U.S. Supplier Price Increases Eased in October, Taking Pressure Off Inflation Producer-price index gains have moderated in recent months
The producer-price index, which generally reflects supply conditions in the economy, climbed 8% in October compared with the same month a year ago, the Labor Department said Tuesday. Though prices continued to rise rapidly, the pace marked an easing from September’s revised 8.4% increase, and was down sharply from the 11.7% increase in March, the highest since records began in 2010. (…)
On a monthly basis, the PPI increased 0.2% in October from September. That was the same as the revised 0.2% increase in September, and matched the average monthly gain in the two years before the pandemic. (…)
The so-called core price index—which excludes the often-volatile categories of food, energy and supplier margins—climbed 0.2% in October from a month earlier, after gaining a revised 0.3% in September. That pace was down markedly from the 1.0% monthly gain in March. On a 12-month basis, core PPI eased to 5.4%, from 5.6% in both September and August. (…)
More from Haver Analytics:
The PPI for goods less food & energy eased 0.1% (+6.6% y/y) in October after holding steady in September. Finished consumer goods prices less food & energy increased 0.2% (7.7% y/y) for the second straight month. Durable consumer goods prices eased 0.1% (+6.7% y/y) while core nondurable consumer goods prices rose 0.3% (8.2% y/y). (…)
Services prices less trade, transportation & warehousing improved 0.2% (3.0% y/y) after rising 0.5% in September.
Last 3 months annualized: core goods: +0.4% with most prices in the pipeline deflating, services: +4.0%.
Goldman Sachs: “Based on details in the PPI and CPI reports, we estimate that the core PCE price index rose 0.24% in October, corresponding to a year-over-year rate of +4.97%. Additionally, we expect that the headline PCE price index increased 0.36% in October, or increased 6.02% from a year earlier.”
Core PCE inflation was +0.54% in August and +0.45% in September.
History Lessons: How “Transitory” Is Inflation?
Rob Arnott is the corresponding author.
Key Points
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The US Federal Reserve Bank’s expectations for the speed of reverting to 2% inflation levels remains dangerously optimistic.
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An inflation jump to 4% is often temporary, but when inflation crosses 8%, it proceeds to higher levels over 70% of the time.
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If inflation is cresting, inflation levels of 4 or 6% revert by half in about a year. If inflation is accelerating, 6% inflation reverts to 3% in a median of about seven years, threatening an extended period of high inflation.
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Reverting to 3% inflation, which we view as the upper bound for benign sustained inflation, is easy from 4%, hard from 6%, and very hard from 8% or more. Above 8%, reverting to 3% usually takes 6 to 20 years, with a median of over 10 years.
- Goods inflation falling much faster than in the stagflation era (NBF)
Recent developments in the U.S. offer hope that the Federal Reserve may soon declare a ceasefire and pause its tightening campaign. Year on year, headline inflation clocked in at 7.7% in October, down from 8.2% the prior month and two ticks below the median economist forecast. While these figures remain unacceptably high, there are signs of a more significant turnaround, particularly in the consumer goods segment where price cuts are now being made.
After a stable reading in September the core goods CPI fell 0.4% in October. As a result, three-month annualized inflation, which was a record 26.3% in June 2021, was only 0.4% in October 2022.
As today’s Hot Chart shows, this improvement is much faster than in the stagflation era when it took more than a decade of high unemployment to bring inflation down to current levels. A wave of major corporate layoffs, accompanied by forced deleveraging, could still be avoided to get inflation back to normal.
- Almost Daily Grant:
Inflation expectations are entrenching themselves, the Federal Reserve Bank of New York finds today, as its latest consumer survey reveals that respondents expect price growth of 5.9% over the next 12 months and 3.1% during the next three years. That compares to 5.4% and 2.9%, respectively, last month.
CoreLogic: Annual Single-Family Rent Growth Decelerates for Fifth Consecutive Month
(…) Year-over-year single-family rent growth slowed for the fifth consecutive month in September 2022 to 10.2%, down from a high of 13.9% in April 2022. (…)
“Annual single-family rent growth decelerated for the fifth consecutive month in September but remained at more than twice the pre-pandemic growth rate,” said Molly Boesel, principal economist at CoreLogic. “High mortgage interest rates may be causing potential homebuyers to hit pause and remain renters, keeping pressure on rent prices. However, the monthly rent change was negative in September, resuming the typical seasonal pattern for the first time since 2019, which could signal the beginning of rent price growth normalization.” (…)
Food Prices Are Coming Down — Just Not in Time for Thanksgiving
(…) The fall in wholesale agricultural commodities prices will take some time to filter down into the supermarkets. And their high energy and transportation costs will still offset some of the declines. (…)
Deflation is already visible in large swathes of food categories, including fish, legumes and certain kinds of meat and vegetables. The cost of lamb, for example, is down 25% since January. Salmon prices are down 40% from their most recent peak. Poultry prices have tumbled more than 25% since the beginning of the year. And from a recent peak only a few months ago, chickpeas, a staple for one billion people in south Asia, are down 20%, while tomato prices in Europe have fallen 40% and palm oil in Asia is down almost 50%. (…)
Walmart Sales Rise as Retail Giant Gains Shoppers Comparable U.S. sales, those from stores and digital channels operating over the past 12 months, rose 8.2% through Oct. 28 from a year earlier.
(…) Sales of groceries, store brands and seasonal items were strong, the company said, helped by higher prices. Shopper visits to stores increased 2.1% in the third quarter. (…) The average amount that Walmart U.S. shoppers spent per trip rose 6% from last year, while it increased 4.9% for Sam’s Club shoppers. (…)
Inventories were more than 12% higher than a year ago, compared with increases of 25% and 33% in the previous two quarters. (…) Walmart’s U.S. business has under $1 billion in excess inventory, down from about $1.5 billion last quarter, company executives said. Most of that is now in stores, not in the supply chain, which gives Walmart more control over how to offload it, said John David Rainey, Walmart’s chief financial officer, in an interview. (…)
Shoppers are buying those [discretionary] items when they are on sale, he said. (…) Inflation is cooling in some general-merchandise categories, he said, but is persistent in food.
Walmart’s stock rose nearly 7% to $147.44 in Tuesday trading, as the company raised its sales outlook and said earnings on an adjusted basis would decline by a smaller margin than it previously expected. The share-price gain also came as the company reported that it swung to a quarterly loss after settling a series of lawsuits related to dispensing opioid medication.
Target Corp. and Macy’s Inc. are slated to release their quarterly reports later this week. Home Depot Inc. also on Tuesday reported steady sales growth in its latest quarter, with comparable sales up 4.3% in the quarter ended Oct. 30, lifted by higher prices. (…)
Balances Are on the Rise—So Who Is Taking on More Credit Card Debt?
Total household debt balances continued their upward climb in the third quarter of 2022 with an increase of $351 billion, the largest nominal quarterly increase since 2007. This rise was driven by a $282 billion increase in mortgage balances, according to the latest Quarterly Report on Household Debt & Credit from the New York Fed’s Center for Microeconomic Data.
Mortgages, historically the largest form of household debt, now comprise 71 percent of outstanding household debt balances, up from 69 percent in the fourth quarter of 2019.
An increase in credit card balances was also a boost to the total debt balances, with credit card balances up $38 billion from the previous quarter. On a year-over-year basis, this marked a 15 percent increase, the largest in more than twenty years.
Credit Card Balances Are on the Upswing
Source: New York Fed Consumer Credit Panel / Equifax.
Delinquency Rates Remain Low Despite Recent Increases
Source: New York Fed Consumer Credit Panel / Equifax.
- Loan defaults may be starting to rise
Industry-wide data shows that less affluent borrowers are leading the way with impairment levels on unsecured personal loans that are about twice as high as before the onset of COVID. By comparison, highly affluent borrowers are now roughly back to being in line with pre-COVID impairment levels, although they continue to rise.” – Upstart (UPST ) CFO Sanjay Datta (via The Transcript)
Empire State Manufacturing Index Shows Modest Improvement in November
The Empire State Manufacturing Index of General Business Conditions was 4.5 in November, an improvement from October’s -9.1. This latest reading is the first positive one since July. Also, it is more favorable than the Action Economics Forecast Survey, which anticipated -7.5. The latest survey was conducted between November 2 and 9.
Haver Analytics constructs an ISM-adjusted Empire State diffusion index using methodology similar to the ISM series and information from five component indexes in the survey. This measure had an improvement, registering 53.7, up from 51.5 in October.
(…) As last month, the details in this report are mixed. Shipments were stronger (…). But new orders increased at 29.1% this month and decreased at 32.4%, for an index reading of -3.3, noticeably less than October’s +3.7. (…)
The labor-related components were both positive: the index of the number of employees increased from 7.7 to 12.2 (…). The average workweek index rose to 6.9 from 3.3 (…).
Inflation pressure was evident in the prices paid readings, (…) the overall prices paid index increased from 48.6 to 50.5.
(…) the prices received index was 27.2 this month, up from 22.9 in October.
Looking ahead six months, the respondents were more pessimistic. The general business conditions reading fell to -6.1 from -1.8. New orders, shipments and inventories all moved in a negative direction while unfilled orders and delivery times did improve but that’s because they were less negative than their respective October readings. Inflation expectations decreased modestly.
China’s home prices see biggest fall in 7 years, recovery bumpy
New home prices slumped 1.6% year-on-year after a 1.5% fall in September, according to Reuters calculations based on National Bureau of Statistics (NBS) data on Wednesday. That was the biggest annual drop since August 2015 and the sixth month of contraction. (…)
New home prices declined 0.3% month-on-month after easing 0.2% in September. Out of the 70 cities surveyed by NBS, 58 reported month-on-month price falls in October, up from 54 cities in September.
Data on Tuesday also pointed to further weakness in the cash-strapped sector, showing property investment fell at its fastest pace in 32 months in October and sales slumped for the 15th straight month.
Even dubious official data show home prices deflating at an accelerating pace: -3.0% a.r. in the last 2 months, -3.6% in the last month.
GETTING SENTIMENTAL? …
From SentimenTrader:
(…) A six-month average of the four surveys has now dropped to the lowest on record. It exceeds the worst pessimism during the financial crisis, the early 1990s savings-and-loan debacle, and the late ’70s period of general malaise. All were associated with recessions.
When the 6-month average of these surveys got this low, it was early during the financial crisis, and investors in the S&P 500 were still nursing losses three years later not including dividends. The others, however, coincided with the ends of bear markets or just after. Given that the 6-month average will now be dropping off low readings from June, it’s almost certain to have formed a trough in November. (…)
What the research tells us…
Surveys of consumer sentiment in the U.S. and pretty much everywhere else are in the toilet. They’ve plunged to some of the lowest levels on record, if not the lowest. Issues other than stock prices drive these surveys, and they’re not necessarily good timing mechanisms for the stock market – we can look at 2008 for evidence of that. But the wealth effect is real and a significant factor in how consumers feel about their finances. By the time it has gotten as depressed as it is now, lasting as long as it has now, the long-term returns of stocks have been consistently and strongly positive.
…OR RATIONAL?
Many analysts expect an earnings recession ahead. (The Daily Shot)
Source: Morgan Stanley Research