Advance Estimates of U.S. Retail and Food Services
Advance estimates of U.S. retail and food services sales for June 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $680.6 billion, an increase of 1.0 percent (±0.5 percent) from the previous month, and 8.4 percent (±0.7 percent) above June 2021. Total sales for the April 2022 through June 2022 period were up 8.1 percent (±0.5 percent) from the same period a year ago. The April 2022 to May 2022 percent change was revised from down 0.3 percent (±0.5 percent) to down 0.1 percent (±0.3 percent).
Gasoline stations were up 49.1 percent (±1.6 percent) from June 2021, while food services and drinking places were up 13.4 percent (±3.9 percent) from last year.
Ex-autos & gas, sales rose 0.7% in June (6.6% YoY), below inflation.
More next Monday.
U.S. Initial Unemployment Claims Up Again
Initial claims for unemployment insurance filed in the week ended July 9 rose 9,000 to 244,000 (-37.6% y/y) from 235,000 the previous week, which was unrevised. The Action Economics Forecast Survey had expected a steady number of 235,000. The four-week moving average of initial claims rose to 235,750 from 232,500 in the prior week. The recent low for claims was 166,000 in the week of March 19.
This chart shows unemployment claims with the scale set to reflect levels between 2014 and 2019. The horizontal line is the average for that period. The low in claims was in March; they are up 38% since.
PEAKFLATION WATCH
Moody’s adds a different angle to inflation analysis:
Supply-chain-constrained components of the CPI added 1.1 percentage points to year-over-year growth in the CPI in June, less than the 1.5-percentage point contribution in April and the smallest since March 2021. In fact, supply chain issues have been adding less and less to growth in the CPI recently. Reopening-sensitive components of the CPI added 0.3 percentage point to growth in the CPI in June, less than the 0.4-percentage point contribution in each of the prior four months.
Excluding energy, supply chains and reopening, year-over-year growth in the CPI in May would have been 4.1% compared with 3.7% in May.
Supply-chain effects could well disappear quickly as demand destruction helps alleviate supply constraints. Reopening effects seem to be already easing, normal as reopening gradually loses the “re”. If it can stay that way…
Moody’s economist Ryan Sweet says that “the typical American household now needs to spend $493 more per month to buy the same goods and services as it did last year”. This resonates much louder than simply saying inflation is 9.0%. For most Americans, $493 per month gone in smoke, monthly, is very significant. That’s $6k per year, equivalent to $8-10k per year in pretax income.
Some people compensate with savings, until there is no more, some borrow, at Fed-hiked cost, but most simply cut spending. Whatever method gets used, it destroys demand, now and later.
One of the big surprise in the June CPI was the 0.7% MoM increase in durable goods prices. Moody’s:
We knew that rental inflation was going to be an issue this year but assumed that was going to be more than offset by goods disinflation. However, the disinflation in goods prices has been more gradual than anticipated. This could be an issue for the Fed, as rents will continue to rise, making it difficult for the central bank to have clear evidence that inflation is decelerating and removing the potential for a pause in the tightening cycle.
Durable goods account for 12.7% of total CPI, 16% of core CPI. Had the March-May trend persisted in June, core CPI would have increased 0.5% in June, not 0.7%.
New and used vehicles were again responsible for much of durables inflation. They together account for one third of durables’ weight in the CPI and they rose 0.7% and 1.6% MoM respectively in June. It is still a supply story since sales remain weak.
Manheim estimates that used retail sales were down 13% YoY in June and 11% from 2019. Manheim’s used vehicle prices were down 1.3% MoM in June compared with +1.6% in the CPI measure. Manheim says that it “saw larger declines over the last two weeks than the prior two weeks” so it is possible that the CPI survey was untimely.
Manheim’s used price index is down 6.9% from its December 2021 peak. Manheim also says that June “saw buyers with more bargaining power for this time of year”. Yet, the BLS measure was its highest last month and is up 2.8% from December.
I certainly don’t want to micro-analyse like many, and the Fed, did last year, looking at some specific trees and missing the whole inflation forest. But Moody’s calculations showing that, excluding energy, supply chains and reopening, headline CPI was +4.1% YoY in June is rather intriguing when put against the 9.1% jump in the total index.
Supply chains and reopening effects are admittedly transitory. Our focus should thus be on gasoline prices (92% of CPI-Energy commodities), up 59.9% YoY after another +11.2% MoM jump in June.
Gas prices peaked on June 15 and are since down 9.1%.
You might be surprised, like I was, to see how trends in gas prices are in pretty close sync with CPI-services (66% correlation since 2012):
The fact is that energy prices impact every sphere of activity (e.g.: transportation, heating, a/c) are are an important cost element for service providers. So while energy prices are excluded from core CPI, they do impact services inflation through indirect transmission.
This next chart plots both series monthly and shows how services inflation have diverged in 2022.
I see two possible explanations. One, wage increases have been so strong in services that providers had to boost prices well above what energy costs would have suggested. That does not verify so far: private wages and salaries are up 8.3% from their pre-pandemic level vs +8.1% for all private workers.
Two, reopening in services lagged the goods recovery and providers had to wait for demand to come back before raising prices. As a result, services prices have been in a catch up mode since March, transitory (!!) if you will…
Time will tell but there is a possibility (not a forecast!) that inflation could surprise us in coming months, particularly if oil prices retreat some more.
(Trading Economics)
U.S. Producer Price Inflation Accelerates to 11.3% Y/Y in June
The Producer Price Index for Final Demand rose 1.1% m/m in June after rises of 0.9 in May (+0.8% initially) and 0.4% in April, according to the Bureau of Labor Statistics. The June rise was the 19th straight m/m gain and the largest since March’s 1.6%. The year-over-year rate accelerated to 11.3% in June, the highest since March, from 10.9% in May. A 0.8% m/m rise had been expected in the Action Economics Forecast Survey. The June PPI rise was in line with the June CPI released yesterday (1.3% m/m; 9.1% y/y), supporting the view that U.S. inflation from both producer and consumer sides is intensifying.
Producer prices less food, energy & trade services increased 0.3% (6.4% y/y) in June after a 0.4% gain in May (+0.5% initially). The PPI less food & energy rose 0.4% (8.2% y/y) after rising 0.6% (+0.5% initially). A 0.5% m/m increase had been expected for the core PPI.
The June PPI rise was led by a 10.0% jump in energy prices, the six successive monthly rise to a record high, following a 1.4% December drop; the y/y rate accelerated to a record 54.4% from May’s 44.9%. Gasoline prices surged 18.5% (86.7% y/y) in June, the biggest m/m gain since December 2020, after an 8.6% rebound in May. Natural gas prices jumped 6.6% (33.9% y/y), the largest of 20 consecutive m/m rises. Home heating oil prices, however, fell 1.7% (+100.8% y/y), the first m/m fall since November, after a 3.5% gain.
Food prices ticked up 0.1% (12.7% y/y) in June, the sixth consecutive m/m increase, after a 0.5% rise in May (0.0% initially). Food prices for exports rose 1.0% (14.4% y/y) and government purchased food prices rose 0.2% (9.1% y/y), but finished consumer food prices slipped 0.1% (+12.7% y/y) following five successive m/m increases.
The PPI for goods less food & energy grew 0.5% (9.1% y/y) in June after a 0.6% increase in May, continuing its string of increases since June 2020. Prices for final demand finished goods less food & energy rose 0.7% (8.8% y/y) on top of a 0.8% rise. Finished consumer goods prices less food & energy increased 0.6% (8.4% y/y) after a 0.8% gain, with durable consumer goods prices up 0.5% (8.4% y/y) and core nondurable consumer goods prices up 0.7% (8.3% y/y). (…)
Services prices increased 0.4% (7.7% y/y) in June after a 0.6% May gain and a 0.1% April downtick, registering the 17th m/m rise in 18 months. Trade services prices rose 0.8% (14.8% y/y) in June, the eighth m/m gain in nine months, after a 1.0% rebound in May. Services prices less trade, transportation & warehousing inched up 0.1% (2.7% y/y) after a 0.1% uptick.
Construction product prices rose 0.5% in June (19.2% y/y) after a 0.3% May increase, continuing their string of increases since January 2021. Construction product prices for government grew 0.5% (15.9% y/y), the 17th m/m gain in 18 months. Construction product prices for private capital investment rose 0.6% (21.0% y/y), having been rising since January 2021.
Intermediate goods prices advanced 2.3% (22.2% y/y) in June, the sixth straight m/m rise, after a 2.1% increase in May, led by a 9.9% gain (60.1% y/y) in processed fuel costs.
Demand destruction:
Canadian Factory Sales Fall for First Time in Eight Months
Factory receipts dropped 2% in May, Statistics Canada reported Thursday in Ottawa. That’s in line with economists’ expectations for a decline of 2.4%.
Sales fell in 11 of 21 industries, with motor vehicle, primary metal and miscellaneous manufacturing industries leading the decrease, the statistics agency said. Stripping away prices, factory sales fell 3.9% in volume terms.
Total inventory levels rose 1.6% on the month to a fresh record high, while the inventory-to-sales ratio increased to 1.59 in May, from 1.54 in April.
China Posts Slowest Economic Growth in Two Years The Chinese economy narrowly avoided a contraction in the second quarter as Beijing’s zero-Covid approach took a toll.
Gross domestic product expanded at a 0.4% annual rate in the April to June period, China’s National Bureau of Statistics said Friday. That was the worst performance since the first quarter of 2020, when the pandemic first erupted and the economy shrank 6.9% after the Central Chinese metropolis of Wuhan became the first city in the world to lock down to stem the spread of Covid-19. Economists polled by The Wall Street Journal had forecast China’s economy to grow 0.9%. (…)
Four regions affected by city-level mobility restrictions reported outright contractions compared with the previous year. Output in Shanghai and Jilin tumbled 13.7% and 4.5% respectively. Beijing and Jiangsu, a prosperous industrial province neighboring Shanghai that relies on the city for much of its logistics and finance, also recorded year-over-year dips in economic activity. The two had placed parts of their region under some stay-at-home orders when coronavirus cases appeared.
On a quarter-to-quarter basis, China’s economy shrank 2.6%, data showed, marking only the second such contraction since comparable records began in 2010. (…)
Unemployment in urban China eased in June, data Friday showed, to 5.5%, from 5.9% previously. Youth unemployment hit a new high in June, with almost one in five workers aged 16 to 24 out of work. (…)
Data released on Friday showed retail sales rose an annual 3.1% in June, bouncing back from a 6.7% fall the previous month. Industrial production also recovered after lockdowns eased, rising an annual 3.9% in June after a 0.7% expansion in May. (…)
Fixed-asset investment rose 6.1% on year in the first half of the year, data showed, down slightly from a 6.2% increase in the January-May period. (…)
Homeowners’ Revolt in China Jolts Market
This week, a movement among frustrated homeowners who have threatened to stop paying their mortgages on unfinished homes quickly gathered steam on Chinese social media. People all over the country declared that they would do the same if developers don’t fulfill promises to deliver apartments that were earlier presold. (…)
The shares and U.S. dollar bonds of many developers also dropped, sending their debt securities to deeply distressed levels. Some investors described a wave of indiscriminate selling that has dragged down the bonds of even financially stronger Chinese companies with investment-grade credit ratings. (…)
Aggregate new home sales at the country’s 100 largest developers have fallen every month on a year-on-year basis since last July, and the declines accelerated in the first half of this year, according to China Real Estate Information Corp., an industry data provider. Home prices have also been falling, and private indicators of housing prices have been showing far bigger drops than China’s official data. (…)
Earlier this week, a list of around 30 property projects in which homeowners have said they would stop paying their mortgages appeared on Chinese social media and was picked up by several research firms. By Thursday, it had grown to more than 200 projects, including unfinished buildings by multiple developers, including Kaisa Group and China Aoyuan, which have defaulted on their dollar debt. (…)
On Thursday, more concerned citizens took to social media to express their worries about the deteriorating housing market. Online petitions among homeowners of unfinished property developments in Wuhan, Shanghai and other cities gathered hundreds of signatories who said they would stop paying their mortgages if construction didn’t resume, or if their homes weren’t delivered on developers’ promised schedules. (…)
Liu Jing, a sales manager with Shenzhen Worldunion Group’s Shanghai office, said that the lockdowns made some people realize the importance of owning a home. (…) “If there was another lockdown, I could relax in my garden and have some fresh air. I could feel a bit better,” Ms. Shen added. “I could also grow our own vegetables.”
Maybe lockdowns will save China’s housing market, at least give time to heal the deep wounds…
- The National Bureau of Statistics’ 70-city housing price data suggest the weighted average property price in the primary market continued to decline sequentially in June after seasonal adjustments, driven mainly by house price declines in lower-tier cities. The proportion of 70 cities that experienced sequentially higher property prices rose in both the primary market and secondary market in June from May, but remained below 50%. (Goldman Sachs)
Chinese seem to have found a way to safely protest…
Italian debt market flashes warning as Draghi government teeters
Celsius Owes Users More Than $4.7 Billion Celsius Network LLC has a roughly $1.2 billion hole in its balance sheet, with the majority of its liabilities owed to the cryptocurrency lender’s users, according to a Thursday filing by Chief Executive Alex Mashinsky.
(…) The company pitched itself as a safe alternative to traditional banks and promised users high interest rates. It was valued at about $3 billion after raising $690 million in a Series B financing round in May, according to the bankruptcy filing. (…)
(…) In May, a pair of linked cryptocurrencies, Luna and TerraUSD, collapsed, wiping out $40 billion in value.