Drop in U.S. Retail Sales Indicates Shift to Services Spending The value of overall retail purchases dropped 1.1% last month following a upwardly revised 0.7% increase in June, Commerce Department figures showed Tuesday. The median estimate in a Bloomberg survey of economists called for a 0.3% decrease. Excluding autos, sales decreased 0.4% in July.
Just out this morning. Details here.
Inflation Cherry-Pickers Can’t Drown Out the Noise Price pressures are a problem, or not, depending on what you look at.
John Authers recently built his own inflation gauge with 35 indicators.
(…) They were judgment calls, made after talking to people and giving the matter some thought, rather than quantitative decisions. That enabled us to resist temptations to “cherry-pick” to back one argument or another. (…)
When it came to overall measures, I talked to a number of people about sensible gauges of core inflation. The most frequently mentioned by far was the Cleveland Fed’s “trimmed mean” which excludes the biggest outliers in either direction and takes the average of the rest. In the last couple of months, plenty of analysts have trumpeted the praises of the median (the component that sits in the middle of the distribution). I don’t recall anyone suggesting the median when I was drawing up our indicators.
There’s a reason a lot of people want to use the median now; it suggests there’s little cause for worry. The trimmed mean, on the other hand, has just risen very sharply. Here is how they’ve both moved over the last two decades, in a chart I published last week:
At the point I decided to include the trimmed mean, it suggested less of an inflationary problem than the median. Now that’s reversed. (…)
Here’s a longer term chart of the same data but quarterly and with the most recent June data:
What’s the debate, you might ask? This chart plots the difference between the two series:
Between 1983 and 1993, the difference averaged 0.05%. The gap grew to +0.3% between 1994 and 2003, narrowed to +0.1% between 2004 and 2013 and it has been +0.4% since excluding the last quarter. In total over 37 years, the median CPI has averaged 0.22% above the trimmed-mean CPI.
But what’s the significance of the last quarter’s huge gap with trimmed-mean CPI 2% above median CPI? It has to mean that inflation at the lower end of the trimmed series is unusually much lower than that at the higher end, or vice-versa. How about a median of the trimmed-mean CPI?
The next two charts compare median CPI and trimmed-mean CPI with core CPI:
I did the math for you: median CPI and trimmed-mean CPI minus core CPI:
- between 1983 and 1993: -0.41% vs -0.47%;
- between 1994 and 2003: +0.21% vs -0.12%;
- between 2004 and 2013: +0.33% vs +0.21%;
- between 2014 and 2020: +0.52% vs +0.13%;
For the whole 37-year period: +0.14% vs -0.08%. But overall, trimmed-mean CPI is better, particularly in the most recent period.
Here’s a more interesting factoid about inflation from SentimenTrader’s Jason Goepfert:
(…) If we look at the 12-month rate of change in PPI, we can get a sense for one popular measure of inflation. By this method, at the end of August 2021, the 12-month % change for PPI will be 19.79% (we advance it by a month to account for reporting lags).
The historical chart since 1914 appears below.
The chart below displays the cumulative % gain or loss for the Dow since 1914 if held only when PPI inflation at the end of the previous month is greater than +4%. Holding the Dow over the last 107 years ONLY when PPI 12-month inflation was greater than 4% produced a loss of -3%.
To put this -3% loss for the Dow into perspective, note that from February 1914 through July 2021, the Dow gained +57,875% (price only). The results get even more extreme when looking at larger numbers in the PPI rate of change.
So does this mean that we need to be concerned about high inflation this time around?
The jury is still out on that one.
The bottom line is that – based on historical results – the current state of inflation should be listed on the negative side of the “Weight of the Evidence” ledger.
Jason also tackles the market’s lack of breadth (the stats can be seen via the link):
As Stocks Creep Higher, No New Highs in Cumulative Breadth
(…) If we stick to the old school and simply look at the NYSE A/D Line, then things don’t look too bad. It’s hanging in there along with the major indexes. About the only potential negative is that it hasn’t reached a new high for a couple of months. The S&P 500, meanwhile, has closed at a new high 18 times.
When we look at two-month windows (42 trading days) and tabulate how many 52-week highs the S&P 500 scored without any concurrent new highs in the A/D Line, this is the widest divergence in 25 years.
The last time the S&P scored so many new highs without a new high in the A/D Line was in 1995, which preceded one of the greatest runs in stock market history. It also triggered before a nice rally in 1964 (which ultimately failed). The other precedents, though, were not nearly as kind.
While the S&P managed to hold up most of the time over the medium-term, it ran into trouble over the next 6-12 months after 5 of the 7 signals.
If we relax the parameters to generate a larger sample size [> 10 new S&P 500 highs in the past 2 months vs > 15 above], then lesser divergences showed weak returns across all time frames, with tepid average returns, risk/reward ratios, and probabilities of a big drop vs. a big rise.
(…) Nobody said markets were easy, and this is one of the more difficult periods we’ve witnessed in the past 20 years, with some wild cross-currents.
It would be better if the pure price momentum in the indexes was being accompanied by similar momentum in many of the breadth metrics. It’s not ridiculously egregious like it was in 2000 or even 2015, but it’s enough to cast a wary eye over the short- to medium-term as stocks creep higher with seemingly no repercussions. (…)
Smaller caps keep lagging. Yesterday, the S&P 500 and the DJIA closed up 0.3% but the Russell 2000 dropped 0.9%.
U.S. Import Prices Moderate; Export Prices Strengthen
Import prices rose 0.3% in July (10.2% y/y) following a 1.1% June increase, revised from 1.0%. It was the smallest increase since November 2020. The Action Economics Forecast survey expected a 0.6% rise. Export prices strengthened 1.3% last month (17.2% y/y) after gaining an unrevised 1.2% in June. A 0.8% rise had been expected.
(…) Nonfuel import prices held steady (6.3% y/y) after a 0.7% rise. Foods, feeds, and beverage prices rose 0.3% (9.6% y/y) following a 1.9% jump. Automotive vehicle, parts & engine import prices rose 0.4% (1.9% y/y) after rising 0.2% in each of the prior three months. Nonauto consumer goods prices edged 0.1% higher (1.0% y/y) after two straight months of 0.3% increase while capital goods costs gained 0.4% (2.0% y/y), the same as in June.
The 1.3% rise in export prices in July was led by a 1.6% gain in nonagricultural prices. Prices for agricultural exports fell 1.7% (+29.2% y/y) and reversed a 1.5% June increase. Industrial supplies and materials prices rose 3.2% (42.3% y/y), driven by higher fuel prices. Capital goods prices rose 0.5% (2.1% y/y) after a 0.4% increase. Auto export prices improved rose 0.4% (1.7% y/y) following a 0.2% gain while nonauto consumer goods prices rose held steady (3.0% y/y) following a 0.9% strengthening.
China steps up tech scrutiny with rules over unfair competition, critical data
(…) Internet operators “must not implement or assist in the implementation of unfair competition on the Internet, disrupt the order of market competition, affect fair transactions in the market,” the State Administration for Market Regulation (SAMR) wrote in the draft, which is open to public feedback before a Sept. 15 deadline.
Specifically, the regulator stated, business operators should not use data or algorithms to hijack traffic or influence users’ choices. They may also not use technical means to illegally capture or use other business operators’ data.
Companies would also be barred from fabricating or spreading misleading information to damage the reputation of competitors and need to stop marketing practices like fake reviews and coupons or “red envelopes” – cash incentives – used to entice positive ratings.
Soon after the draft tech rules were published, China’s cabinet announced it would also implement regulations on protecting critical information infrastructure operators from Sept. 1.
The State Council said operators must conduct security inspections and risk assessments once a year, and should give priority to purchasing “secure and credible network products and services,” marking an elaboration on the landmark Cybersecurity Law that passed in 2017.
The Chinese government has also taken ownership stakes in the domestic entities of social media giants ByteDance and Weibo (WB.O), Reuters reported on Tuesday citing corporate filings. read more
The Chinese tech implosion continues. (The Market Ear)
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