See this week's numbersFriday, April 14, 2017

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Has inflation reached its peak already?

Two key measures of inflation are already beginning to show signs of softening after February’s PCE (personal consumption expenditures) index topped the Federal Reserve’s target of two percent. Both the consumer and producer price indices declined in March. Producer prices fell 0.1 percent, the first decline in seven months. Consumer prices were down 0.3 percent, the first decline since February 2016. In both cases, there was a significant drop in energy prices that offset increases in food prices. Three fourths of the decline in producer prices came from a drop in final demand services, including a 4.1 percent decline in loan services. Consumers had more buying power in March due to a large decline in the price indices for wireless telephone services and new and used autos. Core prices rose 2.0 percent from a year ago, the smallest increase since November 2015.

Other Key Indicators this Week:

Consumer Sentiment – Consumers continue to feel optimistic about the economy and their financial condition. The University of Michigan Consumer Sentiment Index increased 1.1 percent to 98 this month. This is the highest measure since January and is 14.5 percent higher than the average reading since the survey began in 1978. Americans are feeling the most optimistic about their current financial situation than they have in over 16 years. Nearly 52 percent of survey respondents reported their finances have improved recently, a result of higher incomes and low prices. Favorable conditions for purchasing durable goods were cited by 82 percent of respondents, the largest share since 2005. The measure of expectations remains divided among party lines, with 69 percent of Republicans feeling optimistic about employment and economic conditions, compared to only 28 percent among Democrats.

Retail Sales – Retail sales declined in March for the second month in a row, falling 0.2 percent. Sales for February were revised downward to negative 0.3 percent from a gain of 0.1 percent. The declines came largely from autos and building materials. Auto sales fell for the third month in a row, an unfortunate pattern after annual auto sales reached record levels for the past two years. Sales at building material stores declined 1.5 percent, likely due to the harsh weather experienced in March. What little strength there was in retail sales in March came from a 2.6 percent increase at electronic and appliance stores and a 1.0 percent rise at clothing stores.

Strategically for Credit Unions:

Many credit unions continue to be heavy on cash this time of the year. Loan demand remains strong in parts of the country, providing a good counterbalance for the cash overload. For credit unions without strong loan demand, investing the excess funds is an alternative for improving ROA. Even as the Federal Reserve raises interest rates, it is better to be invested than sitting on cash and waiting for rates to improve.

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.

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