Inflation Data, Gold Bars, and Airplane Deliveries
Editor’s Note: Once again, we’ve made it through the week.
But before you go yelling “Yabba dabba doo,” let’s get to it.
This Week’s Inflation Data
The Labor Department’s Bureau of Labor Statistics (BLS) reported on Wednesday that the Consumer Price Index (CPI) — a broad measure of the prices for goods and services — rose higher than expected in March.
According to the BLS, the CPI rose 0.4% for the month and 3.5% on a year-over-year basis.
Dow Jones economists had expected a 0.3% monthly increase and a 3.4% year-over-year gain.
Stripping out volatile food and energy costs, the so-called “core” CPI showed a 0.4% monthly gain and a 3.8% increase from March 2023. Again, economists had expected monthly and yearly gains of 0.3% and 3.7%, respectively.
Energy was certainly a big driver for increased prices. According to the CPI, energy costs rose 1.1% in March — after notching a 2.3% gain in February. Shelter was also a factor. This category, which includes rent and owner-equivalent rent (basically, what a homeowner would pay to rent their house), rose 0.4% from February and 5.7% year over year.
Meanwhile, food prices rose 0.1% for the month and 2.2% on a year-over-year basis.
Yesterday, the Labor Department’s Bureau of Labor Statistics (BLS) confused the markets with a mixed bag of wholesale inflation readings.
The Producer Price Index (PPI) rose 0.2% from February. That’s lower than the estimate Dow Jones economists provided (0.3%). It’s also lower than the 0.6% increase reported for February.
However, on a year-over-year basis, the PPI rose by 2.1%. That’s the biggest year-over-year gain since April 2023.
Stripping out volatile food and energy costs, the so-called core PPI rose 0.2% from February. That was in line with economist expectations. But the core PPI with trade services also removed showed wholesale prices rising 2.8% year over year.
The biggest gains were noticed among services. Costs here rose 0.3% from February. At the same time, good prices dropped by 0.1%.
The PPI documents prices at the wholesale producer level. Because the PPI captures prices upstream of what consumers ultimately pay, it can be a good indication of where inflation may be headed.
The markets had a somewhat muted response to yesterday’s PPI release. However, that’s not really surprising, considering the pullback in stocks we saw after the CPI report on Wednesday.
Hopes that the Federal Reserve will begin cutting interest rates anytime soon are fading. The central bank’s leaders have repeatedly stressed that there’s not been enough evidence yet to show inflation retreating toward the Fed’s 2% goal.
Although it’s unlikely we’ll see any more rate hikes this cycle, hopes that the Fed will soon cut rates are dimming. According to the CME Group’s FedWatch Tool, the futures markets are now pricing in the odds of there being only two rate cuts this year — versus the three the markets expected earlier.
Delta Reports Its First Post-COVID Profit
On Wednesday, Delta Air Lines (NYSE: DAL) reported its first profitable quarter since the COVID pandemic.
For the first quarter, the airline reported a profit of $37 million, or 6 cents per share. In the year-ago quarter, it reported a loss of $363 million, or 57 cents per share.
Delta also reported adjusted earnings of $288 million, or 45 cents per share. That was a significant increase from the first quarter of 2023, when the company’s adjusted earnings totaled $163 million, or 25 cents per share.
And although revenue for the first quarter came in slightly below analyst expectations, at $12.56 billion — versus the estimated $12.59 billion — that was still a 6% improvement from the year-ago quarter.
“We have seen some real strong demand,” Delta CEO Ed Bastian said. “That momentum has continued internationally. It’s continued domestically.”
He added, “Year to date, we’ve seen the 11 highest sales days in our company’s history. That’s a strong predictor that the spring and summer season is going to be quite healthy on the travel side.”
According to Bastian, consumers are continuing the post-pandemic trend of spending money on experiences, rather than stuff. And that’s certainly helped out the airline industry.
According to the U.S. Transportation Security Administration (TSA), passenger counts have completely rebounded from the pandemic — even reaching new highs in recent months.
However, business travel — long the bread-and-butter for many air carriers — has also rebounded after a pandemic-era dropoff.
According to Bastian, that’s what accounted for Delta’s first-quarter profit.
“I think that higher level of business demand is very healthy in terms of filling in short-term travel gaps that we might have in the schedule,” he noted.
“We continue to see the strength of the transatlantic demand for the spring and summer continue, which is great,” Bastian said. “We’re flying [at an] even higher level of capacity this summer than last, and we expect our overall pricing levels are going to remain largely the same.”
For the full year, Delta has reiterated its earning forecast of $6 to $7 per share, along with a free cash flow of $3 billion to $4 billion.
Costco Makes Up to $200M per Month on Gold
Last year, Costco (NSDQ: COST) started selling gold bars.
As it so happens, the yellow metal has been a cash cow for the warehouse retailer.
According to a report from analysts at Wells Fargo (NYSE: WFC), Costco could be looking at revenue of $100 million to $200 million per month from gold sales.
That would be tremendous, given that Costco reported $100 million in gold sales during the first quarter the bars were available.
“We view the addition of gold/silver as a smart move for Costco, as it only reinforces its value position,” the Wall Street bank’s report said. “That being said, pricing at that level and shipping costs suggests it’s a very low-profit business at best.”
“Our work suggests there has been significant interest, given COST’s aggressive pricing and high level of consumer trust,” Wells Fargo equity analyst Edward Kelly wrote in a separate note this week.
“The accelerating frequency of Reddit posts, quick online sell-outs of product, and COST’s robust monthly eComm sales suggest a sharp uptick in momentum since the launch.”
Since last August, Costco has sold one-ounce 24-karat gold bars. The price for each is around $2,400 — about 2% higher than gold’s spot price. The retailer limits gold sales to 5 ounces per individual customer.
Gold has been on a tear lately as spot prices have risen by nearly 15% since the start of the year. Inflation has been a key driver here — gold has long been considered an inflation hedge.
Boeing vs. Airbus
This week, Boeing (NYSE: BA) announced that its commercial aircraft deliveries fell short of targets in the first three months of 2024.
Surprise, surprise, right?
In its fiscal third quarter, deliveries totaled 83 jets… compared to 130 in the year-ago period.
At the same time, competitor Airbus (OTCMTS: EADSY) reported a boost in deliveries, from 127 in the first three months of 2023 to 142 so far this year.
Take a look:
You will find more infographics at Statista
Unless you’ve been living under a rock, you know that Boeing has been plagued by quality control issues in recent years. Back in 2019, the company faced scrutiny — and grounding due to Federal Aviation Administration inspections — after two 737 Max jets were involved in fatal crashes.
This year, the pressure has intensified ever since a panel fell off an Alaska Air (NYSE: ALK) plane in mid-air.
The company has been limiting the number of planes it produces each month from 737 to 38 until it can satisfy the FAA that it is adhering to quality and safety procedures.
P.S. Don’t miss out on the cryptocurrency boom. The gap between traditional and digital markets is narrowing, as Bitcoin (BTC) soars to new heights.
Bitcoin exchange-traded funds (ETFs) are reporting massive inflows of new capital. The cryptocurrency market has embarked on perhaps the most powerful bull market in its history.
It’s clear that every portfolio should contain crypto assets. However, you need to be informed, to make the right choices. Direct investments in crypto coins or crypto-linked ETFs can be volatile.
In our coverage of the crypto market, we separate fact from myth, the wheat from the chaff. Start receiving our FREE e-letter, Crypto Investing Daily. Click here now!