Inflation Firms, Consumer Spending Jumps The personal-consumption expenditures index rose at a faster 5.4% rate last month and consumer spending climbed 1.8%, which could prompt the Fed to raise rates higher than previously anticipated this year.
(…) U.S. consumers’ spending jumped a seasonally adjusted 1.8% in January from the prior month, the largest increase in nearly two years, as they shelled out for goods such as refrigerators and cars and spent more at restaurants and hotels. (…)
The January spending boom, a reversal from a small spending decline in December, was driven in part by a strong increase in household income, the Commerce report showed.
Wages and salaries grew 0.9% in January, more than twice as fast as in the prior month. Minimum wage increases and other annual raises kick in for many workers in January.
Incomes were also boosted by an inflation-adjustment in Social Security checks at the start of the year, which could help the roughly 70 million recipients spend more. Total Social Security income rose 9% in January compared with December. The personal saving rate increased to 4.7% in January, the highest in a year. (…)
Friday’s report showed that on a monthly basis, the PCE-price index rose 0.6% in January from December, the largest gain since June.
When adjusted for these rising prices, spending rose 1.1% in January from December. (…)
More data, more revisions, stronger income and stronger inflation.
Revisions:
- Wages and salaries have been rising 10.0% annualized since June. The original data had them rising about 6% YoY throughout 2022. January 2023: +0.9% MoM.
- Personal disposable income is 1.2% higher than originally reported. December PDI +4.4% YoY vs +3.2% original.
- Real PDI is 1.0% higher than originally reported. December real PDI -0.8% YoY vs -1.7% original.
- Real expenditures virtually unchanged so…
- … December savings rate was 4.5% vs 3.4% original and …
- … PCE inflation was +5.3% vs 5.0% original with …
- … Core PCE inflation at +4.6% vs +4.4% original with Q4’22 rising 4.3% a.r. vs 3.8% original. January core PCE: +0.57% MoM (+6.9% a.r.), +4.7% YoY.
Some more facts to mess up the picture even more:
- Between March and December 2022, monthly employment growth from the establishment survey (payrolls) averaged 382k. From the household survey: +123k.
- In December and January, payroll employment growth averaged 388k. Household employment: 805k.
Add the very mild weather and quirky statistical seasonal adjustment factors and you get a March FOMC meeting discussing a very foggy environment.
The latest iteration of GDP shows that the core of the economy has slowed to a crawl:
As my monetarist friend Hubert Marleau writes:
The contraction of the U.S. money supply, which is expected to continue because of the banks tightening their lending standard, will sour the lagging indicators like wages, employment and inflation on which the Fed depends on to conduct its monetary stance. The credit cycle has turned because the turnover of money will additionally slow down. The Fed’s Senior Loan Officer Survey for Q1 showed looming contractions in the supply of credit across all forms of business and household loans. Money tends to change hands less when the loan-to-deposit ratio falls.
Yet,
And the Atlanta Fed’s inflation nowcasting:
More Americans Are Turning to Part-Time Jobs Six times as many people currently work part-time by choice, rather than by necessity; “25 hours is the new 35.”
The number of Americans working part time rose by 1.2 million in December and January compared with the preceding months, according to the Labor Department. Most of that increase—857,000 workers—was driven by people who worked part time by choice, not because they were unable to find full-time work or their hours were cut.
The total number of people working part time voluntarily—22.1 million in January—is now almost six times the 4.1 million who are working part time but would prefer full-time hours. That is the highest ratio in two decades. In the first months of the pandemic, when millions of Americans were laid off and couldn’t find full-time jobs, or saw their hours cut, those numbers were about even. In the 20 years before the Covid-19 pandemic, the ratio typically stayed between three to one and five to one.
In total, 16.3% of the 160 million Americans who were employed in January worked part time hours, which the Labor Department defines as anything less than 35 hours in a week. (…)
The increase in part-time workers suggests that some employers are adjusting to a realization that the abundant labor supply of the past few decades may not continue, said Jeffrey Korzenik, chief economist at Fifth Third Commercial Bank “When you run out of workers for full-time roles, you start considering part-time options,” he said. “That broadens your effective labor pool. It means working parents, older workers, and others who find part-time labor highly preferable can apply for your roles.” (…)
Many of the traditional downsides to part-time work haven’t changed. Part-time workers generally earn less for similar work than their full-time counterparts, and typically don’t qualify for benefits such as healthcare coverage. Mr. Golden has found hourly wages are about 20% less for part-time workers. (…)
While the recent jump was significant, in fact, the number of part-timers by choice simply got back to its steady long term level in December and January, in line with its pre-pandemic level.
Since March 2022, however, their number rose 5.8% against +1.2% for total employment (household survey), offsetting the troubling fact that full time jobs stagnated during that period.
The other fact is that the number of full time jobs, over time, follows real GDP. The dips post the GFC and post pandemic were unusually large but these two series now seem to be back in sync.
The last noteworthy fact is that the number of part-timers, voluntary of not, are all back in line with their respective long-term trend, flat for voluntary part-timers and declining for part-timers for economic reasons, all three currently lower than in February 2020.
- Millions of US Workers Are Still Missing After The Pandemic. Where Did They Go? Economists can’t agree where America’s missing workers went. Even the size of the US labor shortage is now in question
(…) The labor force is the sum of employed and unemployed people, and some researchers point to an estimate made by Fed economists of how big it should be based on population trends. Assuming people kept working at pre-pandemic rates, they projected a labor force of 168 million by the end of 2022. In reality, the figure was around 165 million, arriving at a shortfall of roughly 3 million.
Things got even muddier earlier this month, when the Labor Department revised its December count of nonfarm payrolls by more than 800,000 additional workers. So that 3 million-person hole in the labor force actually may be a third smaller, Wong said. (…)
- US companies say it is easier to hire despite low jobless rate Investors have been concerned that a tight labour market threatened the Fed’s efforts to bring down inflation
- Americans in Their 30s Are Piling On Debt The overall burden is up 27% since before the pandemic, more than for any other age group.
(…) It is also their fastest pace of debt accumulation over a three-year period since the 2008 financial crisis. (…)
The average credit-card balance for millennial borrowers was about $6,750 in January, up 26% from three years earlier, according to credit-score provider VantageScore Solutions. Balances were little changed for Gen X, and fell between 11% and 15% for older generations. Average personal-loan balances for millennials rose more than they did for overall borrowers. (…)
Younger borrowers are falling behind on their car payments at higher rates than other age groups, according to the New York Fed. Auto delinquencies have been on the rise in part because car prices soared over the past few years.
More millennials are behind on their credit cards compared with before the pandemic, according to the credit-reporting firm TransUnion. The percentage of most older borrowers in credit-card delinquency decreased over the same period. (…)
The government moratorium on federal student-loan payments could expire as soon as this summer, and a debt-forgiveness plan rolled out by the Biden administration last year remains held up in court. Americans in their 30s owe the most student debt compared with other age groups, according to the New York Fed.
“The three-year payment pause is pretty historically unprecedented, so we don’t have any benchmarks as to what we can expect coming out of this,” a New York Fed researcher told reporters on a call. “We’re keeping a close eye on whether or not there’s potential for that to spill over to other credit products.” (…)
Renters with new leases in January paid a median rent that was 3.5% lower than they would have paid last August, according to estimates from listing website Apartment List. It was the first time in five years that rent fell every month over a six-month period, according to the same estimates.
Four other market measures by housing-data companies also show that new-lease rents either fell or remained flat in January compared with the previous month, extending a streak of monthly rent declines that began at the end of the summer. (…)
While some seasonal stalling in rents is normal, the market faces a significant headwind in the biggest delivery of new supply since 1986, according to projections from CoStar Group. Nearly half a million new apartments are coming on line this year as developers seek to cash in on the high rents that tenants have been paying. Many renters are unable to afford to buy a home because of higher mortgage rates and steep prices, so rentals have been in high demand. (…)
FYI:
- There is indeed seasonality in monthly rent renewals, partly broken and exacerbated by the pandemic. January’s renewals were 0.3% lower than December’s. Monthly rents measured by Apartment List typically increase between February and July.
- The average rent was $1338 in January, down 3.5% from the August peak but still up 3.3% YoY.
- The data is for new leases at professionally managed properties (~25% of all rentals), not renewals which typically account for 84% of leases.
- There are currently 932k apartment units under construction, about 2% of the total rental housing stock in the U.S.. Fannie Mae estimates the shortage of housing units at about 4 million.
- Rental vacancy rates, at around 6%, are the lowest since 1981 (5%, lowest ever).
The authors — Brandeis University’s Stephen Cecchetti, JPMorgan Chase & Co.’s Michael Feroli, Deutsche Bank AG’s Peter Hooper, Columbia University’s Frederic Mishkin and New York University professor emeritus Kermit Schoenholtz — presented their paper at an annual policy forum sponsored by the University of Chicago Booth School of Business.
They examined 16 different episodes since 1950 in the US and several other large economies when the central bank tightened policy aggressively to cool prices. All of them were associated with a recession.
“In the current circumstances that already involve significant policy tightening (and a prospect for further restraint), an ‘immaculate disinflation’ would be unprecedented,” they wrote.
“Our analysis casts doubt on the ability of the Fed to engineer a soft landing in which inflation returns to the 2% target by the end of 2025 without a mild recession,” they wrote.
The 55-page academic study included a series of simulations to predict likely paths for the Fed’s benchmark policy rates. The computer models suggested rates would peak at either 5.6%, 6% or 6.5% in the second half of 2023. (…)
EARNINGS WATCH
Through Feb. 24, 465 companies in the S&P 500 Index have reported earnings for Q4 2022. Of these companies, 67.5% reported earnings above analyst expectations and 27.3% reported earnings below analyst expectations. In a typical quarter (since 1994), 66% of companies beat estimates and 20% miss estimates. Over the past four quarters, 76% of companies beat the estimates and 21% missed estimates.
In aggregate, companies are reporting earnings that are 1.1% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.1% and the average surprise factor over the prior four quarters of 5.3%.
Of these companies, 67.9% reported revenue above analyst expectations and 32.1% reported revenue below analyst expectations. In a typical quarter (since 2002), 62% of companies beat estimates and 38% miss estimates. Over the past four quarters, 73% of companies beat the estimates and 27% missed estimates.
In aggregate, companies are reporting revenues that are 1.8% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.3% and the average surprise factor over the prior four quarters of 2.5%.
The estimated earnings growth rate for the S&P 500 for 22Q4 is -3.2%. If the energy sector is excluded, the growth rate declines to -7.4%.
The estimated revenue growth rate for the S&P 500 for 22Q4 is 5.7%. If the energy sector is excluded, the growth rate declines to 5.0%.
The estimated earnings growth rate for the S&P 500 for 23Q1 is -4.3%. If the energy sector is excluded, the growth rate declines to -6.2%.
Trailing EPS are now $221.75. Full year 2023e: $222.20. Forward EPS: $221.71e.
TECHNICAL WATCH
CMG Wealth is now charging for its weekly Trade Signals. More inflation!
Here’s my rendition of the Large Cap 13/34–Week EMA Trend via Trading View. The recent bullish signal remains uncertain given the daily volatility.
- Retail Participation: Still one of the most fascinating phenomena of the pandemic years — the rise of retail. And they’re not leaving.
Source: @pkedrosky
Speaking of inflation, this chart illustrates how it’s the most important things in life that inflate the most.
Visual Capitalist
The FOMC is primarily focused on the non-housing core services PCE inflation, which registered its biggest monthly increase in over a year.
Source: Normura Securities (via The Daily Shot)
Subprime Auto Lender American Car Center Closes for Business
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CNBC reported Wednesday that Google has instructed employees and contractors within its cloud division to share desk space and alternate in-office workdays to improve “real estate efficiency.” That move will impact staffers in Google’s five largest corporate locations, including New York, San Francisco and Seattle. (ADG)
