Finishing Up Data for September, 2022

The BEA released the Personal Income and Outlays, August 2022 and Annual Update this morning.

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Note the PCE and PCE EX-F&E were revised according to BEA listing, but not revised in the above chart.

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Chained dollars continue with upward growth.

The BEA, also released the GDP yesterday and the headlines were unchanged. However, you had to read down quite a bit to the juicy part.

Real gross domestic income (GDI) increased 0.1 percent in the second quarter, a downward revision of 1.3 percentage points from the previous estimate. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, decreased 0.3 percent in the second quarter, a downward revision of 0.7 percentage point (table 1).

The GDI (Gross Domestic Income) was +1.8% for the 1st quarter, until this revision down to +0.8% and the 2nd quarter was revised downward from +1.4% to +0.1%. Still positive, but... not by much. 

When averaged with the GDP: 1st quarter from +0.1% to -0.4%; 2nd quarter from +0.4% to -0.3%.

The 3rd quarter advance estimate will be announced on October 27th. Bet on it being positive, until after the election and the 2nd estimate comes out on the 30th of November. Okay, it will likely still be positive, so I guess the "recession" was over in June. My opinion would be, we are not yet in a recession. 

I do wonder why the theory of 2 consecutive negative quarters has such a special meaning in the hearts of so many. I mean I get it, but claiming some historical significance, when faced with something of a 21st century phenomena, doesn't make sense. Especially when so many avoid talking about it, lest they be labeled as being part of some fringe group.

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Shame on me for even pointing it out. We did this to ourselves. It is oft stated that recognizing the problem is halfway to solving it. We are nowhere near recognizing it, in my opinion. 

Now for some good news. The Centers for Medicare and Medicaid Services announced...

The standard monthly premium for Medicare Part B enrollees will be $164.90 for 2023, a decrease of $5.20 from $170.10 in 2022. The annual deductible for all Medicare Part B beneficiaries is $226 in 2023, a decrease of $7 from the annual deductible of $233 in 2022.

It is unusual the announcement could be made so early, as it usually comes in mid November, which always fall just after an election. The announcement is barely visible on all those old people boards I follow. It's still good to be able to keep and additional $62.40 per year, even if it would purchase what was $57.35 last year.

Speaking of inflation, the September numbers from the BLS will come out on the 13th of October. Here is my current projection of C.O.L.A.

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I'm struggling on whether it will be 8.7% or 8.8%. Earlier, I had 8.6% in the mix, but I think that has gone bye bye. Likely 8.8%, with a possible 8.9%. 

Frankly, the likelihood of the CPI-U jumping 0.28% and the CPI-W at 0.37% is not unreasonable, although something a bit lower on the CPI-W lands at 8.8%.

In July, the -7.7% drop in gasoline covered up all the other price inflation taking place. In August, the -10% drop in gasoline could NOT cover up all the other price inflation taking place. September is ending with only a -5.5% drop in gasoline. So look out. 

Much of the reason for the national average of gasoline prices rising the past ten days, has to do with California switching from summer blend to winter blend. It happens every year. It should begin slowing next week. 

Most Americans don't grasp that, but politicians do. So a wonderful time to point out the national average is rising, proclaim retailers must halt the exploitation and then take a victory lap next week. We Americans are such suckers.

As for gasoline prices, I am not sure what they will do, when that 1MBPD SPR release ends just before the election. Couple that with the possibility of OPEC cutting a few barrels... who knows. 

Natural Gas is staying ahead of the curve and possibly gaining some...

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All in all, another decent month. It could be the last for awhile, but who knows? Or rather... who cares?

Oh yes... Natural Gas prices.

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Back early in the summer, the anticipated range for U.K. energy at the average household level, was £3,600 ~ £5,400 annual, based on what the market was indicating. Currently the range is £3,000 ~£4,100. If the £2,500 cap was based on the summer forecast, then maybe the new cap should be lower. 

Oh well, smarter people than I, are working on all this. That doesn't mean they don't make mistakes. As I make a lot of mistakes and don't pretend to be smart... no one really pays attention. But when a "pretentious" person errs... it is lights out. 

Retail Trade Report for August 2022

The Census Bureau has once again graced us with their monthly Retail Report for August 2022.

Advance Estimates of U.S. Retail and Food Services

Advance estimates of U.S. retail and food services sales for August 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $683.3 billion, an increase of 0.3 percent (±0.5 percent)* from the previous month, and 9.1 percent (±0.7 percent) above August 2021.

Total sales for the June 2022 through August 2022 period were up 9.3 percent (±0.5 percent) from the same period a year ago. The June 2022 to July 2022 percent change was revised from virtually unchanged (±0.5 percent)* to down 0.4 percent (±0.2 percent).

Once again, we get previous months revised downward and current month edges up, as a result. Let's not focus on the past, but consider the current, while expecting it to be revised in the future. Been that way as long as I can remember, but I am also at that age, where memory is in question.

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This monthly chart of mine is an unscientific method of tracking retail. I just adjust the "adjusted" report numbers to rate of inflation. Like I said... not very scientific, but probably not that far off. Essentially, the stuff bought peaked in March ~ May of 2021. Inflation has made up the difference, in my humble opinion.

Seriously, the retail grocery spending is up 7.7% from last year, yet the CPI-U has food at home jumping 13.5%. Somebody, somewhere... is dialing back on type and/or quantity of food.

Gasoline stations are more than just gasoline, as it encompasses convenience stores. Which helps explain the drop in retail gasoline stations not quite matching the price at the pump. 

Of course, there are some winners to go along with the losers. Electronic and Appliances continue to shed a bit of ground. Either we already bought enough freezers back early during all the shortages, or we simply cannot afford the high price of freezer meats, so what is the point of buying freezers?

Mail order would seem to be on strong footing, except it slid last month, while box stores rallied. Not a lot, but it was in reverse of what I was thinking. 

There is a spreadsheet on the Census website, with some data to peruse. 

As the peak was in Spring of 2021, with moderate dip since, demand destruction is not really evident. In my humble opinion, inflation is likely to stick around. How long... no one really knows.

Producer Price Index for August 2022

Time for more painful inflationary discussion. The BLS has now released the August Report. (historical releases)

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A 2nd month of easing on the PPI at -0.1%. That follows a revision of last month from -0.5% to -0.4%. Does that mean August's reading was essentially flat?

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Thus far the gauges are mixed, with 16% trimmed mean, CPI-U core, Median CPI-U and Demand Stage 2 on the rise.

Delving into the data, suggests that some moderation is taking place, except in energy  and food. We all realize or understand that gasoline prices are falling. However, gasoline is not the only story in energy. Electricity and Natural Gas are on the rise.

Food gives an interesting story and possibly some hope of slowing prices, if selective...

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Let's not count our chickens, before they hatch. Granted egg prices and processed young chickens are falling, but another bout of bird flu, could squelch that fall. That might seem like chicken feed in the grand scheme of things, but chicken feed is also necessary for continued fall in prices.

Replenishment of chickens in the industry can be fairly rapid, as in a few months as chickens can lay a lot of eggs. A hatchling is ready for the frying pan in less than 3 months and ready to lay eggs at roughly 18 weeks. Hogs, have multiple offspring in batches of possibly 2 per year and slaughter ready at about 6 months. Cattle is a matter of years, as a heifer can be bred between 16~30 months, generally with one calf, which requires 9 months and then 30 months to slaughter. 

What does all that mean? Cattle, Chickens, Turkeys, Hogs... require feed stock, which can be Hay or Grains. There is not a lot of pullback on grain prices. Weather is, will be, and always has been an issue with agriculture. As commodities were globalized to offset some of this issues, the chickens have come home to roost... weatherwise.

The weather has not been a good crop year in large areas of our planet. In some areas, it has started turning into a multi-year problem.

This has resulted in thinning of livestock, et al, as feedstock becomes too expensive, whether through drought, excessive rains, etc. 

With electricity and natural gas likely to displace gasoline as the big issue this coming winter, food prices will likely continue to rise for several more months. I would hope not, but the outlook is not so positive going forward, in my humble opinion. So what should a person do? If I knew, I would tell you.

Breakdown of CPI DATA and Real Earnings, August 2022

It is that time of month, to survey the damage from inflation. The BLS report was released this morning and it was a surprise. (historical releases)

This is what I projected for the month...

Now for next month's CPI-U, and here's hoping I am once again overshooting... month over month at 0.0%~0.2% and year to year of 8.3% to 8.5%. 

Well, it was... 

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent in August on a seasonally adjusted basis after being unchanged in July, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 8.3 percent before seasonal adjustment. 

Gasoline fell much, much further than last month and failed to provide cover for all the other areas, which are inflating. 

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Unadjusted remains sort of flat. Meanwhile my personal inflation rate edged up to 7.9%, with a +0.26% month to month increase. 

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On to the C.O.L.A. ... The CPI-W slid -0.2% for the month, which essentially narrowed the range for C.O.L.A. adjustments.

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Frankly speaking and after checking my pencil for an eraser... I'll pencil in 8.7% as the most likely C.O.L.A. The September CPI-W has a very wide range, as can be seen. Either side of the 8.7% figure is also a rather wide range.

As for the Real Earnings...

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The hourly is edging up slightly, but still below February 2020 rate.

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The weekly level slipped this month (all inflation adjusted) and is still below the February 2020 level.

For next month's projection, another wide range... 7-8%~8.3%, with month to month of -0.1~ up to 0.3%. The drop in gasoline failed to cover all the other areas, and the drop in gasoline for September will be much smaller, in my opinion. 

I guess what I am saying is... there could easily be another upside surprise, when the September numbers come out. I sincerely hope not. It has nothing to do with stocks, Federal Reserve or Macro Economics. I am just a poor schmuck getting squeezed.

Review of EIA Weekly Report for September 8th 2022

The EIA released the latest weekly report, and there is a continuing sliver of demand destruction. The numbers do seem to suggest it, with the day's supply of 24.1 from last week jumping up to 24.5 on this week's report.

Gasoline Inventories rose 333K barrels from last week. This is spite of exports being 1M Bbl. more than imports.

The market for gasoline is still declining, and looks to continue with this report. According the the AAA, the national average has slipped 7.8¢ from last week, and my guess... there is room for another 56¢, although weather may become an obstacle at this point. 

Speaking of weather, the models aren't showing anything of T.S. variety hitting the U.S. East or Gulf Coasts out to the 3rd week of September. Keeping fingers crossed. 

Crude stocks increase 8.8M BBLS from last week and exports of crude and petroleum products outpaced imports by 4.8M BBLS. WTI is down about $3.50 from last week. Basically, back to End of January numbers. Of course, there is some rumbling of OPEC+ slashing production by 1M barrels per day, as well as suggestions of further SPR releases.

Diesel fuel continues to be problematic in some areas...

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For the rest of the picture...

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This is likely my last weekly review of the report. I will continue to track, but blogging about it has become somewhat tiresome. I see what I see and understand what I see, but conveying those thoughts in a coherent manner is the issue.

Another Look at C.O.L.A.

 

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Back in August I stated... somewhere between 8.6% ~ 9.0%. Clearly, a revision has taken place. Largely due to the continued drop in gasoline. 

If you remember the July CPI report, it stated the -7.7% gasoline number held off all the price increases in everything else. August is over and I am betting the August CPI will be -10% for gasoline. 

Of course, the C.O.L.A. is based on CPI-W, which slipped -0.1% in July and was 9.1% over the year.  -10% in gasoline would in theory... create an even lower number than -0.1%. Granted, the other stuff may be accelerating inflation wise, but I am not so sure about that. 

In any case, I suspect the CPI-W will be in the range as noted and the monthly change will be -0.3%~0.5%.

That would be stellar, except it is only gasoline and many other things like food, electricity, and heating bills are rising... going into that time of year. A lump of coal might be a welcome gift, come Christmas. (Hey, everything else has gone topsy turvy... why not?)

For the record, the C.O.L.A. announced in fall 1981 for 1982 year was 11.4%. The fall of 1982 announcement for year 1983 was 7.4%. This year's announcement should be between those two numbers.

And for the first time in a long while, there should not be much of an increase in Medicare B premiums. Mostly because we were over charged last year, but still, taking them at their word of that drug being half of last year's rise, and then they found out that drug was half the original price... we end up back to where we currently are for next year. That $60 we got over charged this year will be metered back to us this coming year. 

Am I Over Thinking?

 

Just when I think I have figured something out... it goes "poof"!

A bit over a week ago, the price of natural gas in Europe and U.K. went skyward, Mostly because Gazprom was shutting down Nord Stream 1 for repairs and might not reopen. 

On the 26th of August, Norway's Gassco, stated they will reduce capacity for planned and unplanned maintenance at 13 fields and processing plants throughout September.

This past week saw prices drop 30%. Reasons given...

1. It was thought Nord Stream 1 would reopen on schedule.
2. Germany was a month ahead of meeting its storage capacity targets.
3. It was suggested that certain large industrial users of natural gas could not afford the high price and were shutting down.
4. It was further suggested, these companies were selling some of that much cheaper natural gas "forward contracted" a couple of years back... for a healthy profit margin going forward. 

Then late Friday, Gazprom said no on reopening on schedule, just like everyone originally thought. 

So #1 was wrong, #2 is probably right. How can #2 continue on pace to achieve all its targets, if Nord Stream 1 remains shuttered and Norway starts their planned and unplanned maintenance? Unless there is much to #3 and #4.

Let's face it... if you were a company that heavily uses natural gas; you would want to plan several years ahead and lock in prices. Say it is mid 2019 and you lock in a 10€ per MWh and you have that currently locked into your business model, but your business model suggests a dramatic slowdown in your sales... you could look back at that 10€ per MWh and see the market is currently paying 20 times that rate. 

Call me quite cynical, but when such a company screams they cannot afford such high natural gas prices and then shut down, I wonder what the real motivation might be. 

This becomes especially true, when considering some of these countries are multi-national conglomerates.

Am I over thinking?