Retail sales drop! But I'd wait a bit more before hitting the panic button

You know how I’ve said that inflation has been more an annoyance than a drag on the economy, and that I won’t worry much until I see evidence of a consumer slowdown.

Uh Oh.

Retail sales turned negative in May as consumers pulled back spending while inflation surged, the Commerce Department reported Wednesday.

Advance retail and food service spending fell 0.3% for the month, below the Dow Jones estimate for a 0.1% gain. Excluding autos, sales were up 0.5%, which fell short of expectations for a 0.8% increase….

Sales were well below the pace in April, which posted a downwardly revised 0.7% increase from the initial 0.9% estimate.

That’s a number BEFORE inflation is figured in, and includes a 4% increase in gasoline sales. Take out gas, and retail sales dropped by 0.7% for May, which sounds disastrous, and an indication that those higher gas prices are now leading to cutbacks in other areas.

However, I note that last month's decline came after 4 straight months of solid gains to begin 2022.

And as I dug into the actual report, my initial alarm was calmed a bit. That’s because of our old friend “seasonal adjustment.”

Retail sales, seasonally adjusted vs raw totals May 2022
Total Retail sales
Raw total +2.4%
Seasonally adjust. -0.3%

Retail sales minus gas stations
Raw total +1.5%
Seasonally adjust. -0.7%

Retail sales minus autos, gas stations
Raw total +3.3%
Seasonally adjust. +0.1%

Bars and restaurants
Raw total +3.5%
Seasonally adjust. +0.7%

Building material, garden supply stores
Raw total +9.1%
Seasonally adjust. +0.2%

So we may well be seeing that our “decline” in retail sales is simply lower-than-normal increases in spending that traditionally happen in May. This would explain how we can see many retail sectors with “help wanted” signs despite an alleged “slowdown” in sales.

In a way, this could work out well, as a flatlining of growth allows time for labor shortages to catch up to demand. This would be the “soft landing” scenario that is frequently mentioned, where inflation settles down and there is little/no recessionary results.

But I also can’t blow this off, and it certainly should give us caution about what kind of economic distortions are going to happen this Summer as Americans deal with higher prices at the gas station and in other places. Will the American consumer jump off the merry-go-round that so far has helped us grow through the inflation of the last year?

That possibility illustrates why my hope/fear is for the Fed not to overdo their rate hikes. We don’t need to send the real economy into a nosedive, but I am worried these central bankers might listne too much to the Wall Street doomsayers, and be fine with that. And I'm especially worried that the decline could come right before a midterm election where a blind vote against the party in power (or perceived to be in power) could wreck things in America for a lot longer.

75 points! Fed hikes rates in a big way

I was wondering if the Fed would go big in an attempt to slow down our high inflation, and they sure did this afternoon. Ending weeks of speculation, the rate-setting Federal Open Market Committee took the level of its benchmark funds rate to a range of 1.5%-1.75%, the highest since just before the Covid pandemic began in March 2020......

“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” [Fed Chairman Jerome] Powell said. He added, though, that he expects the July meeting to see an increase of 50 or 75 basis points. He said decisions will be made “meeting by meeting” and the Fed will “continue to communicate our intentions as clearly as we can.”

“We want to see progress. Inflation can’t go down until it flattens out,” Powell said. “If we don’t see progress ... that could cause us to react. Soon enough, we will be seeing some progress.” We haven't been seeing that flattening in the CPI so far, and gas prices have continued to rise in June. If that trend continues, Chairman Powell said the Fed will keep on hiking.

The Fed’s benchmark rate will end the year at 3.4%, according to the midpoint of the target range of individual members’ expectations. That compares with an upward revision of 1.5 percentage points from the March estimate. The committee then sees the rate rising to 3.8% in 2023, a full percentage point higher than what was expected in March.

As you can see above, a 3.4% Fed Funds rate would be higher than at any time since the Great Recession. Guess it's a good thing I locked in my 2.72% car loan last month, eh?

I will add that we did get an indication today that the stronger dollar is blunting inflation in one way, as the price of non-fuel imports dropped by 0.3% in May, and those prices of imports have risen by a total of just over 5% since June. Of course, you gotta have the imports coming in for that to make a bigger impact, but right now I'll take any sign of moderation that I can.

While the Fed reduced its estimates of real GDP growth for 2022 from 2.8% to 1.7%, and bumped up its expected unemployment rate for the year from 3.5% to 3.7%, its statement also said that economic activity was improving after a slow first 3 months.

Overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.

But because our inflation is more due to a combination of weird events, I hope the Fed continues to keep an eye on jobs and growth. It's not 1980 - this hasn’t been a long-lasting, ongoing cycle of price hikes. Our inflation has mostly been due more to temporary incidents like COVID disruptions, stimulus, speculation on the financial markets, and European conflicts that mess up supply-and-demand on the World’s (not America’s) oil market.

The markets seemed to respond positively to the 75-point move, but more moves seem certain to come throughout the Summer and Fall, and we'll see what hits the wall first - jobs, prices, assets....or any combination of the 3.

As the Big Lie gets demolished in DC, the traveling BS comes to Milwaukee

For today's "Timing Is Everything" award - 1 day after the January 6th Committee quoted numerous Trump Administration officials saying that TrumpWorld's claims of voter fraud in the 2020 election were "bullshit", we get this headline.

Organized by the Conservative Partnership Initiative and longtime GOP attorney Cleta Mitchell, the Wauwatosa event includes sessions on the recruitment, training and deployment of poll watchers. https://t.co/gYYYebihPa

— madison.com (@madisondotcom) June 14, 2022

Michael Gableman will address a poll watcher training event next weekend organized by a Republican lawyer who played a key role in the legal effort to overturn the 2020 election in favor of former President Donald Trump.

Branded as an "election integrity summit" by lead organizer the Conservative Partnership Institute, the event at a Wauwatosa hotel will include sessions on the recruitment, training and deployment of poll watchers, according to the event's website.

The Wauwatosa summit is the latest in a nationwide effort by longtime GOP lawyer Cleta Mitchell to encourage more conservative activists to poll watch ahead of the 2022 election. Mitchell, a senior legal fellow for the Conservative Partnership Institute, advised Trump during his failed attempt to overturn the 2020 election results.

Cleta Mitchell, you say? One of the stars of this expose from Jane Mayer last year

5. We found Mitchell's radio interview thanks to a lead in @JaneMayerNYer's new article, "The Big Money Behind the Big Lie."

"Cleta Mitchell, who had been dispatched by Trump’s chief of staff, Mark Meadows, to help the Trump campaign in Georgia..."https://t.co/gWKnvCLQK2

— Ryan Goodman (@rgoodlaw) August 8, 2021

And the Milwaukee area is a fitting area to have this BS, because Mayer noted a lot of the money of this Big Lie BubbleVerse comes from the Cream City.

Another newcomer to the cause is the Election Integrity Project California. And a group called FreedomWorks, which once concentrated on opposing government regulation, is now demanding expanded government regulation of voters, with a project called the National Election Protection Initiative.

These disparate nonprofits have one thing in common: they have all received funding from the Lynde and Harry Bradley Foundation. Based in Milwaukee, the private, tax-exempt organization has become an extraordinary force in persuading mainstream Republicans to support radical challenges to election rules—a tactic once relegated to the far right. With an endowment of some eight hundred and fifty million dollars, the foundation funds a network of groups that have been stoking fear about election fraud, in some cases for years. Public records show that, since 2012, the foundation has spent some eighteen million dollars supporting eleven conservative groups involved in election issues.....

An animating force behind the Bradley Foundation’s war on “election fraud” is Cleta Mitchell, a fiercely partisan Republican election lawyer, who joined the organization’s board of directors in 2012. Until recently, she was virtually unknown to most Americans. But, on January 3rd, the Washington Post exposed the contents of a private phone call, recorded the previous day, during which Trump threatened election officials in Georgia with a “criminal offense” unless they could “find” 11,780 more votes for him—just enough to alter the results. Also on the call was Mitchell, who challenged the officials to provide records proving that dead people hadn’t cast votes. The call was widely criticized as a rogue effort to overturn the election, and Foley & Lardner, the Milwaukee-based law firm where Mitchell was a partner, announced that it was “concerned” about her role, and then parted ways with her. Trump’s call prompted the district attorney in Fulton County, Georgia, to begin a criminal investigation.

In a series of e-mails and phone calls with me, Mitchell adamantly defended her work with the Trump campaign, and said that in Georgia, where she has centered her efforts, “I don’t think we can say with certainty who won.” She told me that there were countless election “irregularities,” such as voters using post-office boxes as their residences, in violation of state law. “I believe there were more illegal votes cast than the margin of victory,” she said. “The only remedy is a new election.” Georgia’s secretary of state rejected her claims, but Mitchell insists that the decision lacked a rigorous evaluation of the evidence. With her support, diehard conspiracy theorists are still litigating the matter in Fulton County, which includes most of Atlanta. Because they keep demanding that election officials prove a negative—that corruption didn’t happen—their requests to keep interrogating the results can be repeated almost indefinitely.....

Guess who else supports the "Election Integrity Project"?

NEW: After Trump PAC made $1 million donations to a group led by Mark Meadows and Cleta Mitchell, @ABC News found the group is working to put in place so-called "election integrity task forces" around the country - we went inside their trainings @wsteaks https://t.co/RIsORfuG2y

— John Santucci (@Santucci) June 13, 2022

Funny how the money goes around and around in RW BSWorld, isn't it? Imagine if a fraction of the dirty dollars going to these tax-dodging "non-profits" went to anything useful in society?

"It's a Big Club, and you ain't in it." - George Carlin.

Big Memorial Day weekend of travel has an effect, but lots of gasoline, oil still available

After a weekend of travel that included me choosing a $59 round-trip bus ride over driving to O'Hare and paying for parking and gasoline, I wanted to revisit some numbers on the availability of oil and gasoline in this country.

With gas prices continuing to rise, I wanted to see if this caused any kind of decline in demand for the high-travel Memorial Day weekend. Now that the Energy Information Agency has gotten their figures out for that weekend, let's take a look and see what we have, and compare it to the more "regular" week before (through the Friday before Memorial Day weekend).

As you can see, gasoline usage was down for the week before Memorial Day, but Memorial Day Weekend had the highest gas usage since COVID became a thing. Maybe that reflects pre-planned vacations, and we'll see gas consumption go back to declining when the next EIA consumption report comes out on Friday, but it certainly says that gas prices didn't stop a big increase in travel for that weekend.

That big jump in usage for Memorial Day weekend tightened the availability for gasoline in America. The days of supply is lower than it has been in past years, but still more available than in 2014 or 2015.

If the days of available supply continues to decline in the next couple of weeks after the high level of Holiday Weekend travel, then we should worry. But that will be due to worldwide constraints more than any lack of supply in America, because this country is pumping out oil at 2019's levels, with more expected to come.

And that, along with the dollar being at multi-year highs, is why US gas prices are generally lower than what Europe and Canada are dealing with today. And the choice not to pick up supply isn't anything related to DC mandates, but is more likely due to Capitalism 101 - maximize profits, not production.

People also need to understand that insofar as oil companies *could* drill more in the U.S., it's not because any govt agency is stopping them. They have thousands of permits they aren't using.

It's because they expect demand to fall and they'd lose money on it.

— Matthew Chapman (@fawfulfan) June 13, 2022

High gas prices suck, and are still causing significant stress for Americans. This has led to a general gloominess of the overall situation, when the economy still is adding jobs and production, with nominal wages still rising. But I also think that the supply-and-demand situation in America doesn't match with those high prices, and if Americans do cut back on their driving, there's no reason for those prices not to go down.

I think it's well past time for the Biden Administration and Dems in DC to hammer this and investigate anti-competitive practices. I also think that direct intervention may be in store, given that it is worldwide issues that are raising the worldwide prices, and do some "America First" actions of our own. This could include redirecting US oil exports back to America, use the Defense Production Act to speed distribution of oil and to increase refining capacity, and putting in a maximum pump price (say, at $4.25) while subsidizing gas stations to make up the difference.

Given the supply-and-demand situation and the adjustments that will lower prices on their own in the coming months, short-term moves like this should be all that is needed.

Inflation at new levels! But it ain't the deficit and it ain't recession

I was at O'hare AIrport getting ready to fly south to my Dad's Friday morning, when I checked the headlines. And then I saw the top econ story, and said "Well ain't this is a punch in the...."

The Dow (INDU) plunged after a key inflation report missed estimates and showed a higher-than-anticipated increase in the price of consumer goods, closing down 880 points for the day, or 2.5%. The S&P 500 shed 2.7% and the Nasdaq dropped about 3%.

The May consumer price index rose 8.6% year-over-year, its highest level since 1981. Economists had forecast an 8.3% increase. The core index, which excludes food and energy prices, rose by 6%, slightly higher than estimates of 5.9%.

Those numbers sent investors reeling. Already worried about a possible economic downturn, they now fear that the Federal Reserve will recognize inflation as entrenched in the economy and increase interest rates further.

You figured that the CPI was going to be higher after seeing gas shoot up in May, but the more worrying part came from the full release from the Bureau of Labor Statistics, which indicated that there were sizable increases in prices in many ares.

The increase was broad-based, with the indexes for shelter, gasoline, and food being the largest contributors. After declining in April, the energy index rose 3.9 percent over the month with the gasoline index rising 4.1 percent and the other major component indexes also increasing. The food index rose 1.2 percent in May as the food at home index increased 1.4 percent.

The index for all items less food and energy rose 0.6 percent in May, the same increase as in April. While almost all major components increased over the month, the largest contributors were the indexes for shelter, airline fares, used cars and trucks, and new vehicles. The indexes for medical care, household furnishings and operations, recreation, and apparel also increased in May.

The all items index increased 8.6 percent for the 12 months ending May, the largest 12-month increase since the period ending December 1981. The all items less food and energy index rose 6.0 percent over the last 12 months. The energy index rose 34.6 percent over the last year, the largest 12-month increase since the period ending September 2005. The food index increased 10.1 percent for the 12-months ending May, the first increase of 10 percent or more since the period ending March 1981.

This freaked out Wall Streeters, who now figure that "higher and ongoing inflation = recession." Either from a cutback in spending due to prices rising above wages, through jobs being cut because profit growth declines, or because the Federal Reserve raises interest rates so high and so fast that asset markets crash.

UW's Menzie Chinn has a good graph that shows the trends in inflation. All the numbers are rising, both on a 1-month (annualized to a 12-month rate) and year-over-year basis. Even though the 1-month increases in core CPI aren't as sudden as what we saw this time last year (as the economy started taking off with COVID vaccinations and Biden stimulus), it is rising much more consistently and persistently in 2022.

But I'll point out that another report came out on Friday that gave more evidence that our current inflation has very little to do with America's fiscal situation. In fact, the Congressional Budget Office says the US budget deficit is plummeting in 2022.

The federal budget deficit was $423 billion in the first eight months of fiscal year 2022 (that is, from October 2021 through May 2022), the Congressional Budget Office estimates. That amount is about one-fifth of the $2.1 trillion shortfall recorded during the same period in 2021. Revenues were $768 billion (or 29 percent) higher and outlays were $873 billion (or 19 percent) lower than during the same period a year ago.

The deficit at this point last year was much larger because of spending in response to the coronavirus pandemic—mostly for the recovery rebates (also known as economic impact payments), unemployment compensation, pandemic relief through the Small Business Administration (SBA), and the Coronavirus Relief Fund—and because revenues were lower.

In fact, the deficit is lower through May than in any fiscal year that has had the GOP's Tax Scam of 2017 in effect for all 12 months. That's despite a higher nominal GDP in 2022.

In fact, the lower budget deficit and the dollar remaining near 20+ year highs should be keeping inflation down. Which means if any Republican tells you that "Democrat spending" is causing our inflation, you know that they are either:

1. Economically illiterate; or
2. Lying to you.

As for the fears that we are already in recession - we wouldn't be seeing prices for airline fares and new vehicles go crazy like this if there wasn't demand existing that would pay for it. In fact, that seems to be a supply issue where fewer vehicles were able to be on lots and flights able to be staffed to meet the big demand that we still have for these items in America. Restaurants and bars continue to see more business, and most reports indicate consumer spending is still outpacing inflation. In an economy that is 70% consumer, it becomes hard to have much of a downturn if that is still keeping up.

In addition, jobless claims and unemployment have not budged off of their near-record lows. Even last week's jobless claim increase to 229,000 is due to a seasonl quirk due to a shorter Memorial Day weekend - the actual number of claims didn't change at all vs the prior two weeks.

Since inflation is something everyone can see and feel on a daily basis, people think our economy is declining. In reality, the economy is still moving along, and jobs are still plentiful. But that fact is little solace to a lot of people these days.

Right. Most people don't know the specific definition of "recession." They likely use the term as a general pejorative to describe an economy where something doesn't feel great -- especially when the other party is in charge https://t.co/zXXv1Ikwo7

— Catherine Rampell (@crampell) June 6, 2022

So the "rising consumer prices/continued attempts to profiteer" parts of our economic merry-go-round continued in May. In the next week, we'll see if the "consumers keep spending" and "rising costs for business/rising wages for workers" parts of the spin continue.

And as I've said before, the part that stops happening first is what tells us whether we actually do end up in recession, or merely come in for a soft landing with continued growth.

On eve of hearings, don't forget how Fitz and RoJo helped the coup plot before 1/6

I do think that during the hearings of this month, we'll find out some heinous stuff about the plot to overturn the results of the 2020 election, which culminated in the Capitol Riot on January 6, 2021. This will be in addition to what seems to already be a pretty clear line to begin with, but I want you to remember that 2 GOP Wisconsin Congressmen certaily seemed to know about the coup well before 1/6.

Rememebr this story from January?

Open records regarding WI's fake presidential electors suggest Cong. Scott Fitzgerald played a significant role in trying to overturn a free and fair election. Here is his room reservation for the Republican Party of WI for Dec. 14, 2020 - the day the fake GOP electors met. pic.twitter.com/sBcRKMBuQf

— Senator Chris Larson (@SenChrisLarson) January 25, 2022

Combine the reality that now-Congressman Fitzgerald allowed the fake GOP electors to meet and send their notes to DC, with the story that came out a couple of days ago that gave further proof that this was a strategy sent straight down from TrumpWorld.

Fake Trump electors told to operate in ‘complete secrecy’, email reveals https://t.co/rGgGAFD2s0

— Guardian US (@GuardianUS) June 7, 2022

Donald Trump’s campaign directed Republican party operatives named as “alternate” electors in Georgia to operate with “complete secrecy and discretion” as the then president attempted to overturn his defeat by Joe Biden.

The startling direction was contained in an email which is part of a US justice department investigation, CNN and the Washington Post reported....

On 13 December 2020, a Georgia campaign official, Robert Sinners, emailed alternate electors due to gather the next day.

He wrote: “I must ask for your complete discretion in this process. Your duties are imperative to ensure the end result – a win in Georgia for President Trump – but will be hampered unless we have complete secrecy and discretion.”

Is there any doubt they did the same thing in Wisconsin? And even after the MAGAts rioted in the Capitol, Fitzgerald voted against certifying the results of the 2020 election in the House.

One other Wisconsin Congressman clearly knew of the coup plot, and that's Senator Ron Johnson.

Ron Johnson was one of 3 GOP lawmakers who attended Mike Lindell's meeting to obstruct Jan. 6 vote: report https://t.co/g1rUnVn3RU

— Raw Story (@RawStory) February 9, 2022

Sen. Ron Johnson (R-Wisc.) was one of three Republican lawmakers who attended MyPillow CEO Mike Lindell's virtual meeting to discuss how they could possibly delay the election certification affirming President Joe Biden's win.

According to The Washington Post, the meeting took place just two days before the insurrection on the U.S. Capitol. The group of individuals who met in person assembled at the Trump International Hotel in Washington, D.C. Speaking to The Post, Lindell reportedly said that the meeting was for the purpose of discussing the possibility of delaying the election certification.

Other attendees also shared details about the meeting as they revealed a presentation was provided to highlight unfounded claims of alleged voter fraud. However, Johnson appears to be denying the claims.

Wonder if the January 6th Committee might have some emails with Ron Johnson's office copied in? I sure do, and I also remember how RoJo was amplifying the Big Lie in the days before the riot took place.

It is a nonstop outrage and embarrassment to be represented by Ron Johnson https://t.co/lIxn6Tmcpj

— Nick Fleisher (@nickfleisher) January 5, 2021

Then once the riot happened and the coup attempt was put down, RoJo backed off his original plans and voted to allow the will of the people to go through. Spine of steel, I tell ya.

Also on Ron Johnson - this guy was Chair of the Senate Homeland Security Committee in the 2 months between the election and January 6th, but he wasn't aware of any chatter about this plot before that awful day? BULLSHIT.

I want to see these two scummy WisGOPs named in these hearings, and the curtain thrown back on how they and other WisGOPs contributed to this attempted coup. Because I have no doubt that they were well aware of what Trump Trash were trying to pull off here in Wisconsin, and in other states around the country.

After record profits helped cause inflation in 2021, higher costs are blunting profits in 2022

In 2021, we saw a significant runup in profits among American companies, often as a result of “pricing power” to grab more revenues (there’s a lot of your 2021 “inflation”). In early 2022, the higher prices are continuing, but there is evidence that profits have leveled off.

We got an indication of this in the latest update to the GDP report, which gave us the first look at US profits for the 1st Quarter of 2022. According to the Bureau of Economic Analysis, corporate profits turned down in the first 3 months of this year.

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) decreased $66.4 billion in the first quarter, in contrast to an increase of $20.4 billion in the fourth quarter (table 10).

Profits of domestic financial corporations decreased $28.6 billion in the first quarter, compared with a decrease of $1.3 billion in the fourth quarter. Profits of domestic nonfinancial corporations decreased $21.1 billion, in contrast to an increase of $5.0 billion. Rest-of-the-world profits decreased $16.7 billion, in contrast to an increase of $16.8 billion. In the first quarter, receipts increased $21.3 billion, and payments increased $38.0 billion.

But don’t shed too many tears for corporate America, as pre-tax profits for Q1 2022 were up 12.5% compared to Q1 2021, and 19.3% compared to the end of 2019, before COVID was a thing.

Note the giant leap at the end there, which accounts for major profit boosts in Q1 and Q2 of 2021. Wanna guess when consumer inflation started to take off in this country?

While the Biden stimulus certainly increased demand for products, the profit increases can’t be ignored for this time period. Then, as these companies the economy fully reopened by the second half of 2021 and more products were needed, these companies had to pay more to American workers and suppliers to keep the products moving along.

Combine it with global complications in 2022 such as Russia’s invasion of Ukraine and slowing supply chains from overseas, and now these companies can’t take advantage of cheap inputs like they could this time last year. Census Bureau reports on Q1 profits for manufacturers and retailers backed this up.

Again, note how those profits are quite a bit higher than they were in the pre-COVID era.

In order to maintain and advance on the Bubbly profitability of 2021, there seems to be a serious game of musical chairs going on – one where suppliers, employers, and workers are all trying to get more money for their products in order to maintain the improved position they got to in 2020 (if they were able to survive intact).

As of now, all seem to be getting more money, although wages in some industries aren’t keeping up with the price increases of everyday products. But the easy money on the trading markets needs somewhere to go as well, and with profitability down and prices going up, they need to put those funds to use somewhere.

Which seems to explain a big part of $120 oil and $5 gasoline to me, because that level seems to be based on little more than speculation that supplies will become tight in the future (it's not due to supply-and-demand conditions of today, which are little different than 3-4 years ago).

Which leads me to wonder who makes the first drastic move to JUST SAY NO to what we have going on. Is it consumers who stop accepting higher prices? Is it companies who stop buying things and hiring/paying employees? Is it traders who have to pull money out to actually pay for an actual tangible item? Or will some allegedly scarce resource become plentiful and competition start to undercut the high prices that some rentiers have been able to pull off?

That’s the question that is likely to be answered in the coming months. And how that sorts out will be another COVID-era adjustment that is leaving us in a different economic world than we had before 2020. Some of these adjustments have been good (higher incomes and home values, less unemployment), but it’s been coming at a higher price for almost a year now. Something’s going to come down – it’s a matter of what it is, and how hard it falls.