THE DAILY EDGE (11 April 2018): Inflation threatens

Many face-offs underway: U.S. vs China on trade, U.S. vs Syria and Russia, Trump vs Mueller, FB (and tech) vs EU and Congress. But a key one is inflation vs bonds vs equities.

CONSUMER PRICE INDEX – MARCH 2018

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in March on a seasonally adjusted basis after rising 0.2 percent in February, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 2.4 percent before seasonal adjustment.

A decline in the gasoline index more than outweighed increases in the indexes for shelter, medical care, and food to result in the slight seasonally adjusted decline in the all items index. The energy index fell sharply due mainly to the 4.9-percent decrease in the gasoline index. The index for food rose 0.1 percent over the month, with the indexes for food at home and food away from home both increasing.

The index for all items less food and energy increased 0.2 percent in March, the same increase as in February. Along with shelter and medical care, the indexes for personal care, motor vehicle insurance, and airline fares all rose. The indexes for apparel, for communication, and for used cars and trucks all declined over the month.
The index for all items less food and energy rose 2.1 percent, its largest 12-month increase since the period ending February 2017.

Core CPI:

• last 6 months annualized: +2.4%
• last 4 months annualized: +2.7%
• last 3 months annualized: +2.8%

U.S. Producer Price Gains Accelerate

The headline Final Demand Producer Price Index using new methodology increased 0.3% in March following a 0.2% rise in February. Twelve-month growth rose to 3.0%. A 0.2% March rise had been expected in the Action Economics Forecast Survey. The PPI excluding food & energy increased 0.3% versus an expected 0.2% rise. Year-on-year growth accelerated to 2.7%, the fastest pace since late-2011. An updated measure of core producer price inflation (the overall index excluding food, energy and trade services) strengthened 0.4% for the third consecutive month. Prices for this index rose 2.9% y/y, the strongest reading since the series began in August 2013.

Using the old methodology for the Producer Price Index, prices rose 0.2% (2.9% y/y). Excluding food & energy, the index increased 0.2% (1.9% y/y) following no change.

Final demand goods prices rose 0.3% (3.2% y/y) after a 0.1% dip. The goods price index excluding food & energy gained 0.3% (2.2% y/y) after three consecutive 0.2% increases. (…)

  

Core PPI is up 2.9% YoY In March but has been rising at a 4.9% annualized rate in Q1. Core goods: +2.8%; Services: +3.6%.

The huge acceleration in health care prices has to squeeze consumers in 2018.

Source: @jbjakobsen

• The PPI report suggests that the services component of the PCE inflation measure could suddenly spike. (The Daily Shot)

Source: Capital Economics

• David Rosenberg says that 25% of firms reported to the NFIB that they plan to raise prices, a ten-year high. Look what they have already done:

• And here is that breakout in crude oil. (The Daily Shot)

What’s bizarre on this next chart?

Global economy suffers loss of momentum in March

Global economic growth slowed sharply to the weakest for over a year in March. The JPMorgan Global PMI^â„¢, compiled by IHS Markit, fell for the first time in six months, down sharply from 54.8 in February to a 16-month low of 53.3. The 1.5 index point drop was the steepest seen for two years. To put the decline in context, while the February PMI reading was consistent with global GDP rising at an annual rate of 3.0% (at market exchange rates), the March reading is indicative of 2.5% growth.

Inflows of new business and backlogs of work also rose to weaker extents than seen in the previous month. Employment growth remained more resilient, easing only marginally from the decade-high rates seen in prior months to suggest that firms continued to focus on expanding capacity to meet rising demand. Future expectations also remained elevated, suggesting that at least some of the slowdown may prove temporary. Bad weather was cited in many countries as curbing business activity in March.

From the WSJ:

New technology may start creating different patterns for inventories in apparel supply chains. Some factories in southern China are working with software that’s aimed at making the very fastest of fast fashion, offering custom-made clothing and shoes. The WSJ’s Natasha Khan reports the business model is being called “click, buy and make,” and aims to sharply curtail the time from purchase to shipping in a field that’s both notoriously inefficient and extremely sensitive to rapidly-changing tastes. Spencer Fung, who runs Hong Kong’s Li & Fung Ltd. , one of the largest supply-chain managers in the global garment industry, said new technologies could ultimately mean that more companies would be able to place small orders and avoid being stuck with extra inventory. Production costs remain a concern, but companies say advancements in automation will help them stitch together the leanest of lean supply chains.

‘Just look at the average size of orders—it’s been going down for years. It went from hundreds of thousands to tens of thousands. And it will keep going down until it approaches a unit of one.’

—Spencer Fung of supplier Li & Fung Ltd., on the impact of technology on apparel orders.

White House Says Trump Has Power to Dismiss Mueller The White House said President Trump believes he has the authority to fire special counsel Robert Mueller, as lawmakers from both parties warned against doing so one day after an FBI raid on his lawyer.

• Trump considering firing Rosenstein: report

  Facebook’s Zuckerberg and Senators Face Off Lawmakers grilled Facebook Chief Executive Mark Zuckerberg over the company’s handling of user privacy while also signaling they were prepared to embark on a new era of regulation for big tech companies.

(…) During several hours of questioning, Mr. Zuckerberg sought to manage the discontent through a combination of contrition for missteps and calm explanations to complicated questions. And yet throughout, the 33-year-old billionaire was careful not to commit to any major changes in how the platform functions or how it sells advertising.

Mr. Zuckerberg acknowledged that Facebook feels responsibility for what is posted on its service.

“It’s clear now that we didn’t do enough to prevent these tools from being used for harm as well,” Zuckerberg said. “And that goes for fake news, foreign interference in elections and hate speech, as well as developers and data privacy.”

“It’s not enough to just build tools. We need to make sure that they’re used for good,” he said. “And that means that we need to now take a more active view in policing the ecosystem.” (…)

“We didn’t take a broad enough view of our responsibility, and that was a big mistake. And it was my mistake, and I’m sorry. I started Facebook, I run it, and I’m responsible for what happens here.” (…)

“The status quo no longer works,” said Sen. Chuck Grassley (R., Iowa), the Judiciary Committee chairman. “Congress must determine if and how we need to strengthen privacy standards to ensure transparency and understanding for the billions of consumers who utilize these products.” (…)

Ultimately, Mr. Zuckerberg didn’t promise basic changes to the design of its platform and advertising business, including Facebook’s reliance on users’ personal information to show relevant ads in their news feeds. Facebook instead is promising to enforce its policies more stringently. (…)

“We’ve seen these apology tours before,” Sen. Richard Blumenthal (D-Conn.) said. “You have refused to acknowledge even an ethical obligation to have reported this violation of the FTC consent decree.”

The senator said he has letters from Facebook employees that indicated not only a lack of resources but also a “lack of attention to privacy, and so my reservation about your testimony today is that I don’t see how you can change your business model unless there are special rules of the road.” (…)

From the WaPo:

14 years of Mark Zuckerberg saying sorry, not sorry

• November 2003: After creating Facemash, a Harvard hot-or-not site. “ This is not how I meant for things to go and I apologizefor any harm done as a result of my neglect. ”
• September 2006: After introducing News Feed, which exposed updates to friends in one central place. “ We really messed this one up. … We did a bad job of explaining what the new features were and an even worse job of giving you control of them. ”
• December 2007: After launching Beacon, which opted-in everyone to sharing with advertisers what they were doing in outside websites and apps. “ We simply did a bad job with this release, and I apologize for it. … People need to be able to explicitly choose what they share. ”
• February 2009: After unveiling new terms of service that angered users. “ ”
• May 2010: After reporters found a privacy loophole allowing advertisers to access user identification. “ Sometimes we move too fast. … We will add privacy controls that are much simpler to use. We will also give you an easy way to turn off all third-party services. ”
• November 2011: After Facebook reached a consent decree with the Federal Trade Commission for deceiving consumers about privacy. “ I’m the first to admit that we’ve made a bunch of mistakes. … Facebook has always been committed to being transparent about the information you have stored with us — and we have led the internet in building tools to give people the ability to see and control what they share. ”
• July 2014: After an academic paper exposed that Facebook conducted psychological tests on nearly 700,000 users without their knowledge. (Apology by Facebook COO Sheryl Sandberg)“ It was poorly communicated. … And for that communication we apologize. We never meant to upset you. ”
• December 2016: After criticism of the role of Facebook in spreading fake news about political candidates. “ I think of Facebook as a technology company, but I recognize we have a greater responsibility than just building technology that information flows through. … Today we’re making it easier to report hoaxes. ”
• April 2017: After a Cleveland man posted a video of himself killing 74-year-old Robert Godwin Sr. “ Our hearts go out to the family and friends of Robert Godwin Sr., and we have a lot of work — and we will keep doing all we can to prevent tragedies like this from happening. ”
• September 2017: While revealing a nine-step plan to stop nations from using Facebook to interfere in one another’s elections, noting that the amount of “problematic content” found so far is “relatively small.” “ I care deeply about the democratic process and protecting its integrity.… It is a new challenge for internet communities to deal with nation states attempting to subvert elections. But if that’s what we must do, we are committed to rising to the occasion. ”
• September 2017: After continued criticism about the role of Facebook in Russian manipulation of the 2016 election. “ For the ways my work has been used to divide rather than to bring us together, I ask for forgiveness and I will work to do better. ”
• January 2018: Announcing his personal challenge for the year is to fix Facebook. “ We won’t prevent all mistakes or abuse, but we currently make too many errors enforcing our policies and preventing misuse of our tools. … This will be a serious year of self-improvement and I’m looking forward to learning from working to fix our issues together. ”
• March 2018: After details emerged about Cambridge Analytica taking user data. “ We have a responsibility to protect your data, and if we can’t then we don’t deserve to serve you. … We will learn from this experience to secure our platform further and make our community safer for everyone going forward. ”
• April 2018: After revealing Cambridge Analytica got unauthorized data on up to 87 million Facebook members — and that nearly all Facebook users may have had their public profile scraped. “ We’re an idealistic and optimistic company. … But it’s clear now that we didn’t do enough. We didn’t focus enough on preventing abuse and thinking through how people could use these tools to do harm as well. … [We are] going to do a full investigation of every app that had a large amount of people’s data. ”
• April 2018: In prepared comments for his congressional testimony. “ It was my mistake, and I’m sorry. … There’s more we can do here to limit the information developers can access and put more safeguards in place to prevent abuse. ”

Zuck’s longtime motto “move fast and break things” should now be “move fast and fix things”. Can’t claim a lack of resources. FB earned nearly $40B in the last 3 years!

IT MUST BE PRETTY LATE IN THE CYCLE

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Given the worldwide water crisis, I’m wondering if they would see value in this product?