U.S. Supplier Price Increases Moderated in November Producer-price index rose 7.4% last month from year earlier, down from 11.7% peak in March and 8.1% in October
On a monthly basis, the PPI increased 0.3% in November, the same as the prior two months. That was slightly above the average monthly gain in the two years before the pandemic and well below month-to-month gains in the first six months of 2022. Economists polled by The Wall Street Journal had estimated a 0.2% November increase. (…)
Food prices surged by 3.3% in November from the prior month, offsetting a similar drop for energy prices related to lower gasoline prices. (…)
The core PPI—which excludes often-volatile food, energy and supplier margin categories—rose 4.9% in November from a year ago, down from 5.4% in October. On a monthly basis, core PPI rose 0.3% in November from the prior month, up from 0.2% in October.
On a core, core basis, PPI-Final demand less foods, energy, and trade rose 0.3% in November and has been rising at a steady 3.0% annualized rate since June.
PPI-Final demand for services was up 0.4%, an acceleration from 0.1% and 0.2% in the previous two months. Services prices are strongly influenced by wages and energy costs. The energy component is partly reflected in PPI-transportation and warehousing services which have declined in 4 of the past 5 months (-6.0% a.r.), leaving PPI-Final demand services less trade, transportation, and warehousing up 0.4% in November and +4.9% a.r. in the last 4 months vs +2.7% YoY.
(Haver Analytics)
I suspect Mr. Powell might use this San Fran Fed chart at this week’s FOMC to convince the doves that “demand-driven inflation” remains problematic.
He will certainly flag the 0.6% jump (+7.3% a.r.) in hourly earnings in November (0.7%, 8.5% a.r., for production and nonsupervisory workers), a sharp acceleration from +4.5% (4.9%) a.r. during the previous 3 months.
The doves will then cite Goldman Sachs which to explain the nasty surprise blames the data and argues that “the strong AHE print was an outlier that will unwind before too long” mainly because “the response rate to the November establishment survey was unusually low at just 49%”.
Perhaps Mr. Powell will have done what Axios did: ask the BLS about it.
We asked the Bureau of Labor Statistics about it, and they say that the window for responses ranges between 10 and 16 days, and this month was at the low end of that range.
Moreover, that window collided with Thanksgiving, and “the timing of holidays near the end of a collection period can negatively impact collection rates,” BLS economist Hyun Choi tells Axios in an e-mail.Does the low response rate make the numbers less reliable? “Our research does not show a correlation between low collection rates and revisions,” Choi said. The low response rate is “more curiosity than signal,” JPMorgan Chase economist Daniel Silver said in a research note.
StoneX’s brilliant Vincent Deluard sides with Powell:
Predicting the change in monthly inflation is almost impossible, but I would guess that December’s release will come higher than expected. The Cleveland Fed inflation Nowcast is significantly above the consensus estimate for CPI (7.3%) and core CPI (6%). The preliminary report on productivity and costs also supports my stagflationary view: nonfarm business sector labor productivity decreased 1.4 % year-over-year in the third quarter, the first instance of three consecutive declines in this measure since 1982. If productivity keeps dropping, even a slowing economy will not ease wage pressures as it takes more workers to produce the same output.
Last but not least, consumption should be supported by a historical 8.7% Cost-of-Living Adjustment for social security beneficiaries. The COLA will go into effect with December 2022 benefits and will be credited on about 60 million checks going out in January 2023.
Economists generally do not believe that 70s-style wage/price spirals are possible due to the de-unionization of the US labor force, but there are a lot more social security beneficiaries today than there were union members in the 70s.
Retirees get an 8.7% benefit increase, average hourly earnings are growing by 5-6%, the gig economy is soaring, credit balances are rising fast from historically low level, checking accounts are still flush with the savings accumulated during COVID, and bank credit is growing by double digit: the 2022 consumption boom continue in 2023.
The Fed’s real pivot will not be to cut rates because consumption is weak, but it will be to accept that 4-5% inflation rate is a small price to pay for a long-postponed pay raise for blue-collar workers and give Millennials and GenZ-ers a chance to buy homes and start families.
Inflation is the solution to Western countries’ debt and generational crisis.
Deluard’s point on the gig economy (“instead of discouraging consumers, higher prices incentivize workers to take a second job in the booming gig economy”) is interesting and could get support from the fact that income tax receipts have been rising 20-30% since Q2’21 while personal income growth was in the 4-5% range. The widening gap occurred after inflation spiked in 2021.
But it may also be due to high capital gains taxes for retail investors since household employment (red, which would normally tally multiple jobs) has recently been weaker than establishment employment. If so, personal income tax receipt will soon decline abruptly (see below).
- Workers Have High Hopes for Pay Hikes Next Year. Perhaps Too High Employees have been able to call the shots for a while in a tight labor market, but that’s starting to change as layoffs mount, uncertainty spreads and firms adjust their salary budgets for next year
(…) One thing that’s clear is the gap between the raises that workers expect for next year — 5.5%, according to Gartner — and what companies have budgeted for, typically between 3.5% and 4.5%. (…)
Americans are growing more pessimistic about the labor market. The share of job seekers who expect there to be fewer jobs available six months from now recently surpassed those who expect there to be more, according to a survey from ZipRecruiter. (…)
The quits rate, a measure of voluntary job leavers as a share of total employment, dropped to 2.6% in October, the lowest since May 2021. [Though still above the pre-pandemic level of 2.3-2.4%] (…)
Who’s too high? Workers who got 8.1% raises switching jobs last month or management seeking pre-pandemic wage increases when inflation has tripled, the employment gap remains very large and corporate profits are 40% higher vs wages up 14%?
Retail Traders Lose $350 Billion in Brutal Year for Taking Risks
The average active amateur investor’s portfolio is down about 30% in 2022, according to data compiled by Vanda Research, which studies self-directed retail traders globally. By contrast, the S&P 500 Index has lost 17%. (…)
“The losses this year were unprecedented, especially for the younger generation of investors,” said Giacomo Pierantoni, the head of data at Vanda in Singapore. Whether they keep plowing money into the market — buying the dip, as they say — or lose faith in investing and give up altogether could help determine their ability to retire in the coming decades.
Another sharp selloff for Tesla, which accounts for about 10% of the average self-directed global retail trader’s portfolio, or Apple Inc. could determine sentiment, according to Pierantoni. (…)
JPMorgan Chase & Co. is even more pessimistic about the performance of retail traders, estimating they suffered losses of 38% this year.
For individuals who also dabbled in the cryptocurrency market or digital assets like non-fungible tokens, the losses are likely even uglier. Bitcoin is down 64% this year, while the Bloomberg Galaxy Crypto Index, a basket of different tokens, has erased two-thirds of its value. (…)
US Household Net Worth Falls for Third-Straight Quarter on Stock Retreat
Household net worth decreased $392 billion in the July-September period, or 0.3%, after falling a record $6.3 trillion in the second quarter, a Federal Reserve report showed Friday.
The value of equity holdings dropped $1.9 trillion and the value of real estate held by households rose by about $820 billion. (…)
The Fed’s report also showed household checkable deposits, or the money Americans have in checking, savings and money market accounts, continue to rise. (…)
Still, Americans have been leaning on credit cards and dipping into savings to keep spending.
Consumer credit not including mortgages rose at a 7% annual rate in the third quarter. (…)
Amid all the talk about the excess cash, a pretty large number of Americans saw fit to boos their credit card balances in 2022
More than half (53%) of all active credit card accounts carried a balance in the second quarter of 2022, the most recent quarter for which we have data. It was 60% in Q1’19.
Delinquency rates remain historically low…for large banks (black) but smaller banks, accounting for 28% of revolving cc debt, are already deep in the red.
Smaller banks’ lending standards have obviously loosened in the last 10 years (their market share was 21% in 2012). So far in 2022, large banks grew their cc loans 15.8% but smaller banks grew theirs 22%.
Note that, in the last recession, delinquency rates at large banks exceeded that at the smaller banks. The big banks seem to have learned something, something that the smaller banks are about to learn…. Pity their card holders, however.
BTW: “Interesting that FHA mortgage delinquency rates are rising this quickly without widespread job losses.” (@RickPalaciosJr)
In early December, 75% of nationally surveyed home builders confirmed they are buying down buyers’ mortgage rates to make payments more affordable. Our survey indicates 32% of builders are buying down the full 30-year term and another 30% of builders are temporarily reducing the rate for the first two years of the mortgage. The remaining 13% of builders identified other less common buydowns. Builders pay these costs up front, effectively reducing monthly payments by prepaying for some of the buyers’ interest on the loan. (…)
Incentives have become a necessity in today’s new home sales environment and are helping preserve builders’ backlogs as confirmed by builders in our surveys:
- “Everyone is requiring incentives, including price reductions, rate buydowns, closing costs, etc.” (Riverside-San Bernardino, CA)
- “Rate buydowns and/or rate lock promotions are working best. Sales are still slow; however, cancellation rates have decreased.” (Colorado Springs, CO)
- “100% of backlog is being offered some kind of rate buydown that is comparable to new sales.” (San Antonio, TX)
(…) The dollar amount the builder pays for the buydown varies wildly by loan amount, the buyer’s down payment, type of loan, and the term of the buydown, ranging from a low of roughly $6K to as high as $48K.
EARNINGS WATCH
The Q3’22 earnings season is over and it was not quite as good as many believe:
- 71% of companies beat expectations but the 4.4% actual increase nonetheless only matched the Oct. 1st forecast (+4.5%).
- That is even though revenue growth of 11.7% was better than the +9.7% expected.
- Six of the 11 sectors underwhelmed, four beat and one was in line. The 141% jump in Energy earnings saved the quarter.
- Ex-E, S&P 500 EPS declined 3.4% after -2.1% in Q2.
- Q4 estimates call S&P 500 earnings down -0.7%, a big downgrade from +5.8% expected on Oct.1. Q1 and Q2’23: +2.1% and +0.5% vs +7.4% and +5.3% expected 6 weeks ago.
- Ex-Energy, however, we may be in for 2 more negative quarters: -5.5% in Q4 and -0.1% in Q1’23. That would be 4 consecutive down quarters.
Trailing EPS are now $222.41. Full year 2022: $220.40e. 12-m forward EPS: $224.78. Full year 2023: $231.14e.
Liquidity Tides: As things stand, the global liquidity headwinds remain considerable, but intriguingly do appear to be at least initially incrementally turning the corner… (but let’s not get too far ahead ourselves just yet) (Callum Thomas)
China’s Top Medical Adviser Says Omicron’s Risks Same as Flu
(…) The death rate from omicron is around 0.1%, similar to the common flu, and the infection rarely reaches the lungs, Zhong Nanshan was quoted in an interview with state news agency Xinhua. Most people recover from the variant within seven to 10 days, he said.
Zhong’s comments follow the government’s latest line on the coronavirus, which talks down the disease’s dangers as China moves toward exiting its Covid Zero policy. (…)
There’s an “urgent need” to increase booster-shot rates as travel during upcoming holidays will raise the risk of a large-scale spread, Zhong was quoted as saying on Saturday.
“It’s unlikely people will stay put for the 2023 Lunar New Year holiday so I advise those who will travel home to get booster shots so that even if they are infected, symptoms will be mild,” he said.
The Lunar New Year holiday runs from Jan. 21 to Jan. 27 but usually lasts about 40 days as people take off before and after the official break. Hundreds of millions of Chinese return to their home provinces for family reunifications during New Year.
China issued a plan on Sunday to enhance capacity of county-level medical facilities to better protect people living in rural areas from Covid. It requested such hospitals to boost their intensive care unit capacity by the end of December. Medical staffers from pediatrics and other units need to receive training on how to look after patients in ICU, according to the plan. (…)
- Beijing Approves mRNA Vaccines for German Nationals in China Beijing will grant German nationals living in China access to mRNA vaccines produced by the European country, according to the foreign ministry. The move was expected after German Chancellor Olaf Scholz said last month that China will make BioNTech SE’s Covid-19 vaccine available to foreigners living in the country.
China Suspends Alcohol Imports From Taiwan as Tensions Mount China also halted imports of some other beverages, including Uni-President Enterprises Corp. products, according to Taiwan’s Next Apple News website.
(…) Beijing has scaled back purchases of Taiwanese products as it seeks to punish the island’s democratically elected government for increasing ties with the US and its allies. While food made up a tiny fraction of Taiwan’s more than $328 billion of two-way trade with China last year, it’s one area where Beijing can find alternative sources, in contrast to semiconductors from Taiwan’s technologically advanced manufacturers.
In the wake of US House Speaker Nancy Pelosi’s visit to Taipei in August, China said it would suspend imports of some fish and fruit from the island.