NOTE: Technical issues at my hosting provider yesterday delayed posting well beyond my 8:30am target. Some of you may have missed this great post 
:
No Retail Recession Yet
Fourth-Quarter GDP Growth Estimate Unchanged
Post retail sales and industrial production yesterday:
On January 19, the GDPNow model estimate for real GDP growth in the fourth quarter of 2022 is 3.5 percent, unchanged from January 18.
On to Q1’23:
- Google Parent Alphabet to Cut 12,000 Jobs [6% of global workforce] The company’s largest-ever round of layoffs follows a wave of reductions at other technology companies in recent months, including Microsoft, Amazon and Meta.
- Capital One scraps 1,100 tech positions
- Wayfair Preparing to Lay Off More Than 1,000 Workers
(layoffs.fyi)
- Only 190,000 Americans filed for unemployment benefits last week, the lowest since September, even amid more headlines about massive tech layoffs. Initial jobless claims fell by 15k in the week ended January 14 (consensus +9k). The four-week moving average fell by 7k to 206k. Continuing claims rose by 17k to 1,647k in the week ended January 7. The horizontal line (230k) below is where claims were in Q4’20.
Philly Fed’s Manufacturing Business Outlook Survey
Just South of the NY Fed’s district which released its survey earlier this week.
Manufacturing activity in the region continued to decline overall, according to the firms responding to the January Manufacturing Business Outlook Survey.
The diffusion index for current general activity rose from a revised reading of -13.7 in December to -8.9 in January, its fifth consecutive negative reading and seventh negative reading in the past eight months.
The current new orders index rose 11 points but remained negative at -10.9, and the current shipments index climbed 12 points to 11.1 after turning negative in December.
On balance, the firms reported increases in employment, and the employment index improved from -0.9 in December to 10.9 this month. The majority of responding firms (65 percent) reported steady employment levels. The average workweek index also turned positive, rising from -6.6 to 4.0.
The indexes for prices paid and prices received continue to indicate overall price increases for inputs and firms’ own goods. The prices paid index declined 12 points to 24.5, its lowest reading since August 2020 and slightly below its long-run average. Nearly 40 percent of the firms reported increases in input prices, while 15 percent reported decreases; 45 percent of the firms reported no change.
The current prices received index edged up 2 points to 29.9. Almost 39 percent of the firms reported increases in their own prices, 9 percent reported decreases, and 51 percent reported no change.
In this month’s special questions, the firms were asked about changes in their various input and labor costs over the past year and their expectations for changes in costs for the coming year. For all categories, the average percent change in costs expected for 2023 was smaller than the average percent change in costs reported for 2022.
The respondents were also asked to rank the importance of various factors in setting prices. Demand for their own goods/services was the most important factor, followed by maintaining steady profit, wage and labor costs, and nonlabor costs. (…)
Discover Drops After Warning About Rising Credit-Card Losses
The firm expects net charge-offs to climb as high as 3.9% this year, Riverwoods, Illinois-based Discover said Wednesday in a presentation posted on its website. That compares with the 1.82% it booked for all of 2022 and is higher than the 2.8% analysts in a Bloomberg survey were expecting. (…)
Q4’22 NCOs were 2.37%. CC loans jumped 21.2% YoY in Q4. Discover users are generally low-middle income.
Summers Warns of 1970s Crisis If Central Banks Relent on Rates
Going soft on inflation will plunge economies back into the recessionary depths of the 1970s and have “adverse effect on working people everywhere,” former US Treasury Secretary Larry Summers warned.
The remark is a response to suggestions from economists including Olivier Blanchard, a former International Monetary Fund chief economist, who have suggested lifting inflation targets from 2% to 3% to avoid recessions. (…)
Summers warned: “It would be a grave error for central banks to revise their inflation target upwards at this point. Having failed to attain the 2% target and having re-emphasized repeatedly the commitment to 2%, to then abandon the target would do very substantial damage to credibility. If you can adjust once, you can adjust again.” (…)
- ECB’s Lagarde Says ‘Stay the Course’ Is Her Policy Mantra
- Top Fed Officials See Progress on Inflation Fight Vice Chair Lael Brainard sees little basis for 1970s-style wage-price spiral that sustains high inflation
Fed Vice Chair Lael Brainard indicated in remarks Thursday she was supportive of slowing the pace of rate rises to a more traditional quarter percentage point at the central bank’s next policy meeting, which is Jan. 31 to Feb. 1, joining a number of colleagues.
New York Fed President John Williams said at a separate event Thursday evening he was encouraged by signs interest-rate increases were having their desired effect in slowing growth and keeping consumers’ and businesses’ expectations of future inflation in check.
“We are seeing the shifting gears of tighter monetary policy having the desired effects,” he said during a speech to bond market analysts in New York. But, he added, “we still have a ways to go to get” the Fed’s policy rate “to the level that I think is sufficiently restrictive to achieve our goals.”
Investors in interest-rate futures markets expect the Fed to raise rates by a quarter point on Feb. 1. (…)
Many Fed officials this month have said they expect the central bank will need to raise rates to a level slightly above 5% this year, but Ms. Brainard didn’t say how high she expected rates to rise and instead cautioned that it would take time to get inflation down to the Fed’s 2% target. “Policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2% on a sustained basis,” she said. (…)
The Commerce Department is set to release next week December figures for the Fed’s preferred inflation gauge, the personal-consumption expenditures price index. Other inflation data suggests the index will rise 5.1% from a year earlier and at a 2.3% annualized rate over the last three months, Ms. Brainard said.
Excluding food and energy prices, the so-called core PCE index likely ran at a 3.1% three-month annualized rate in December, lower than the 4.5% increase from a year earlier, she said. (…)
Ms. Brainard said there are a “range of views on what it will take to bring down this component of inflation [core services ex-shelter] to pre-pandemic levels,” and that weaker demand for labor is one possible channel. But to the extent that non-wage costs “may have been responsible in part for important price increases for some nonhousing service sectors, an unwinding of these factors could help bring down nonhousing services inflation,” she said. (…)
The slowdown in inflation in recent months, together with the impact of the Fed’s rate rises that could continue to slow the economy, “may provide some reassurance that we are not currently experiencing a 1970s-style wage-price spiral,” said Ms. Brainard. “For these reasons, it remains possible that a continued moderation in aggregate demand could facilitate continued easing in the labor market and reduction in inflation without a significant loss of employment.” (…)
Ms. Brainard, like Mr. Powell, is focusing on the blue bar below, CPI-services ex-rent, which disappeared in October-November and rose only 0.2% MoM in December.
The “non-wage costs” she mentions are mainly energy costs for service providers.
Luckily, widespread mild weather is helping.
But companies like P&G keep rising prices, willingly sacrificing volume:
- P&G Earnings Slip as Higher Prices Sap Sales Volumes Maker of Tide and Gillette reports a 10% increase in prices during quarter ended in December
After lifting prices to new heights, Procter & Gamble Co. reported lower quarterly profit and declining sales volumes as the rising costs of Tide detergent and other staples prompted consumers to cut back on purchases at the end of 2022.
Sales volumes fell 6% at P&G—the biggest quarterly drop in years—with declines at each of the company’s five major business units in the three months ended Dec. 31 compared with a year earlier. P&G increased prices by 10% in the period, helping the company report a 5% boost in organic sales, which exclude currency swings and acquisitions. (…)
The company estimates that growth in the consumer-products market will continue but slow to 3% to 4% growth, from a 5% to 6% range. Pricing will likely continue to drive growth, while volumes are set to fall further, the company said. (…)
Mr. Schulten said shoppers remain willing to pay more for high-end products, though more are looking for deals. Demand is up both for items that come in smaller package sizes and for bulk offerings at club stores.
“Consumers are holding up globally relatively well,” he said. (…)
At P&G, prices in the quarter ended in December increased by 13% in the division that makes Tide, by 11% in the division that houses Gillette and by 8% in the division that makes Pampers diapers. (…)
Competition???
Japan Core Inflation Hits 4% for First Time in Four Decades Core consumer-price inflation reached a fresh 41-year high of 4% in December, adding to pressure on the Bank of Japan to unwind its decade long monetary easing.
Consumer prices excluding volatile fresh food prices rose 4% from a year earlier in December, the fastest pace since December 1981 and double the BOJ’s inflation target, government data showed Friday. Overall prices including fresh food also rose 4%, the first time that figure reached 4% since 1991. (…)
Consumer-price inflation has been above the BOJ’s 2% target for nine consecutive months.
“Because it is already 4% and has been above 2% for quite a long time, it has become difficult to say this is just transitory,” said Mitsubishi UFJ Morgan Stanley Securities strategist Naomi Muguruma. (…)
Consumer prices excluding fresh food and energy prices rose 3.0% from a year earlier in December, higher than November’s 2.8% increase. (…)
US bond fund inflows surged last week.
Source: Deutsche Bank Research via The Daily Shot