Note: I am in California for the next 3 weeks. Time zone, family matters and limited equipment could have an impact on the frequency, quantity and, perhaps, quality of my blogging.
U.S. Recovery Accelerates on Jobs, Spending Growth The U.S. economy showed broad-based signs of strengthening heading into the end of the year, with consumers ramping up spending, businesses stepping up investment and jobless claims falling to historic lows.
Household spending rose 1.3% in October from a month earlier, while personal income increased 0.5% last month, the Commerce Department said Wednesday. (…)
Consumers increased spending on goods, including big-ticket and smaller purchases, by 2.2% in October. Spending on services, which were hit hard by the pandemic, is showing glimmers of improvement. Outlays on services grew 0.9% last month, an acceleration from the preceding two months. (…)
The personal-saving rate, which is saving as a percentage of after-tax income, was 7.3% in October, in line with pre-pandemic levels. (…)
New orders for motor vehicles and parts jumped 4.8% from September to October, one of the largest increases among sectors, the Commerce Department said in a report on durable goods released Wednesday. A separate Federal Reserve report from earlier in November said production of vehicles rose 18% last month.
New orders for nondefense capital goods excluding aircraft, a closely watched proxy for business investment, were up 0.6% in October compared with the previous month, Commerce Department data show. Business investment has grown solidly this year. (…)
Haver Analytics’ table summarizes the consumer side of the economy:
The positive spin is on Wages and Salaries, in sharp acceleration (+8.7% a.r. in last 3 months), roughly in line with the BLS’ Aggregate Payrolls series (+10.8%) as both employment and wages are on the rise.
The not so positive spin, actually a rather negative one, is from Real DPI, down at an 8.2% a.r. in the last 3 months (-11.5% in the last 2) as stimulus payments disappeared and inflation grabbed a bigger slice of incomes of all types. The PCE price index is up 5.7% a.r in the last 3 months, +6.1% in the last 2.
With the savings rate back to pre-pandemic levels (so much for precautionary savings!), real expenditures, up 7.0% a.r. in the last 3 months, seem set to slow considerably, perhaps even contract in coming months.
Relative to its pre-pandemic level, real DPI growth peaked at +4.5% and is now +2.4% after having declined 2.0% sequentially in the last 3 months, below the real expenditures trend, a rather uncomfortable reading. Even more so if Americans payed heed to retailers’ warning of widespread shortages and followed their advice of “if you see it, buy it”.
Well, they are still seeing and buying through November 19 per the Chase spending tracker. Actually, Americans are buying ferociously with the Control Sales tracker so far pointing to a 3.3% MoM jump in November.
The bullish scenario is that such strong buying will totally clear inventories, stimulate employment and boost production in 2022. Add transitory inflation actually transiting and the beat goes on.
The bearish scenario is that consumers, in a YOLO mood, are stretching themselves and buying early and will soon go in hibernation, bloated with goods and licking their not-so-transitory-inflation wounds.
While everybody is focused on academic things such as pandemic-sensitive and trimmed-mean inflation, transitory or not, consumers are actually struggling keeping pace with broadly rising prices, particularly on essential goods and services such as food, energy and housing-related expenses. Here’s my rendering of CPI-Essentials:
CPI ESSENTIALS (MoM)
So far, the damage is not statistically critical: CPI-Essentials is up 6.9% from February 2020, exactly the same increase as total CPI, and nominal disposable income is up 8.2%. Real income is still ahead.
But that is because the BLS’ measure of shelter inflation is lagging the real world. The BLS measures only one-sixth of its panel of properties every month so rent increases only gradually crawl their way into the CPI.
CPI-Shelter is up only 4.9% from February 2020 (CPI-Food +8.2% and CPI-Energy +19.8%) but as the largest component of CPI (33%), Shelter’s likely statistical acceleration during 2022 would have a meaningful and lasting impact on measured consumers’ real discretionary income.
In effect, inflation on Essentials already exceeds the growth in nominal disposable income, squeezing a fairly large share of the population. This could well result in a major slowdown in discretionary expenditures, potentially as soon as December.
The Fed and other transitionists could prove right, only because demand will disappear…
Adobe Analytics estimated consumers will spend $5.1 billion to $5.4 billion online Thursday, it said in an emailed statement, lowering the top end of its range from $5.9 billion. Shoppers, who had started their purchases earlier in the month, are being forced online as more retailers close their physical stores for the holiday. (…)
“What we’ve seen this afternoon is that we’re on a trajectory in which the Thanksgiving Day total will be closer to the lower half of our originally proposed range,” Taylor Schreiner, director at Adobe Digital Insights, said in a statement. “This can be attributed to consumers spreading out their spending across November, which has shown up in more $3 billion online shopping days thus far.” (…)
Fed Officials Debated Inflation Concerns, Taper Pace at November Meeting Central bankers revealed new misgivings about recent broadening in price pressures, minutes show
(…) some officials signaled concern that inflation pressures were broadening and that they might want to wrap up the asset-purchase program sooner in case they feel greater urgency to raise interest rates, according to minutes of the meeting released Wednesday afternoon.
While Fed officials saw price pressures largely reflecting factors that were likely to be transitory, they “judged that inflation pressures could take longer to subside than they had previously assessed,” the minutes said. Increases in energy prices, wages and residential rents were adding to inflationary pressures, officials said. (…)
San Francisco Fed President Mary Daly, in an interview Wednesday morning with Yahoo Finance, said she could also support reducing the bond purchases more quickly. Ms. Daly had said in comments two weeks ago that it was premature to consider quickening the pace of any tapering.
“With the level of growth, the rate of growth we have, the really positive jobs numbers, and obviously the eye-popping and too high inflation, then adding support to an already robustly growing economy just isn’t what we want to do,” Ms. Daly said Wednesday. (…)
The probability of a rate increase by May rose above 50% on Wednesday, and expectations of at least three quarter-point rises by the end of 2022 has risen to nearly 65%, according to futures market prices tracked by CME Group. (…)
The minutes said officials would be prepared to accelerate the pace of asset-purchase reductions and raise the Fed’s short-term benchmark rate “sooner than participants currently anticipated if inflation continued to run higher than levels consistent with” the rate-setting committee’s objectives.
Others at the meeting said uncertainty around supply-chain logistics and the course of the pandemic called for “a patient attitude toward incoming data…to allow for careful evaluation of evolving supply chain developments and their implications for the labor market and inflation.” (…)
The November minutes indicated a serious debate over recent inflation dynamics. Some worried that these inflation expectations were becoming less well anchored, the minutes said. Officials worried that businesses’ enhanced scope to pass higher costs to their customers and workers’ ability to demand higher pay might lead to more persistent inflation.
But others said that higher prices continued to reflect pandemic-related imbalances, that the most sizable run-ups in prices had likely already occurred, and that there was little evidence of a change in underlying inflation dynamics, such as a wage-price spiral taking hold. (…)
- Another Reason Inflation May Be Here to Stay Rent rises that haven’t yet been measured will filter through to higher services inflation in coming months.
- New York Times’ Wirecutter Staff Goes on Strike Ahead of Black Friday Staff at product-review website are seeking higher minimum salaries, guaranteed annual wage increases
- Black Friday Shopping Is Back, but the Doorbusters Aren’t
U.S. New Home Sales Rise Slightly in October
New single-family home sales rose 0.4% in October (-23.1% y/y) to 745,000 (SAAR) from 742,000 in September, revised from 800,000. Earlier figures also were revised. Sales remained below the January peak of 993,000. The Action Economics Forecast Survey expected 800,000 sales in October.
By region, October sales in the Midwest rose 11.0% (-28.3% y/y) to 81,000 after a 14.1% rise in September. Sales in the South edged 0.2% higher last month (-16.7% y/y) following firm gains in each of the prior three months. Falling by 11.8% (-26.8% y/y) to 30,000 were sales in the Northeast after a 9.7% September. In the West, sales weakened 1.1% (-33.1% y/y) to 184,000 after a 6.3% September rise.
The median price of a new home rose 0.7% (17.5% y/y) in October to a record $407,700. The average sales price of a new home jumped 4.5% (21.1% y/y) to a record $477,800. These sales price data are not seasonally adjusted.
The supply of new homes for sale rose to 6.3 months in October from 6.1 months in September. This compares with a low of 3.5 months averaged from August through October of last year. The median number of months a new home stayed on the market fell sharply to a record low of 2.4 months in October from a recent high of 5.1 months in March. These figures date back to January 1975.
Meanwhile, new orders for core durable goods are booming (+10.0% a.r. in the last 3 months), shipments lagging a little:
What We Know About the New Coronavirus Variant Now Spreading
A new variant of the coronavirus that causes Covid-19 — called B.1.1.529 — has been identified in South Africa, with officials there saying it’s highly concerning. Fears that the strain could fuel outbreaks in many countries and pressure health systems, potentially evading vaccines and complicating efforts to reopen economies and borders sent a wave of risk aversion across global markets Friday. U.S. stock futures, European equity indexes and crude oil tumbled while Treasuries rallied. Governments around the world have started issuing bans on travelers from South Africa and nearby countries. (…)
Researchers are still trying to determine whether it is more transmissible or more lethal than previous strains. (…)
Early PCR test results showed that 90% of 1,100 new cases reported Wednesday in the South African province that includes Johannesburg were caused by the new variant, according to Tulio de Oliveira, a bio-informatics professor who runs gene-sequencing institutions at two South African universities. In neighboring Botswana, officials recorded four cases on Monday in people who were fully vaccinated. In Hong Kong, a traveler from South Africa was found to have the variant, and another case was identified in a person quarantined in a hotel room across the hall. Israel has also identified one case in a man who recently traveled to Malawi.
Antitrust Tech Bills Gain Bipartisan Momentum in Senate Support for curbing large technology companies’ market power is widening in the Senate, with lawmakers in both parties endorsing new legal constraints on search engines, e-marketplaces, app stores and other online platforms.
(…) “I have been working on these issues for years and it feels like we have finally reached a tipping point where we will take serious steps forward,” Sen. Amy Klobuchar (D., Minn.), a lead sponsor of some of the key bills, said in a statement. “There is bipartisan momentum to get something done, and the public is on our side.” (…)
The momentum for the bills in the Senate echoes the earlier push in the House. The House Judiciary Committee passed a raft of far-reaching antitrust bills after a tumultuous meeting in June that stretched over two days, including an all-night session. (…)
Twelve senators—six Republicans and six Democrats, including Ms. Klobuchar—are backing the proposed American Innovation and Choice Online Act, a bill that would treat Amazon’s marketplace or Google’s search engine like a dominant railroad operator, essential to commerce.
It would make it illegal for them to advantage their own products and services at the expense of other businesses that rely on the platforms.
Another bipartisan group is backing a bill that would place new restrictions on smartphone app stores, including in-app payment systems and app stores’ search results.
A third group of lawmakers wants to force dominant tech companies to prove any new merger or acquisition won’t hurt competition, going beyond the current legal standard. (…)
The antitrust bills are on a separate track, and still have a long way to go to become law. Some similar proposals passed a House committee in June but have been on hold since then as Congress struggled to approve a separate infrastructure bill. (…)
