CPI for all items rises 0.5% in July; shelter, energy, food, new vehicle indexes rise
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in July on a seasonally adjusted basis after rising 0.9 percent in June, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 5.4 percent before seasonal adjustment. (…)
The index for all items less food and energy rose 0.3 percent in July after increasing 0.9 percent in June. Along with shelter and new vehicles, the indexes for recreation, for medical care, and for personal care increased in July. The index for used cars also increased in July, but the 0.2-percent advance was much smaller than in recent months. The index for motor vehicle insurance declined in July, and the index for airline fares fell slightly.
The all items index rose 5.4 percent for the 12 months ending July, the same increase as the period ending June. The index for all items less food and energy rose 4.3 percent over the last 12 months (…).
Core CPI is up 8.6% a.r. in the last 4 months, 7.8% a.r. in the last 3 months and 7.4% in the last 2 months. July’s +0.3% MoM will likely please many noflationists. CPI-Shelter is up 0.4% MoM in July, +5.4% a.r. in the last 2 months following +3.1% a.r. in the first 5 months of the year.
Fed’s Evans Open to Reducing Asset Purchases Later This Year ‘A few more employment reports’ could provide confirmation that economy is meeting goals, says Chicago Fed leader
Chicago Fed President Charles Evans said he expected recent employment gains to continue, which would allow the Fed to declare that the economy has achieved the “substantial further progress” it laid out last December.
“I’d like to see a few more employment reports” before making that determination, Mr. Evans told reporters during an online news conference. “We’re coming upon a time where it’s definitely going to be appropriate to start” reducing the pace of asset purchases. (…)
Mr. Evans said he expects the unemployment rate to fall to 4.5% by year’s end and the Fed’s preferred inflation gauge, excluding volatile food and energy categories, to end the year around or slightly above 3%. Mr. Evans said he expects that core inflation gauge to decline to around 2.1% by the end of next year. (…)
“I’m going to be very regretful if we sort of claim victory on averaging 2% and then we find ourselves in 2023 with about a 1.8% inflation rate, sustainable, going forward. That would be a challenge for our long-run framework,” he said. “We ought to be willing to average inflation above 2%—frankly, well above 2%.”
But Mr. Evans conceded that there is significant uncertainty around the path of inflation. “I don’t have strong confidence in what the sustainable inflation data are going to look like next year,” he said.
- The back-to-school shopping season is already hitting supply-chain speed bumps. Consumers are finding that items like backpacks, lunchboxes and other staples of the season are in short supply, the WSJ’s Suzanne Kapner reports, as retailers struggle to keep shelves stocked amid factory closures in Asia, port congestion and other bottlenecks across logistics networks. The early reports are casting a cloud on the first big marker in a critical fall shopping season for retailers leading up to the end-of-year holidays. Merchants including Target and Staples are betting that parents will snap up items they didn’t purchase last year, when schools went remote. The National Retail Federation is projecting record back-to-school spending this year.
U.S. Productivity Has Moderate Advance in Q2
Nonfarm business sector productivity rose 2.3% SAAR in Q2 2021 (1.9% y/y), following a 4.3% SAAR advance in Q1 (4.1% y/y), which was revised from 5.4%. The Action Economics Forecast Survey had looked for a Q2 increase of 3.4%.
Real output grew at a 7.9% pace in Q2 (15.8% y/y) after 8.4% growth in Q1 (1.3% y/y); the Q1 quarterly growth rate was not revised. Hours worked rose at a 5.5% rate in Q2 (13.6% y/y) following a 4.0% gain in Q1, revised from 2.9%. Hourly compensation rose at a 3.3% pace in Q2 (2.0% y/y), after 1.4% in Q1 (6.4% y/y). The resulting change in unit labor costs was at a 1.0% annual rate in Q2 (0.1% y/y) after a 2.8% rate of decline in Q1 (2.3% y/y). The Action Economics Survey showed an expected increase of 1.2% in Q2.
Productivity in the manufacturing sector increased 6.9% (6.8% y/y) in Q2 following a decrease at a 1.3% rate in Q1 (2.2% y/y), revised from a 0.1% rise. Compensation per hour in total manufacturing rose 4.9% (0.6% y/y), following a 0.6% increase in Q1. Unit labor costs in manufacturing fell at a 1.9% pace in Q2 (-5.8% y/y) after advancing 1.9% in Q1.
Durable goods manufacturing productivity rose 4.6% (12.4% y/y) after 0.8% in Q1. Productivity in nondurable goods manufacturing rebounded at a 7.8% pace in Q2 (1.3% y/y) after a decline at a 2.7% rate in Q1.
In the last cycle, productivity jumped out of the recession and levelled off for several years. Manufacturing productivity appears to be oddly strong during this reopening phase.
If productivity does not hold, the 7.3% jump in hourly compensation since Q1’20 will sting:
FactSet; Chart: Axios Visuals
- Why the Productivity Boom Isn’t Over One disappointing quarterly reading aside, there are reasons to expect productivity, and hence the economy, to keep growing at a fast pace
(…) Productivity growth could slow further in the current quarter. That is because even though the U.S. economy continues to grow at a decent clip, so too does the job market. The story goes like this: In the initial stages of the recovery, demand grew much faster than businesses were able, or willing, to hire. Existing employees worked like crazy and output per hour rose as a result. It wasn’t sustainable—people can only work so hard—and now employment is catching back up.
This is something like the scenario the Congressional Budget Office envisions. In projections released last month, it forecast that productivity growth would slow markedly next year, essentially bringing the level of output per hour back to the trend it was on before the pandemic. (…)
But the CBO’s projections, as Robert Barbera, director for the Center for Financial Economics at Johns Hopkins University has pointed out, may be far too dour. If productivity growth merely slows to its pre-pandemic pace, rather than dropping below that as the CBO forecasts, GDP could grow more quickly without running against its speed limits, he says.
Moreover, it seems a stretch to think that the productivity-enhancing adaptations that businesses and workers have adopted during the course of the pandemic aren’t going to stick. Some of them could even have a lot more room to run. (…)
Then there is the reality that a tight labor market could lead businesses to sniff out ways to increase productivity that they might not have if workers were easier to come by. (…)
China auto sales tumble for a third straight month in July
The world’s biggest auto market saw sales drop 11.9% from the same month a year earlier to 1.86 million vehicles, according to data from the China Association of Automobile Manufacturers (CAAM).
For the first seven months of the year, China’s vehicle sales have jumped 19% as the market recovered from pandemic lows. CAAM said that rebound is set to peter out with sales for the rest of 2021 expected to be below relatively high year-ago levels, although the market is still expected to log growth overall on an annual basis. (…)
One bright spot in July was continued strong sales of new energy vehicles, which more than doubled to 271,000. (…)
Coinbase Drops Promise of Token’s Cash Backing That Wasn’t True
First Tether, now this:
For months, a visitor to the website of Coinbase Global Inc., the largest U.S. cryptocurrency exchange, would see that the company offered a stablecoin called USD Coin with a simple premise: For every dollar offered to investors, there was $1 “in a bank account” to back it.
That promise was important for the stablecoin, which unlike Bitcoin has a set price and can be redeemed by users for regular currency. It helped USD Coin grow to be the world’s second-largest stablecoin, with $28 billion in assets.
But when Circle Internet Financial Inc., Coinbase’s partner in offering the coin, disclosed USD Coin’s assets for the first time last month, it turns out the promise wasn’t true.
According to a disclosure in July, the assets actually include commercial paper, corporate bonds and other assets that could experience losses and are less liquid if customers ever tried to redeem the stablecoin en masse. (…)
Stablecoins have come under increasing scrutiny from the government in the past few months as U.S. investors pour money into the market. As of last week, such coins held $117 billion. (…)
- Hackers Steal $600 Million in Likely Largest DeFi Crypto Theft Tens of thousands of people are affected by the hack, PolyNetwork said in a letter posted on Twitter.
(…) With DeFi apps attracting billions in investor funds, they’ve also become frequent targets of attacks. This year, DeFi-related hacks made up more than 60% of the total hack and theft volume of crypto attacks, up from 20% in 2020, according to crypto security company CipherTrace. At $156 million, the amount netted from DeFi-related hacks in the first five months of 2021 already surpasses the $129 million stolen in DeFi-related hacks throughout all of 2020, CipherTrace said.
About $80 billion is locked in DeFi applications, making them an attractive target, according to tracker DeFi Pulse.
- A group of companies that operated the BitMEX crypto exchange will pay $100 million to settle the first big U.S. anti-money laundering case. (Bloomberg)
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