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Bunch of BLS

Not only did we just get Core PCE, but the top story on Bloomberg this morning is how the recent hotter-than-expected CPI was attributable to a change in the Owner’s Equivalent Rent weighting.  What a time to be alive.  Let’s start with the Bloomberg story.

"An increase in the weighting of single-family homes within the OER measure relative to multifamily units would tend to give it a temporary boost because supply of single-family homes has been restrained, keeping prices elevated, whereas multifamily supply has surged in recent years."

Owner’s Equivalent Rent (OER) is one of two pieces to the shelter contribution to inflation.  The BLS literally calls homeowners and asks, “How much would you charge to rent your house out this month?”  The intent is to mitigate big swings in property values, but it also means it’s not a real number.  If they called me and asked what I would rent our house out for, I have no clue how I would answer. Would you?  Would our answers represent an accurate market price?

Shelter makes up about 1/3rd of the overall inflation picture.  The two components break down like this:

  • OER makes up about 75%
  • Actual rents make up the other 25% 

This means OER comprises about 25% of CPI…and that was before the BLS just increased the weighting!

Fear not, in its commitment to data transparency (you know, because they are funded through tax payer dollars), the BLS quickly cleared up any confusion:  

Super Users,

Good afternoon.

The weights for single family detached homes increased materially from December 2023 to January 2024. All of you searching for the source of the divergence have found it.

No additional information related to this question will be disseminated. We do not do diagnostic analysis of microdata.



Ok, I made up the sig block, but the rest is verbatim from an email the BLS sent to “super users” of its data.  Don’t they sound a tad sarcastic with the whole, “All of you searching for the source of divergence have found it.”  All that’s missing is a snarky “congratufrigginlations”.

As if changing the rules of the game wasn’t bad enough. I was crushed to learn I am not on the list of BLS super users!  First Davos, now this?  Maybe I’m not as big of a deal as I thought…

Not only did they not provide additional guidance, one super user reported that the BLS tried to retract the email, and, when they couldn’t, told the super users to disregard the email.

I couldn’t make this up if I tried!  We were already planning on Monday’s newsletter tackling the lack of data clarity around jobs data, so the timing of this CPI quirk couldn’t be better.

If the BLS called you twice this year, how likely are you to say you would rent your house for less than the last time they called?  I wouldn’t, because it’s not a real number. 

That means inflation may fall slower this year all because of some quirky weighting to an estimate that the BLS refuses to provide any clarification around? 

This also means the change to the calculation will screw with impact inflation for the next five months until they call homeowners again during the exact same time the Fed and markets are actively discussing rate cuts.

Not surprisingly, this caused rates to pop before markets even opened.

Will this impact Core PCE?  Yes, but in a less direct way.  

First and foremost, the warm and fuzzy folks at the BLS aren’t in charge of PCE.  That falls to the Bureau of Economic Analysis (BEA).  Your eyes are glazing over already, aren’t they?

Secondly, BEA already weights shelter less significantly, and OER less significantly within that bucket.

Thirdly, Core PCE measures a broader basket of goods and shelter comprises a smaller percentage of the overall picture.

Fourthly, the BEA does use some of the survey results from the BLS, but in general it tends to use statistical data to arrive at an imputed OER, rather than survey data.

Fifthly…I don’t actually have a fifthly, but I had never actually typed out that word before so I wanted to give it a shot.  Like I said, what a time to be alive.

At 8:30am, Core PCE printed in line with expectations at 2.8%.  First bullet dodged.

Rates are reacting modestly, initially dropping 4-5bps following the earlier spike that resulted from the Bloomberg article. 

Odds for the first rate cut exceed 50% in June.


Here’s the first official 2024 JMO Core PCE Wager Tracker

January 2024  2.8%

The game is afoot…