ADVANCE MONTHLY SALES FOR RETAIL AND FOOD SERVICES, JANUARY 2022
Advance estimates of U.S. retail and food services sales for January 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $649.8 billion, an increase of 3.8 percent (±0.5 percent) from the previous month, and 13.0 percent (±0.9 percent) above January 2021. Total sales for the November 2021 through January 2022 period were up 16.1 percent (±0.7 percent) from the same period a year ago. The November 2021 to December 2021 percent change was revised from down 1.9 percent (±0.5 percent) to down 2.5 percent (±0.3 percent).
Retail trade sales were up 4.4 percent (±0.4 percent) from December 2021, and up 11.4 percent (±0.7 percent) above last year. Gasoline stations were up 33.4 percent (±1.8 percent) from January 2021, while food services and drinking places were up 27.0 percent (±4.4 percent) from last year.
Supplier Prices Jumped Last Month as U.S. Inflation Surged Latest figures seen as reinforcing case for the Fed to raise rates at March policy meeting
The Labor Department on Tuesday said the producer-price index, which generally reflects supply conditions in the economy, rose a seasonally adjusted 1% in January from the prior month, the sharpest rise since May 2021 and a pickup from December’s revised 0.4% rise. (…)
Producer prices rose 9.7% on a 12-month basis, nearly the same as the prior month. Stripping out pandemic-driven data distortions still showed that inflation was unusually elevated. Producer prices jumped at a 5.6% annualized rate from the same month two years ago, the fastest pace since records began in 2012 and well above the pre-pandemic peak of 2.9% in October 2018. (…)
Goods prices leapt 1.3% in January from the previous month, up from a 0.1% decline in December. Much of that was driven by a sharp increase in the prices of foods and energy. However, core goods still climbed 0.8% last month, accelerating from 0.4% in December. (…)
Energy prices rose 2.5% in January from December, pulled up by sharp increases in liquefied petroleum gas and diesel fuel. Residential electric power and natural gas ticked up just 0.5%. The price index for motor vehicles and equipment climbed 0.7%.
Prices for services rose 0.7% last month, holding at the same pace as in December. This was driven in part by a jump in prices for hospital outpatient care, portfolio management, legal services and traveler accommodation. Vehicle wholesalers and clothes retailers also raised prices. Prices for passenger transport and physician care fell. (…)
Haver Analytics phrased it differently but rather smartly: “Pricing power at the wholesale level strengthened last month.” Given that expectations were for a rather high 0.5% increase in the January PPI, a 1.0% jump means the inflation pipeline must be bulging.
An optimistic eye would say that PPI inflation is cresting on a YoY basis. But Haver’s table below suggests continued strong pressures. Core Final Demand PPI is up 8.7% a.r. in the last 3 months while Core Goods PPI is up 8.2% a.r.. Services PPI, up 5.3% in 2021 and 7.7% in January 2022 is up 9.5% a.r. in the last 3 months.
If the Fed is lucky, these cost increases will not fully find their ways into consumer prices, but that would mean that corporate officers and their investors will not be so lucky…
This is the first time since 2008 that PPI inflation substantially exceeds CPI inflation. The pressure on corporate margins is significant, right when demand seems to be waning. Quarterly S&P 500 revenues grew 17.5% on average in 2021, helping offset accelerating costs. Analysts currently expect quarterly revenues to grow 7.8% on average in 2022. PPI inflation reached 9.7% YoY in January and 9.5% annualized in the last 3 months.
Profits don’t grow out of thin air.
It happens that the NY Fed yesterday released its Empire State Manufacturing survey conducted February 2-9.
Manufacturing activity was little changed in New York State for a second consecutive month according to the February survey. After falling to around zero last month, the general business conditions index edged up four points to 3.1 [expectations was 12.0]. Thirty-four percent of respondents reported that conditions had improved over the month, while 30 percent reported that conditions had worsened.
But new orders were a very low 1.4 in February, from -5.0 in January and +27.1 in December while inventories kept rising.
The prices paid index was little changed at 76.6, while the prices received index rose a steep seventeen points to a record high of 54.1, signaling ongoing substantial
increases in both input prices and selling prices. The index of expected business conditions in six months eased to 28.2 in February from 35.1 in January. It had been as high as 52.0 in October.
Another survey says:
The Conference Board Measure of CEO Confidence™ in collaboration with The Business Council declined for the third consecutive quarter in Q1 2022. The measure now stands at 57, down from 65 in Q4 2021. While still in positive territory, the Measure is now down 25 points from the all-time high of 82 recorded in Q2 2021. (A reading above 50 points reflects more positive than negative responses.)
(…) only one-third of CEOs now report current economic conditions are better than six months ago—down dramatically from over 60 percent in Q4 2021. Expectations for future conditions also softened, though 50 percent of CEOs still expect the economy to improve over the next six months—roughly double the proportion expecting conditions to worsen.” (…)
Notably, nearly 3 out of 4 do not expect projected interest-rate increases from the Federal Reserve to quickly tame rising prices in the months ahead.
“CEOs are preparing for supply constraints and wage inflation to persist well into this year and potentially beyond,” said Roger W. Ferguson, Jr., Vice Chairman of The Business Council and Trustee of The Conference Board. “While interest-rate hikes should help dampen inflation, few are expecting prices to stabilize rapidly. As a result, a vast majority of CEOs still foresee a need to pass along rising costs to consumers over the next 12 months.” (…)
- 40% of CEOs reported that conditions in their industries were better compared to six months ago, down from 58%.
- 22% said conditions in their own industries were worse, up from 18%.
- 58% of CEOs expected conditions in their own industry to improve over the next six months, down from 61%.
- 13% expected conditions to worsen, up from 8%.
- 85% of CEOs expect to increase wages by 3% or more over the next year, up from 79% in Q4.
- 48% of CEOs expect to increase their capital budgets in the year ahead, down from 57% in Q4.
Heineken chief warns cost inflation is ‘off the charts’
Heineken NV warned it’s facing the worst inflation in a decade and said consumers may cut back on beer, threatening the industry’s recovery from the pandemic. (…)
Heineken delayed updating its guidance for 2023 until later in the year amid the increased uncertainty about economic growth and inflation. It’s the latest consumer goods company to warn of the impact of rising prices. Earlier this month, Danish rival Carlsberg A/S set a bearish tone for the industry, saying it’s possible that earnings might not grow this year. (…)
Chief Financial Officer Harold van den Broek said the company aims to raise prices for its beer by “courageous” amounts across the world to offset soaring expenses related to aluminum, which has risen 50% from January 2021, barley, which has doubled in cost, and freight from China to the U.S., which has “been going absolutely crazy.” (…)
CEO van den Brink said the brewer isn’t seeing consumers trading down to cheaper brands. (…)
Heineken said it’s continuing to target a 17% operating margin in 2023, though signaled that may become more difficult.
Chinese inflation data also shows a growing corporate squeeze:
- The producer-price index rose 9.1% YoY in January, down from December’s 10.3%.
- The Consumer Price Index edged up by 0.9%, compared with 1.5% in December. Core consumer inflation rose 1.2% in January, unchanged from December.
The mid-terms are coming!:
- US considers suspending gas tax to combat rising inflation Democratic lawmakers propose scrapping levy of 18.4 cents per gallon on petrol
The Fed Missed Inflation. Can Jay Powell Tame It Without Causing a Recession? Chairman engineered an economic rescue but now has tricky task of cooling prices without hampering growth
(…) “We’re pretty far behind the curve. That’s not where we wanted to be,” said Eric Rosengren, who as president of the Boston Fed until last September had a hand in designing those policies. (..)
No Fed chairman since Paul Volcker in the early 1980s has had to grapple with inflation this high. (…) Historically, the Fed hasn’t been able to push down inflation without a recession. (…)
Fed officials warn they can’t provide that same predictability this time. For markets “it could be a bumpy time,” said Esther George, president of the Kansas City Fed. (…)
“Ambiguity has its uses, but mostly in noncooperative games like poker,” Mr. Bernanke told colleagues in 2003, according to transcripts of a Fed policy meeting that year. “Monetary policy is a cooperative game. The whole point is to get financial markets on our side and for them to do some of our work for us.” (…)
If Mr. Powell and his colleagues deliver such a move [+50 points], they could be criticized for panicking. If he opts for the smaller increase, he could be criticized for not taking inflation seriously enough. (…)
Mr. Rosengren said the prospect of a soft landing for the economy has diminished over the past six months because of more persistent supply shocks and workers winning higher wages to offset higher prices.
Rapidly raising rates to address the inflation problem increases the risks of a recession, he said. “If you’re raising rates rapidly, you don’t have time to see how the rate increases you’ve already done have slowed down the economy,” he said. (…)
LIQUIDITY MATTERS!
(…) Rather than attempt to follow every twist and turn of the geopolitical drama, or all the excitement in Washington, it might be best to focus on the most vital commodity market — liquidity.
Mike Howell of Crossborder Capital Ltd. in London is the doyen of liquidity analysts. By his measure, the liquidity created by central banks has stopped growing and is now in a significant decline. It is the second derivative of the change in the speed with which liquidity is flowing that has the greatest impact on markets:
As he shows, provision of liquidity and the creation of wealth through higher asset prices are intimately connected over time. Falling liquidity, while obviously necessary now that the emergency has passed and inflation is rising, could well signal problems ahead:
(…) Over time, Howell shows in this chart that a flatter yield curve tends to be followed quite swiftly by rising credit spreads. While there is no great issue with solvency at present, this suggests that credit may already be causing problems by the end of this year: (…)
The latest BofA Fund Manager Survey reveals that managers have increased their own liquidity in recent months…
…selling a lot of tech stocks:
Will the retail mob challenge them?
The rare case of a dual pullback in stock and bond total returns
(…) This sell-everything mentality has created an unusual situation where both stocks and bonds are losing ground simultaneously. (…)
Investors have endured a dual pullback only a handful of times in the past 46 years.
These dual pullbacks were a good sign that whatever macro concerns were driving the selling was mostly overdone. The S&P did suffer some losses in the months ahead, especially in 2008 as the final bout of panic hit markets. But over the next year, there was only a single small loss, which was quickly and dramatically reversed.
The Risk/Reward Table shows that except for 2008, the “risk” side of the equation was relatively limited, while “reward” was especially impressive after a year and beyond.
It’s been mostly a tailwind for the bond market over the past 40+ years, so it’s not a big surprise that the total return on the Bloomberg U.S. Bond Aggregate was mouth-watering. From 9 months and beyond, the Bloomberg Aggregate showed gains every time, well above random returns. (…)
Nato says Russian troop numbers still rising near Ukraine border ‘We have not seen any de-escalation,’ says Stoltenberg despite Moscow insisting it is withdrawing forces
He Was Going to Win Olympic Gold. Then He Skied the Wrong Way.
Apparently, Yogi Berra, giving Joe Garagiola directions to his house, once said “When you come to a fork in the road, take it.”
Norway’s Jarl Magnus Riiber, “probably going to go down as the best Nordic combined skier ever”, seems to know:
As he entered the first of four 2.5-kilometer loops of the unfamiliar course, Riiber came to a fork. To the left was the cross-country circuit. To the right was the path to the finish line. Riiber, who hadn’t had a chance to practice on the Olympic track, sped toward the snow-covered lanes separated only by some low cones and a small sign. He picked the lane on the right.
He picked wrong. (…)
It would have gone down as a once-in-a-lifetime error for a star of his caliber except for one tiny detail: Riiber has done this before.
Back in 2016, an 18-year-old Riiber was racing at a World Cup in Lahti, Finland and already showing signs that he could dominate the sport. He’d owned the jumping portion, just as he would in Beijing, and flown out to an early lead in the cross-country race. But once he hit the stadium, the directionally challenged Nordic combined legend took a wrong turn and never had a chance to correct his mistake. (…)