Tuesday, April 30, 2024

Workers making more + lower consumer confidence = lower market. Doesn't add up to me.

A usually mundane economic report freaked out some finance types today.

A 4.2% annual rate to pay and keep employees? THE HORROR! Let's see more from the actual report.
Compensation costs for civilian workers increased 1.2 percent, seasonally adjusted, for the 3-month period ending in March 2024, the U.S. Bureau of Labor Statistics reported today. Wages and salaries increased 1.1 percent and benefit costs increased 1.1 percent from December 2023. (See chart 1 and tables A, 1, 2, and 3.)

Compensation costs for civilian workers increased 4.2 percent for the 12-month period ending in March 2024 and increased 4.8 percent in March 2023. Wages and salaries increased 4.4 percent for the 12-month period ending in March 2024 and increased 5.0 percent for the 12-month period ending in March 2023. Benefit costs increased 3.7 percent over the year and increased 4.5 percent for the 12- month period ending in March 2023.

Compensation costs for private industry workers increased 4.1 percent over the year. In March 2023, the increase was 4.8 percent. Wages and salaries increased 4.3 percent for the 12-month period ending in March 2024 and increased 5.1 percent in March 2023. The cost of benefits increased 3.6 percent for the 12-month period ending in March 2024 and increased 4.3 percent in March 2023. Inflation-adjusted (constant dollar) compensation costs for private industry workers increased 0.6 percent for the 12-month period ending in March 2024. Inflation-adjusted wages and salaries increased 0.8 percent for the 12 months ending March 2024. Inflation-adjusted benefit costs in the private sector increased 0.1 percent over that same period.
I don’t get what’s so concerning or surprising about this. The monthly jobs reports have already told us that average hourly earnings went up by 1.0% for the first 3 months of 2024, and 4.1% over the last 12 months. And I would figure that a lot of the reason behind Q1’s higher-than-trend increase in benefits was because companies tend to re-set their insurance rates at the start of the calendar year.

Also, wage and salary increases that are above inflation ARE A GOOD THING, and helps explain why consumer spending and economic growth continues well after the “experts” thought it would taper off. But Wall Streeters and central bankers want the good things to end for everyday workers, because that’s the data points that they are looking for to believe that the Federal Reserve will drop interest rates from their 23-year highs.

Then a second bout of bad news hit later in the morning, and turned a minor selloff into a significant loss of 570 points in the DOW Jones Industrial Average.

The Conference Board's Consumer Confidence Index® fell to its lowest level since July 2022. The index retreated to 97.0 this month from March's downwardly revised 103.1. This month's reading was lower than expected, falling short of the 104.0 forecast.

The Present Situation Index, which is based on consumers' assessment of current business and labor market conditions, declined to 142.9 in April from 146.8 in March. Meanwhile, the Expectations Index, which is based on consumers' short-term outlook for income, business, and labor market conditions, fell to 66.4 in April from 74.0 in March. Note that a level of 80 or below for the Expectations Index historically signals a recession within the next year.

“Confidence retreated further in April, reaching its lowest level since July 2022 as consumers became less positive about the current labor market situation, and more concerned about future business conditions, job availability, and income,” said Dana M. Peterson, Chief Economist at The Conference Board. “Despite April’s dip in the overall index, since mid-2022, optimism about the present situation continues to more than offset concerns about the future."

“In the month, confidence declined among consumers of all age groups and almost all income groups except for the $25,000 to $49,999 bracket. Nonetheless, consumers under 35 continued to express greater confidence than those over 35. In April, households with incomes below $25,000 and those with incomes above $75,000 reported the largest deteriorations in confidence. However, over a six-month basis, confidence for consumers earning less than $50,000 has been stable, but confidence among consumers earning more has weakened.”

Peterson added: “According to April’s write-in responses, elevated price levels, especially for food and gas, dominated consumer’s concerns, with politics and global conflicts as distant runners-up. Average 12-month inflation expectations remained stable at 5.3 percent despite concerns about food and energy prices. Consumers’ Perceived Likelihood of a US Recession over the Next 12 Months rose slightly in April but is still well below the May 2023 peak.”
Inflation expectations are running at 5.3%? That’s well above the 4.5% annual rate that we’ve seen in the “elevated” numbers for the first quarter of 2024. And there isn’t a lot to indicate that the increased trend in inflation is going to continue in April, as the runup in gas prices has leveled off, and oil futures are at their lowest levels in 6 weeks.

I think a lot of the gloomier sentiment is caused by financial media being disappointed as indications came that the Fed would delay interest rate cuts until later in 2024, if any rate cuts were to happen at all.

In addition, I think a sizable amount of people are frustrated that the wage increases of 2023 and 2024 aren’t resulting in a significant change in the amount of cushion people have when it comes to paying their bills. This situation still beats layoffs and recessions, but with home prices back on the rise and inflation still above the levels we had gotten used to for the last 20 years, there are people thinking they should be much better off than they are (and I get that).

That grumpiness exists even though wage gains are beating inflation just as much as they were in Trump’s “great economy” of the late 2010s, with better job growth than we had 5 years ago. And negative sentiments haven't translated into a cutback in consumer spending when we've had similar downturns in consumer confidence over the last 3 years. Given that strong US wage growth in 2024 should keep consumer spending rolling along as the Summer beckons, if we get any kind of calming of inflation back to the 2-3% annual rate we saw for much of 2023 (which I think will happen, barring some serious corporate fuckery), and I think some of the unhappiness for both Wall Streeters and Main Street Americans that existed in April 2024 should fade over the next couple of months.

But that won't stop some annoying economic analysis that is sure to come from the "experts" in the next couple of weeks. I just hope Jerome Powell doesn't say something to make these hotshots freak out more when he meets the media after the Fed meeting gets out tomorrow.

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