase in workers’ sense of job security–so workers are not worried about getting laid off as much this month as in prior months. However, on the demand side, we see in the job postings that the interest rate hikes by the Fed are working and are decreasing the demand for new hires.

Looking at Office and Admin workers in particular, which can be a leading indicator, we see a decline in those types of job postings. This is good news for the Fed. Figure 1: Caption: New job postings have decreased and deleted job posting have remained high since .

. . [+] April of 2022.

Posted job openings remaining about 750,000 higher than prior to Covid-19. CloudQuant Drenik: That sounds like it is headed in the right direction at least. What else do you see? Slade: According to some forward-looking datasets, consumers are responding to higher interest rates by decreasing their plans to purchase cars and homes, with new car sales expected to decrease by 6.

37% according to Prosper Insights & Analytics September Data. Drenik: How are the low-income consumers doing? Slade: The good news is that the low-income consumer confidence has bottomed in the last month. They do plan to spend less on vacations and big-ticket items though.

They also are being realistic about the impact of inflation and say they don’t anticipate saving any money in the next year. Drenik: How are consumers doing overall? I know a few months ago you indicated that consumer confidence had not been this bad since the 2008 credit crisis. Slade: That’s true, and I have some good news! Mid and high earners have notched a second month of improving confidence and we finally saw the low-income consumer join them by notching a positive change month-over-month.

They are both still at a low level of confidence, but the trend is in the right direction. Consumer spending has continued to decline and is down significantly year to date. Also, when we look at the forecasted holiday spending Prosper Survey Data question, respondents indicated they expect to see higher costs, and will be on the lookout for sale and discount items.

We expect to see lower sales this holiday season. Drenik: Now, we save the best for last, I’d like to know what your forecast for Core CPI is for next month. What does your model tell you based on the alternative data you have available? Slade: We are forecasting a modest decline in Core CPI next month (Figure 2).

We would love to see data points supporting the continuation of that trend, however, as pointed out earlier, there are several longer-term supply constraints that may up-end that. We’ll have more data on that early next month. Figure 2: CloudQuant forecasts that Core CPI in the US will decrease -0.

05% to 6. 26% versus last . .

. [+] month on a Year-over-Year change basis. CloudQuant Drenik: Thank you Morgan, your crystal ball is demonstrating the value for using high quality consumer data to forecast economic signals and future purchase plans for consumers.

I am looking forward to next month’s forecasts as we enter the holiday shopping season Check out my website . Gary Drenik Editorial Standards Print Reprints & Permissions.