Thursday, February 22, 2024

CBO gives a better outlook for US budget and economy

The Congressional Budget Office recently updated its Budget and Economic Outlook for the next 10 years. And it’s got some good news on the demographic front.
In CBO’s current projections, the number of people who are working or actively seeking employment continues to expand at a moderate pace through 2026. Higher population growth in those years, mainly from increased immigration, more than offsets a decline in labor force participation due to slowing demand for workers and the rising average age of the population. A large proportion of recent and projected immigrants are expected to be 25 to 54 years old—adults in their prime working years.

This increased amount of immigration means the future increase in population is well above what the CBO projected this time last year.

2023

2024

The CBO says this added immigration is going to keep the economy from having a larger slowdown in growth in the coming years.
CBO is now projecting a lower average rate of economic growth from 2024 to 2027 than it did last February (2.0 percent a year versus 2.4 percent), largely because of slower projected growth in sectors of the economy that are sensitive to interest rates, such as consumer spending, investment, and net exports. The downward revision to economic growth resulting from higher projected interest rates is partly offset by an increase in economic activity over the 2024–2027 period stemming from greater projected net immigration. From 2028 to 2033, real GDP is now projected to grow at a higher average rate than CBO forecast last February (2.0 percent a year versus 1.8 percent), mainly because of faster projected growth in output per worker and the larger labor force.

CBO has lowered its projection of the average unemployment rate over the 2024–2027 period (to 4.3 percent from 4.7 percent) because of stronger-than-expected economic growth in 2023. That stronger growth pushed the unemployment rate in the fourth quarter of 2023 below what CBO forecast last February. Although the unemployment rate is projected to rise in 2024 as the economy slows, it is expected to be lower, on average, than in CBO’s previous projections. After 2027, CBO’s projections of the unemployment rate are roughly the same as they were last February.
Not really what the “Party of Business” is trying to put over, as the GOP fear-mongers about immigration and tries to stir up stupid white people about something that is generally a net positive on our economy. And the CBO goes on to add that the US labor force participation rate is also projected to be higher than previously estimated in no small part due to immigration.

That's not coming a moment too soon, because a large number of Boomer-aged Americans are leaving the labor force, as record highs in the stock market and a good economy allow for more people to be able to retire.

Huge numbers of Americans are leaving the workplace in a surprise second wave of the post-COVID retirement boom.

Why it matters: An aging country — combined with a booming stock market and a nudge from return-to-office policies — means more working stiffs are preparing to exit the stage.

What's happening: The U.S. has about 2.7 million more retirees than predicted, Bloomberg reports from a model designed by an economist at the Federal Reserve Bank of St. Louis.

That number was 1.5 million six months ago — a more than 80% increase. Before the pandemic, there were often fewer retirees than expected.
As someone who’s got a 50th birthday looming this year, I can understand the sentiment of wanting to get out when you can. And if we have enough immigration to replace those workers, and economic growth to keep up demand for labor, I don’t see a downside to any of this.

The CBO also indicates that the US budget deficit should decline from just under $1.7 trillion in Fiscal 2023 to just over $1.5 trillion in 2024. Most of this is due to a rebound in tax revenues after a significant drop in 2023.
Federal revenues in 2023 totaled $4.4 trillion. At 16.5 percent of GDP, revenues in that year were considerably lower than the 19.4 percent recorded in 2022, which was the highest percentage in more than 20 years. That decline was largely in collections of individual income taxes, which had reached an unprecedented high in 2022. Also contributing to the decline in 2023 were lower remittances from the Federal Reserve, which fell to near zero in that year as rising short-term interest rates pushed the agency’s expenses above its income.

CBO expects total receipts to temporarily jump to 17.5 percent of GDP in 2024 as a result of the collection of certain postponed tax payments, before declining to 17.1 percent of GDP in 2025. Receipts are projected to subsequently rise to 17.9 percent by 2034, largely because of scheduled changes in tax provisions and because the Federal Reserve is anticipated to begin once again remitting significant amounts to the Treasury….

Individual income tax receipts declined sharply in relation to GDP last year—from 10.4 percent in 2022 to 8.1 percent in 2023. That reduction occurred in part because asset values and realizations of capital gains fell, and also because the Internal Revenue Service (IRS) postponed until 2024 certain tax payment deadlines for taxpayers in areas affected by natural disasters. (Otherwise, those payments would have been due in 2023.) CBO expects receipts to climb to 8.8 percent of GDP in 2024 as those delayed payments come in and fall to 8.6 percent of GDP in 2025 because no further delays are anticipated. Receipts then grow from 2025 to 2027 because scheduled changes in tax provisions, including an increase in most tax rates, are projected to drive up receipts in relation to taxable personal income. Real bracket creep....also contributes to rising receipts over time.

Now, deficits are expected to generally rise from there under current law (with the exception of 2026, when the GOP Tax Scam expires), and annual deficits are projected to go back over $2 trillion in 2031. But the projected cumulative deficits over the next decade are $1.4 trillion lower than they were this time last year.

My last point is that not only do things look a bit better than they did this time last year both fiscally and economically, but that our budget deficit really isn't an economic issue if our dollars stays strong and inflation stays below 3-4% annual rate (as it has for the last 18 months). And if you do think the budget deficit is something we should be concerned about, the solution of TAXING THE RICH BACK TO 1990s LEVELS solves a lot of that very quickly.
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Tuesday, February 20, 2024

Sure enough, WisGOPs in the 715 ask for govt help in surviving this Winter. And only Dems answer them.

I had predicted last week that the warm winter was going to lead to calls to help out many businesses up North, as cold-weather tourism has been severely cut down this season. Sure enough, several Northern Wisconsin Republicans made their request to Governor Evers (on Monday).
Dear Governor Evers,

As members of the Legislature who represent portions of Northern Wisconsin, we’re respectfully asking you to work with the United States Small Business Administration to properly declare an economic injury disaster area for our areas of that state that are experiencing substantial economic injuries due to the lack of snow.

During the winter months, our Northern Wisconsin economy relies primarily on the tourism industry. From restaurants to lodging, and everything in between, our constituents need snow to attract the tremendous influx of traffic that comes with the snowmobiling season. When people visit our neck of the woods in the winter time, they aren’t just renting snowmobiles and hitting the trails, they’re staying in our hotels, eating in our restaurants, buying from our stores, and keeping the dollars flowing throughout the season. The lack of snow this year has left a tremendous hardship on our small businesses, which has the potential to destroy our Northwoods economy.

The United States Small Business Administration, upon the acceptance of a declared disaster area, can offer Economic Injury Disaster Loans to small businesses, small agriculture cooperatives, and most private nonprofit organizations. These loans provide the necessary working capital to help small businesses that are impacted by a disaster survive until normal operations resume. With generous terms and maturity options, these Economic Injury Disaster Loans could make or break our northern communities.

We appreciate you taking this request into consideration. Please don’t hesitate to reach out with any questions.
Within one day, we got a response.
Tuesday, Gov. Tony Evers and U.S. Sen. Tammy Baldwin said the U.S. Small Business Administration (SBA) has confirmed the agency will consider business losses from the winter to be related to drought and eligible for assistance.

Under the Economic Impact Disasters Loan program, businesses could borrow up to $2 million to cover their actual losses. They would pay no interest on the loans for the first year and a maximum rate of 4% for the rest of the loan period.
That’ll at least allow a better chance for these businesses to make it to the Summer tourism season, which these businesses deserve when they’re damaged due to circumstances beyond their control.

Two people I didn’t see asking for aid to Northern Wisconsin? Congressman Tom Tiffany, who “represents” most of the state north of Highway 29, and US Senator Ron Johnson. They’ve spent a lot of time on their social media going on about immigration that’s happening 2,000 miles away from Wisconsin (without any solutions, by the way), but have said nothing about the weather-related economic damage that has hit their constituents. Priorities, you know.

I have yet to see the state’s sales tax receipts for January to see if the lack of winter tourism is having an unforeseen impact on the state’s budget, and we won’t see similar effects in the county sales tax distributions until March (it’s usually a 2-month lag). But given that temps are expected to get even warmer in the next week, it sure seems likely that it is a bust in a key sector of Wisconsin’s economy for late 2023 and early 2024. I just hope that the SBA aid and related measures are able to stop the bleeding and make sure any damage is temporary without significant losses in either jobs or tax revenue.

I was guessing that the WisGOP legislators from up North wouldn't even mention that their constituents are getting help largely due to the quick work of Democrats like Tony Evers and Tammy Baldwin. But to their (minor) credit, they did mention both of them in their release today.....along with some whining about Marinette and Forest Counties not being in the disaster declaration.

But you'll notice that what those state Republicans won't mention is how WisGOPs in Washington said and did nothing while those in the 715 had to deal with this historic and damaging winter season, and that it's only Dems that stepped up to use real resources to fill the void.

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Monday, February 19, 2024

Tony signs the maps. A good thing in a normal world, but lots of work left.

Sure Tony. Go ahead and play it straight instead of listening to me.

I put nothing past GOP scum to try to delay this past November's elections, but I am a bit heartened to read this sighing admission from the dbag most likely to try to pull such a stunt.

We'll see if that's truly the calculation the WisGOPs have made, and that these are the Legislative maps we will have in place for the next 8 years. Let's then take a look and see what we got.

First thing to note is that despite any whining Republicans may make, this map does not advantage Democrats. For example, even though Joe Biden won Wisconsin by 0.6%, Donald Trump won a majority of State Assembly districts under these maps in the 2020 election.

I'll note that the Highway 41 corridor between Green Bay, Appleton and Oshkosh is now the home of 2 close-but-Dem leaning Senate seats currently held by Republicans, and 3 Dem-leaning Assembly seats that are currently held by GOPs. So what's already an big swingy/battleground area in statewide elections is now going to be that way for legislative races as well this November.

I also wanted to take a look at results of the 2022 elections on these maps, to get an idea of what this may look like in the post-Dobbs world in Wisconsin (a state where the abortion issue and January 6th events are VERY relevant). And I wanted to go with the lower-profile Attorney General's race (which Dem Josh Kaul won by 1.3%), to have a picture of "generic D vs R" at the state level in these districts.

It's pretty much the same story as the Presidential breakdown, except that Dems would have 1-seat advantages in both houses under the AG results - 50-49 in the Assembly, and 17-16 in the Senate. Here's a look at where control flips, and the number of competitive seats that had an AG election result decided by less than 10 points.

First the Assembly.

Now the Senate.

But it's not all great news for Dems. You'll notice a lot more Dem-leaning seats are close to 50% than GOP-leaning seats. So if you hear Robbin' Vos and other Republicans whining about "Democrat[ic] maps", they're DEAD WRONG, and it shows how absurdly huge their sense of privilege has gotten under in their 13 years of gerrymandered power.

It's even dumber to hear complaints from Republicans because there still is practically no way that Dems can have complete control of state government after November 2024, even with these new maps. That's because only half of the State Senate is up for re-election in 2024, and Dems would have to pick up 6 currently GOP-held seats in November to undo the 22-11 GOP supermajority. To get that far, Dems would have to win a seat that voted GOP in the 2022 Attorney General's race by more than 17%.

But all 99 seats in the Assembly are up in 8 1/2 months, and that certainly will be up takeable for Dems under these fairer maps. The Milwaukee Journal-Sentinel has a neat group of graphics which compares the old and new districts, and how those districts have voted.

Assuming this holds, it's a great step forward for Wisconsin, which will likely have a Legislature that becomes more responsive to the wishes of the state's voters. Maybe we can now stop being out of step with Midwestern states like Michigan, Minnesota and Illinois, which all have some form of legal marijuana and Roe v. Wade protections, and Medicaid expansion.

But I've also learned over the last 13 years not to be too comfortable, as WisGOP will try to retain power and go around the people's wishes by any means necessary. One of the things we've had to learn the hard way is that we need to be constantly vigilant against these scumbags, and if any front for WisGOP and their puppetmasters tries to use the Courts to overturn something that still gives a 50-50 chance for total GOP control of the State Legislature, their funders need to be exposed and damaged.

I'll take the win today, but lots of work still left to do.
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Sunday, February 18, 2024

Decision week on new Wis maps. My thought? Evers should veto and let Wis Supreme Court decide

I usually don't care what 60 Minutes has to say, but this could prove quite interesting to check in on tonight.

Andrew Hitt, who was chairman of the Republican Party of Wisconsin during the 2020 election, offered the explanation for his participation in a scheme designed by Trump and his allies to stay in power after losing reelection during an episode of CBS' "60 Minutes" that will air Sunday evening.

In a clip provided to the Milwaukee Journal Sentinel by "60 Minutes," Hitt says he was scared of what Trump supporters would do to him or his family if he did not sign the paperwork and courts later overturned President Joe Biden's victory in Wisconsin.

"... If I didn't do that, and the court did throw out those votes, it would have been solely my fault that Trump wouldn't have won Wisconsin," Hitt told "60 Minutes" correspondent Anderson Cooper. "Can you imagine the repercussions on myself, my family if it was me, Andrew Hitt, who prevented Donald Trump from winning Wisconsin?"

But by the time Hitt and nine other Republicans met in the state Capitol to sign the paperwork claiming to be electors for Trump, the state Supreme Court had already confirmed Biden's win and federal judges had tossed lawsuits seeking to overturn Trump's loss. An appeal of one of the federal rulings was filed the morning of the day the Republicans met in the state Capitol to sign the false paperwork but the U.S. 7th Circuit Court of Appeals in Chicago later upheld the decision to toss Trump's lawsuit, according to federal court records. An appeal of that ruling to the U.S. Supreme Court was later rejected by the justices in March 2021.
Pathetic. Both from the MAGAts making threats, and for WisGOP party hacks like Hitt who went along with them, because they need the support of MAGAts to win almost any Republican primary, and likely to win general elections, because they've lost most moderate voters with their garbage positions on issues.

Wanna know what Andrew Hitt's job was before he became head of the Wisconsin GOP? In addition to a lot of regular "GOP hack" stuff under Scott Walker, he took a nice private sector gig to cash in from his time in Walker's Administration.
The Appleton attorney was senior counsel at Michael Best & Friedrich and the chief operating officer at Michael Best Strategies when he was elected to serve as RPW chairman [in 2019].
"Michael Best & Friedrich". Where do I know that name? Oh yeah! From stories like this one.
In the late spring of 2011, Dale Schultz walked the short blockin Madison from his State Senate office in the Wisconsin Capitol to the glass-paneled building of Michael Best & Friedrich, a law firm with deep ties to his Republican Party. First elected in 1982, Schultz placed himself within the progressive tradition that made Wisconsin, a century ago, the birthplace of the state income tax and laws that guarantee compensation for injured workers. In the months before his visit to Michael Best, Schultz cast the lone Republican vote against a bill that stripped collective-bargaining rights from most public employees. But if Schultz had doubts about some of his party’s priorities, he welcomed its ascendance to power. For the first time in his career, Republicans controlled the State Senate and the State Assembly as well as the governor’s office, giving them total sway over the redistricting process that follows the census taken at the beginning of each decade. ‘‘The way I saw it, reapportionment is a moment of opportunity for the ruling party,’’ Schultz told me this summer.

Inside the law firm’s doors, Schultz took the elevator to what party aides called the ‘‘>map room.’’ They asked him to sign a nondisclosure agreement, which he did without complaint. Schultz sat down and was given a map with the new lines for his rural district west of Madison. He and his wife, a former school superintendent, own a 210-­acre farm in the area, where they grow corn and beans and hunt pheasants. Schultz noticed that the newly drawn district mostly included precincts he’d won before. ‘‘I took one look at the map and saw that if I chose to run for re-­election I could win, no trouble,’’ Schultz remembered. ‘‘That was it.’’

Nearly all of the 79 Republicans in the Wisconsin Senate and Assembly made a similar trip to the map room, signing the same secrecy pledge to see the new shape of their districts. The new maps efficiently concentrated many Democratic voters in a relatively small number of urban districts and spread out the remainder among many districts in the rest of the state. These are the twin techniques of gerrymandering, often called packing and cracking, which distribute voters to benefit the party that is drawing the district lines.

‘‘So glad we are in control!’’ one state senator [Leah Vukmir] wrote in an email to a key Republican aide after her visit. No Democrat was invited to Michael Best & Friedrich, though the Republican leadership paid $400,000 in legal fees on behalf of the Legislature as a whole. In July, the statewide maps were unveiled at a single public hearing.
Lowlifes. And when this was revealed, GOP staffers deleted records to try to avoid further legal issues.

And that bridges us over into the big question that'll be answered this week - will Governor Evers sign the maps that the still-gerrymandered WisGOP Legislature passed, using maps Evers submitted to the Wisconsin Supreme Court as part of the lawsuit that struck down the GOP's gerrymander?

It really comes down to whether you trust the GOP is conceding the best of a losing situation, and am taking the maps Evers submitted as a way of preventing the Supreme Court of Wisconsin from imposing a less favorable map, or if you think this is a trick. The way GOPs are whining about things, they're acting like they're in reluctant acceptance of the new maps.

And this was a column from the Wisconsin Examiner's editor-in-chief that made me more accepting of things should Evers sign these new maps into law.

No matter what, Republicans will keep fighting to hold onto power. But the experts I spoke with (not including Elias, who didn’t respond to my requests for comment) agreed that Republicans don’t have a better shot at actually blocking change if Evers signs the maps. Instead, I heard a lot of forceful arguments that a court-imposed map is more vulnerable to challenge and repeal.

While Evers’ maps have been carefully vetted to comply with the Voting Rights Act, no one knows what the justices on the U.S. Supreme Court would make of the conflict of interest claim Republicans and their allies have lobbed at Wisconsin Supreme Court Justice Janet Protasiewicz who, they say, should not be involved in redistricting because of the financial support she received from the Democratic Party, which has a keen interest in the maps.

And, as one lawyer told me, while Diane Sykes is very conservative, that doesn’t mean she would be willing to carry water for the Republicans in a Voting Rights Act case that has no merit. In general, courts are less likely to want to overturn a map that’s been ratified by two branches of government than one that, in a novel process, was created by the state Supreme Court.

There is also the short-term question of when the maps will go into effect. The bill passed by the Legislature delays their implementation until after a special election to replace Sen. Lena Taylor (D-Milwaukee) and a primary challenge to Vos himself. Democrats in the Legislature leapt on that delay (along with a rushed process and lack of public hearings) as one more reason for distrust.

But there is a pretty clear path to undo the delay. Since the Court has declared the current maps unconstitutional, the Wisconsin Elections Commission will likely seek guidance and the same justices are likely to rule that the new maps must go into effect immediately.
On the flip side, given what we've seen from these guys in the last 14 years, and knowing the dirty dark money from GOP oligarchs that backs them up, why would I NOT think it was a trick, and that there is some GOP scumbag ready to sue in Federal Court in the hope that some GOP "Justice" would at least stall the new maps past November 2024, keeping the gerrymander in place for one more election cycle, and stymieing Governor Evers for the last 2 years of his 2nd term?

That's certainly what the head lawyer for Milwaukee County says that is what she has heard.

I also could see some ratf*ck put in place where a RW hack says "Evers signed these old maps to be in place through November, why would we have two different maps signed into law within the 10-year redistricting period?"

Literally, this argument would mean that both the Legislature and Evers would be doing something illegal (or at least put on hold to figure out if it was legal), and as stupid as that sounds in the real world, do we feel 100% comfortable with that being laughed out of court in time for the new maps to be in place this November. If there is a veto, the Wisconsin Supreme Court will determine the best course of action in the next 4 weeks, and why would we want to pre-empt that after all of this time and effort?

That's why I still lean toward Evers vetoing these maps, and Tony could claim it's "too little, too late". I get either choice Evers would make, but I'd argue the downside of vetoing, and dealing with Republi-dweebs going "neeneer, neeneer, neeneer" is smaller than having some GOP stooge try to hold up new maps for another two years in Federal court on some cockamamie argument. Guess we'll find out soon enough, and if the voters of this state will finally get a fair shake to choose their legislators.
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Friday, February 16, 2024

Wall Streeters, media return to INFLATION WATCH. But 0.3% ain't much, and one-time factors mislead

Oh no! It's a high print for producer prices!

Wholesale prices rose more than expected in January, further complicating the inflation picture, according to a U.S. Department of Labor report Friday.

The producer price index, a measure of prices received by producers of domestic goods and services, rose 0.3% for the month, the biggest move since August. Economists surveyed by Dow Jones had been looking for an increase of just 0.1%. PPI fell 0.2% in December.

Excluding food and energy, core PPI increased 0.5%, also against expectations for a 0.1% gain. PPI excluding food, energy and trade services jumped 0.6%, its biggest one-month advance since January 2023.

The report comes just days after the consumer price index showed inflation holding stubbornly higher despite Federal Reserve expectations for moderation through the year. The CPI was up 3.1% from a year ago, down from its December level but still well ahead of the Fed’s goal for 2% inflation.
But when I went into the actual report, it made me think these inflation concerns are overblown. To start with, goods prices for businesses went down in January.
The index for final demand goods moved down 0.2 percent in January, the fourth consecutive decline. Most of the January decrease is attributable to a 1.7-percent drop in prices for final demand energy. The index for final demand foods fell 0.3 percent. Conversely, prices for final demand goods less foods and energy increased 0.3 percent.
Food and gas both went down in PPI for January? Seems like a good spot to me.

What caused the increase in the PPI was a 0.6% jump in the price of services.
A 2.2-percent increase in the index for hospital outpatient care was a major factor in the January rise in prices for final demand services. The indexes for chemicals and allied products wholesaling, machinery and equipment wholesaling, portfolio management, traveler accommodation services, and legal services also moved higher. In contrast, prices for long-distance motor carrying decreased 1.0 percent. The indexes for computer hardware, software, and supplies retailing and for engineering services also moved lower.
And no surprise that we might see big jumps in some of these things in January, because it’s when many people put in their new fee structures, and try to cash in for 2024.

It’s a similar story at the PPI step before final demand – processed goods down 0.2%, unprocessed goods up only 0.1%, but services up 0.5%. And I’ll add that the PPI report indicates tougher times for food distributors and farmers, as the prices they're receiving are often going down.
Leading the decline in prices for processed goods for intermediate demand, the index for electric power fell 2.1 percent. Prices for basic organic chemicals, gasoline, meats, prepared animal feeds, and lubricating oil base stocks also moved lower. In contrast, the index for inedible fats and oils jumped 23.3 percent. Prices for utility natural gas and for cold rolled steel sheet and strip also increased….

Leading the rise in prices for unprocessed goods for intermediate demand in January, the index for crude petroleum advanced 6.1 percent. Prices for slaughter steers and heifers; construction sand, gravel, and crushed stone; slaughter turkeys; and unprocessed finfish also increased. In contrast, the index for corn declined 6.5 percent. Prices for hay, hayseeds, and oilseeds; iron and steel scrap; and natural gas also moved lower.
Put this together, and it looks like price hikes that consumers may deal with in early 2024 would be the result of greedflation.

The only concern I have in this PPI report is that increase in crude oil prices, which has continued in the trading markets in February. That’s something which seems like to be reflected in the February CPI, even if it has little to do with actual supply-and-demand situations, and you can bet the “experts” will overreact if higher gas prices in February keep CPI above 0.2% for the month.

And lastly, I will once again ask “What’s wrong with 3% inflation anyway?” In 16 out of the 19 months between March 1983 and October 1984, the CPI rose by at least 0.3%, with 12-month inflation being up more than 4% for all of 1984. And unemployment was between 7% and 8% for all of that same year. Know what the economic message of the old first-term president running for re-election was back then?

Guess it's not where you are, but the direction you're perceived to be going, eh?

Now throw in all of Bill Clinton’s first term, from January 1993 through the end of 1996, with the 12-month CPI increasing between 2.5% and 3.4% for that entire time period. We also had more than 11 million new jobs, and things worked out well for that Dem in his re-election campaign.

So why should 0.3% increases in both CPI and PPI be such a concern in January 2024? And why should it be considered a drag on the current old guy running for re-election when more than 15 million jobs have been added in his term so far, and unemployment has stayed below 4% for more than a year? This is especially true when much of the CPI increase is due to a rental measure that will decline over the next 6 months, and when much of PPI’s increase is also due to one-time reasons.

Makes no sense, but Wall Streeters and Central Bankers seem to be the last people who think real wage growth and job growth among everyday Americans are a bad thing, if their costs go up by another 1%.
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Thursday, February 15, 2024

Slow retail sales, manufacturing makes Wall Street smile.

After all of last week’s panic over inflation coming in 0.1% above “expert expectations” (something I find to be an absurd overreaction), we got a report today that makes me have a more legitimate concern. And that’s the indication that American consumers didn’t spend as much to start 2024.
Spending at US retailers tumbled much more than expected in January as cold weather across the United States kept shoppers at home after a robust holiday spending season.

Retail sales, which captures spending on all goods and food services, fell 0.8% in January, the Commerce Department reported Thursday, breaking a two-month streak of increases. That was even lower than the downwardly revised 0.4% increase in December, and well below economists’ expectations of a 0.1% decline, according to FactSet. The figures are adjusted for seasonal swings but not inflation.

Spending declined across various categories last month, including at gas stations and home improvement stores, likely due to the cold weather, falling 1.7% and 4.1%, respectively. Online sales contracted 0.8%.
That’s going to be the key question is this report – was spending held back due to the one brutal stretch of cold we’ve seen this winter? Or is it a sign that Americans are saving more and waiting to see how things develop in what will likely be a tense year for many?

In looking at the individual numbers, I will note that Americans did keep spending at both grocery stores (up 0.6%) and bars and restaurants (+0.7%). And a 0.8% decline from the online-driven Non-Store Retailers came the month after a 1.4% increase in December, so that could just be a post-Holiday breather.

However, another economic report that hit today didn’t help.

Production at U.S. factories unexpectedly fell in January, weighed down by harsh winter weather.

Manufacturing output dropped 0.5% last month after an unrevised 0.1% gain the prior month, the Federal Reserve said on Thursday. The Fed attributed the decline to "winter weather."

Economists polled by Reuters had forecast factory output would be unchanged. Production at factories fell 0.9% on a year-on-year basis in January.
Not great there either, and it makes February’s data all the more key to make sure we’re staying on an overall growth track.

Naturally, Wall Street loved this news.

​

U.S. stock indexes finished higher on Thursday as Wall Street attempted to recover from a steep selloff earlier this week, with January's retail-sales report — which dropped more than forecast — bolstering hopes that the Federal Reserve will begin cutting interest rates in the coming months.
It's amazing how these people overreacted to an inflation rate that is still running around a 2% annual rate over the last 4 months. Things are no different than they were a couple of weeks ago on the inflation front (as in “it’s not causing economic problems”), and our real emphasis should be to keep up consumer and business demand.

The demand part is being endangered by the combination of higher interest rates and higher amounts of debt, and you would hope the Central Bankers at the Fed recognize this reality, and start to give some relief to borrowers while lowering the cost of mortgages and increasing movement in that sector. With several corporations announcing profit-hoarding layoffs in early 2024, chasing a long-dead inflation ghost might be the one way these annoyances in a growing economy become serious headwinds that make recession a possibility.

And oh yeah, don’t forget that the Fed cut rates from 2-2.25% in 2019 at the demands of President Trump when the economy wasn’t much different vs where it is today. So you would hope they’d do the same when the Fed Funds rates are 3% higher than that in 2024. It’s only fair, unless they’re rooting for Trump in November, and why would they want that?
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Tuesday, February 13, 2024

Is INFLATION WATCH now back? NO! Things are still under control, like they've been for months.

I said in late 2023 that it’s become about time to cancel INFLATION WATCH, but we still should take a look at what the monthly CPI reports are saying. The report for January came out today, and so let’s give it a gander.
The consumer price index, a broad-based measure of the prices shoppers face for goods and services across the economy, increased 0.3% for the month, the Bureau of Labor Statistics reported. On a 12-month basis, that came out to 3.1%, down from 3.4% in December.
Oh great, inflation is still muted. Wait, what’s that squawking I hear in the background.
Economists surveyed by Dow Jones had been looking for a monthly increase of 0.2% and an annual gain of 2.9%.

Excluding volatile food and energy prices, the so-called core CPI accelerated 0.4% in January and was up 3.9% from a year ago, unchanged from December. The forecast had been for 0.3% and 3.7%, respectively.
It was that forecast by the “experts” that caused this new report to alarm Wall Streeters, leading to a selloff from what has been a multi-month rally largely based on the belief that inflation was done as an economic concern.

The Dow Jones Industrial Averag lost 524.63 points, or 1.35%, for its worst session since March 2023 on a percentage basis. It had earlier in the afternoon sunk more than 700 points, or 1.8%. The S&P 500 slid 1.37%, while the Nasdaq Composite fell 1.8%....

“This may well come as a easy excuse to take some of the froth out of the top of this market that’s been universally higher thus far this year,” said Art Hogan, chief market strategist at B. Riley Financial. “The CPI was, as reported today, just a touch hotter than expectations and proof positive that we’re not on a linear path, but we’re on a path headed lower.”
And I’d agree with Mr. Hogan on two fronts. Some of today’s selloff could be simple profit-taking after the S&P rose by more than 22% in just over 3 months in no small part due to interest-rate speculation. And I agree with Hogan’s point about staying in the right direction, as this paragraph from the CNBC rundown of the CPI report indicates that the higher inflation number comes largely from one sector as opposed to being system-wide.
Shelter prices, which comprise about one-third of the CPI weighting, accounted for much of the rise. The index for that category climbed 0.6% on the month, contributing more than two-thirds of the headline increase, the BLS said. On a 12-month basis, shelter rose 6%.
If you take out the shelter part of the CPI report, prices have only gone up by 1.5% in the last 12 months. And there also are a whole lot of homeowners like my wife and I that have fixed-rate 3% mortgages, and aren’t that affected by the higher shelter prices.

I know some might find that comment insensitive. I understand that higher shelter prices cause real economic pain for renters, and it’s one of the few legitimate drags on our economy these days. But isn’t that all the more reason to not be as concerned by this January CPI report, because in most areas of our lives, inflation is only running around 2-3%?

And if reports of rent prices leveling off are true, we’ll see that shelter number level off in the near future, as that stat notoriously lags reality. The Brookings Institute had a good rundown of this situation in a recent blog post.
This lag occurs for a few reasons. First, the market indices capture rents of units currently on the market, not rents for units occupied by continuing renters, like the CPI does. Rents change when leases expire, which typically happens annually. In addition, landlords may be less likely to raise rents to market prices for continuing tenants, and so it might take even longer for rents on all units to catch up with rents charged to new tenants. Second, because the BLS only examines rents every six months, it can’t know exactly when the rent changed. The BLS assumes that the rent increased gradually over the six months, meaning that only about one-sixth of the total observed increase in rent is attributed to the month the unit is sampled.1 For example, if the BLS observed that rent increased from $2,000 per month in January 2022 to $2,400 per month in July 2022—a 20% increase—it would assume that the increase in rent in July 2022 for that unit was 3%, roughly one-sixth of 20%. That means that an unusual increase in rents will only fully show through with a lag in the CPI.

In late 2022, researchers at the BLS and Cleveland Fed introduced an experimental quarterly index of new tenant rent (New Tenant Rent Index) using a very similar method to the Zillow index and data from the CPI Housing Survey. This index tracks market rents by only using observations in the CPI dataset that follow a change in tenant. The New Tenant Rent Index accounts for changes in the price of utilities, depreciation, and remodeling between tenants. Like the Zillow and CoreLogic indices, the New Tenant Rent Index will likely be a leading indicator for the shelter component of CPI.

Indicators of market rents, including Zillow, CoreLogic, and the New Tenant Rent Index, show that rent inflation for new tenants is at or below pre-pandemic levels, while CPI rent inflation remains elevated. This suggests that CPI rent inflation will decline over 2024 or 2025.

Ironically, we just got an inflation update 4 days ago that calmed a lot of Wall Streeter nerves, as it showed that the change in CPI for 2023 was….basically no different than we thought it was.
U.S. monthly consumer prices rose less than initially thought in December, but the overall inflation revisions were mixed, and did not shift expectations on the timing of an anticipated interest rate cut from the Federal Reserve this year.

The annual revisions published by the Labor Department on Friday also showed the consumer price index increasing slightly more than previously reported in October and November.

Prices excluding the volatile food and energy components were unrevised, after rounding, from October through December. All told, the revisions did not materially alter the path of inflation, which is moderating after surging in 2022. …

"The revisions were much ado about nothing," said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin. "This is becoming a trend where a Fed official mentions a data release once and then everyone waits with bated breath only to find out that it's a bunch of noise."

So if we start to see shelter drop in the next few CPI reports, and core CPI go down to 2-3%, why would the Federal Reserve keep its Fed Funds rate at 5.25-5.5%? Doesn’t add up, unless they’re in the bag for Trump/GOP, and want to turn a moderating housing market into a depressed one by the November elections.

In short, I am not going to worry about today’s CPI report showing 0.3% inflation for a month instead of 0.2% inflation. Especially since average hourly earnings went up by 0.6% in the same month, and have beaten inflation by 1.4% in the last 12 months (and 1.8% for non-supervisors).

Now if I start seeing a cutback in consumer spending or job growth take a significant downturn by March, then it’s time to worry. But there’s nothing I saw in the data today that warrants any fear for the future, at least for people that work real jobs and don’t spend time days blowing coke and trading paper.

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