Friday, February 25, 2022

Are we still in a Biden Boom in 2022? So far, the data says yes

US Manufacturing continued to roll in January, with new orders and shipments of durable goods going up by impressive amounts last month, and inventories of product continued to grow as well.
New orders for manufactured durable goods in January increased $4.3 billion or 1.6 percent to $277.5 billion, the U.S. Census Bureau announced today. This increase, up eight of the last nine months, followed a 1.2 percent December increase. Excluding transportation, new orders increased 0.7 percent. Excluding defense, new orders increased 1.6 percent. Transportation equipment, up three consecutive months, led the increase, $2.9 billion or 3.4 percent to $87.6 billion.

Shipments of manufactured durable goods in January, up eight of the last nine months, increased $3.1 billion or 1.2 percent to $270.4 billion. This followed a 1.3 percent December increase. Machinery, up ten of the last eleven months, led the increase, $1.0 billion or 2.7 percent to $38.9 billion…..

Inventories of manufactured durable goods in January, up twelve consecutive months, increased $1.9 billion or 0.4 percent to $476.0 billion. This followed a 0.8 percent December increase. Machinery, up fifteen consecutive months, led the increase, $0.7 billion or 0.9 percent to $79.4 billion.
And despite rising prices, real spending by American consumers continued to go up in January, as shown in Friday’s income and spending report And as Omicron rampaged through, we saw spending on goods account for most of the gains, similar to what we've seen in other COVID waves.
The $337.2 billion increase in current-dollar PCE in January reflected an increase of $285.4 billion in spending for goods and a $51.8 billion increase in spending for services (table 3). Within goods, increases were widespread, led by motor vehicles and parts, "other" nondurable goods, and recreational goods and vehicles. Within services, the largest contributor to the increase was spending for housing and utilities…

Personal outlays increased $342.2 billion in January (table 3). Personal saving was $1.17 trillion in January and the personal saving rate—personal saving as a percentage of disposable personal income— was 6.4 percent.
Perhaps the lower savings rate is worth a bit of notice, and we’ll see if that recent decline in saving modifies as interest rates rise starting next month. But a 2.1% increase in spending is well beyond the 0.6% increase in prices in the income and spending report.

The one caveat I want to put on these strong economic reports for January is that seasonal adjustment inflates spending and jobs numbers because it counts on a large decline after the Holidays. It’s the flip of assuming a big increase in spending in December, which caused a seasonally-adjusted “decline” in retail sales for that month.

In the COVID and post-COVID eras, the fluctuation in spending may not change month-to-month as much as it did in the past, and that the models have yet to catch up to it.

But it also illustrates that while inflation is hitting consumer sentiment, it isn’t changing people’s buying habits much. Job growth hasn’t slowed down and unemployment claims are staying at or near 50-year lows. That’s a sign of an economy that’s cooking, not stagflating, and we need to be honest about that while being vigilant as to if/when people are changing their habits.

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