Higher Inflation, Slower New Home Sales

Inflation moved higher in May, though falling oil prices could help ease inflation pressures in the coming months. In housing news, new home sales fell to their second-lowest level in nearly four years. Here are the key takeaways.

·       Inflation Reaches Three-Year High, but Some Pressures Ease

·       New Home Sales Slow in May

·       Key Indicators: GDP and Unemployment

Inflation Reaches Three-Year High, but Some Pressures Ease

Headline Personal Consumption Expenditures (PCE) rose 0.4% in May, slightly below expectations. Even so, annual inflation climbed to 4.1%, its highest level since April 2023.

Core PCE, which excludes food and energy prices, rose 0.3% for the month, in line with forecasts. On an annual basis, core inflation edged up to 3.4% from 3.3%, reaching its highest level since October 2023 and remaining well above the Fed's 2% target.

What’s the bottom line? The Federal Reserve aims to balance stable prices with a healthy job market. Recent tensions in the Middle East and stronger-than-expected labor market data have renewed concerns about inflation, with energy prices remaining a key area of focus. However, oil prices have declined considerably since May, which may help ease inflation pressures in upcoming reports.

Persistent inflation generally supports the Fed's cautious approach to interest rate cuts, while softer employment data could strengthen the case for easing later this year.

The Fed has left its benchmark interest rate unchanged at all four meetings this year, following several rate cuts in 2025. As a result, upcoming inflation and employment reports will play an important role in shaping the Fed's policy decisions for the remainder of the year.

New Home Sales Slow in May

New home sales fell for the second consecutive month in May, declining 7.3% to an annualized pace of 580,000 homes. The result came in well below expectations and marked the second-lowest sales pace in nearly four years. Compared to a year ago, sales were down 6.8%.

Regionally, sales increased in the Northeast and Midwest, while the South saw a modest decline. The West experienced the sharpest drop, with sales falling nearly 27%.

What’s the bottom line? Because this report measures signed purchase contracts, it reflects buyers who were shopping during May, when elevated mortgage rates may have dampened demand. At the same time, the supply of move-in-ready new homes remains limited. Of the 496,000 new homes available for sale nationwide, only 118,000 were completed and ready for occupancy, while the remainder were either under construction or had not yet broken ground.

This limited supply of completed homes could help support home values over time and highlights why many continue to view homeownership as a long-term wealth-building opportunity.

Key Indicators: GDP and Unemployment

The final estimate for Q1 2026 GDP showed the U.S. economy expanded at an annualized rate of 2.1%, up from the previous 1.6% reading and well above the 0.5% growth recorded in the fourth quarter of 2025, when a government shutdown weighed on economic activity late in the year. Growth in the first quarter was supported by ongoing investment tied to artificial intelligence and a pickup in government spending, although stronger import activity offset some of those gains.

On the labor front, initial jobless claims declined by 12,000 to 215,000, while continuing claims increased by 21,000 to 1.821 million. The relatively low level of new unemployment claims may suggest some displaced workers are finding opportunities in gig or freelance roles that are not fully captured in traditional employment data. However, the rise in continuing claims indicates many job seekers are still facing a longer search for new employment.