Wednesday, February 14, 2018

Inflation jumps, stocks jump. But wages and retail sales drop. MAGA?

Given the recent instability in the stock and bond markets, many looked to this morning’s release of the Consumer Price Index for guidance on the future of this economy after tax cuts and other stimulative measures. And when the report came out, it wasn’t good news for people who were hoping things might be settling down.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in January on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 2.1 percent before seasonal adjustment.

The seasonally adjusted increase in the all items index was broad-based, with increases in the indexes for gasoline, shelter, apparel, medical care, and food all contributing. The energy index rose 3.0 percent in January, with the increase in the gasoline index more than offsetting declines in other energy component indexes. The food index rose 0.2 percent with the indexes for food at home and food away from home both rising….

The all items index rose 2.1 percent for the 12 months ending January, the same increase as for the 12 months ending December. The index for all items less food and energy rose 1.8 percent over the past year, while the energy index increased 5.5 percent and the food index advanced 1.7 percent.
0.5% inflation for 1 month is obviously quite a bit, and DOW futures plummeted before the market opened on the high inflation figures. But then things stabilized, and a couple of finance guys interviewed by Reuters said that maybe a little inflation wasn’t a big deal.
“Of itself, inflation, particularly driven by higher demand, is not necessarily negative for equities," said Rick Meckler, president of LibertyView Capital Management in Jersey City, New Jersey.

Rather, Meckler said, the concern is if bond rates adjust substantially higher in response to inflation data. Such increases in bond rates would provide more investment competition to stocks, after years of low yields made equities comparatively more desirable…

"Maybe if we saw the yield continue to rise, if it went up past 2.90, it might hit stocks," said Michael Antonelli, managing director for institutional sales trading at Robert W. Baird in Milwaukee. "That it’s stabilized has helped."
Except within a couple of hours of Meckler’s and Antonelli’s statements, the 10-year Treasury yield DID rise past 2.90%,and closed at 2.91%, the highest levels in 4 years. Yet the stock market also kept climbing, with the DOW Jones ending up 253 points.

I also think that the Wall Streeters that were shrugging off CPI numbers because the year-over-year increase was “only 2.1%” are off-base. If you look at the last 6 months, the CPI is up 2.05% in that time period alone, and unless inflation stops dead in the next 6 months (not likely), that year-over-year figure will head up toward 3% sooner than later. In itself, that may not be bad, but it’s silly not to think that inflation hasn’t meaningfully risen in the last few months.

So what gives? I think some of the answer may lie in a couple of other reports released today, which showed that maybe that “Trump Boom” GOPs keep trying to be sell us really isn’t happening, and that the GOP Piece of Shit tax bill isn’t going to make the average person better off.

Because at the same time that the high inflation report was released, the US retail sales report came out, and was surprisingly bad.
Advance estimates of U.S. retail and food services sales for January 2018, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $492.0 billion, a decrease of 0.3 percent (±0.5 percent)* from the previous month, but 3.6 percent (±0.7 percent) above January 2017. Total sales for the November 2017 through January 2018 period were up 4.9 percent (±0.5 percent) from the same period a year ago. The November 2017 to December 2017 percent change was revised from up 0.4 percent (±0.5 percent)* to virtually unchanged (±0.3 percent)*.
So a decline in retail sales from a revised-down number in December? That’s a really bad sign, and making it worse was the fact that January’s number would have been even worse except that the dollar amount of gas sales were up 1.6%...because gasoline prices went up by 5.7% in January.

Also noteworthy is that the 0.5% increase in the CPI meant that the “startling” wage growth that we saw in January’s jobs report (which started a 10-day downward spiral on Wall Street due to inflation fears) didn’t do much to make people better off. In fact, if you look at today’s real wages report, it shows that real average hourly wages dropped again in January, the 5th time in the last 6 months that inflation-adjusted wages have failed to grow.

Yes, real average hourly wages for all employees over the last year are still up by 0.8%, and that figure has improved over the past couple of months. But you can see that reflects gains that were made in the first half of last year, and that number will likely go down in coming months unless we get a shocking turnaround from our recent, declining trend.

It’s even worse if you look only at “production and non-supervisory employees.” This group is defined by the BLS as follows.
Data relate to production employees in mining and logging and manufacturing, construction employees in construction, and nonsupervisory employees in the service-providing industries. These groups account for approximately four-fifths of the total employment on private nonfarm payrolls.
Those individuals (i.e., most Americans who work for someone else) didn’t even do as well as the mediocre national figures. Their real average hourly earnings were down 0.5% for January and their real average hourly earnings have only gone up 0.1% over the last 12 months.

No real change in wages over the last 12 months, with gas prices and interest rates on the rise? I’m sure that’s what you blue-collar MAGAs voted for, right?

And maybe those still-declining wages are what encouraged Wall Street to make the stock market rise, even with higher inflation and interest rates today. Because with more cost-cuttings/layoffs sure to happen in the near future to “hit the quarterly numbers”, wage inflation doesn’t seem that likely to follow our current price inflation.

Low wage growth and high profits may be something the investor/CEO crowd likes, even if it sucks for the overwhelming majority of the rest of us. Not a lot of this adds up right now, and I have real worries about what happens as any stimulus from the Piece of Shit tax bill pumps itself out in the next few months.

It also makes me wonder what will happen politically when the average dope looks around in 3-4 months and realizes the handful of extra bucks they got from those DC tax cuts aren’t coming close to making up for the higher costs he/she is dealing with…..Assuming he/she still has a job, of course.

1 comment:

  1. Our conservative friends like to point to the “tax cut bonuses”, which are better than a stick in your eye, but not a wage increase. Not likely wages will keep up with inflation, increasing income inequality.