GDP, PCE, Income and Outlays, Inflation Summary and July Wrap-up!

 

The real GDP for the 2nd Quarter was released and it was below forecasts. I think it was generally in the 0.8% annualized. My pathetic attempt was 0.6% annualized. The result was -0.9%. The pundits have fixated on the falling inventories, but I noticed the imports/exports did not match expectations. 

The consumer was steadfast in increasing spending, but slowly. (Did I mention real GDP is after adjusting for inflation?)

Here is a bit of history for consumer spending relative to real GDP.

And this is fun with numbers, which is consumer spending after taking out a major contributor or detriment to GDP. I'll let you guess what that is.

While the consumer edged up, and some gains in net export, Gross Private Domestic Investment was the big drag, it was the inventory numbers that pulled it down by $107B from last quarter. That was the surprise for many people and the difference between the result and what was forecast. 

Then we have Personal Income and Outlays, which...

Personal income increased $133.5 billion (0.6 percent) in June, according to estimates released today by the Bureau of Economic Analysis (tables 3 and 5). Disposable personal income (DPI) increased $120.4 billion (0.7 percent) and personal consumption expenditures (PCE) increased $181.1 billion (1.1 percent).

The PCE price index increased 1.0 percent. Excluding food and energy, the PCE price index increased 0.6 percent (table 9). Real DPI decreased 0.3 percent in June and real PCE increased 0.1 percent; goods increased 0.1 percent and services increased 0.1 percent (tables 5 and 7). (emphasis added)

Even with disposable income sliding after inflation adjustments, the consumption increased after inflation adjustments. Borrowing?

Then the various inflation numbers...

Not much to be enthusiastic about. It would appear that some of the forecasts are starting to downgrade inflation number for July and I would tend to agree. At best it would seem to have peaked. 

As to whether we are in a recession or not... the idea of "technical" recession is an imported idea. The U.S. has never jumped on the 2 quarter as recession bandwagon. Harken back to the Great Recession. It was deemed the U.S. started into recession in December 2007, yet we did not have back to back negative GDP, until 3rd and 4th quarter 2008.

I would think we are likely heading into a recession, but not at the moment. Then the issue is how long and how deep? 

So good luck and on to next month's data. 

End of the Month... June 2022

Okay, it is the end of June. Time for a recap of data published this month for May by the really smart guys, with comments by a really dumb person (me).

First up is the various inflation gauges...

(Note that I have estimated the Eurostat for the USA, as the official data has not been published.)

Not much relief in the inflation outlook, although demand destruction is becoming evident in certain core areas. Even gasoline and diesel usage seems to be tapering off. Prices maybe not so much... but exports are still outweighing imports.

The personal income and outlays suggest a reason for this. (click to enlarge)

Is it a one month anomaly or the start of a trend? It's possible the old adage of not being able to get blood from a turnip... may be in play.

Now on to GDP. Which slid from -1.5% to 1.6%, and the headlines are about consumer spending decreasing from +3.1% in the 2nd reading and now at +1.8%. It's the consumers fault!! The consumers still remained positive in expenditures and overall GDP fell. Aren't we overlooking that 800lb. Gorilla?

I can remember when the consumers were 60% of the economy; then 65%; then 2/3's; and now 70%. That 70% gets stated as something normal, which it isn't...

That's since early in the 80's, so what might have changed? Let me back out some numbers and see what it might look like in "fun with numbers". (You can guess what I backed out)!

The line edges up in "fun with numbers", but not like the first graph. We can't speak of that, as it is politically sensitive. The bottom line... we did this to ourselves.

I can't really say whether the 2nd Qtr. GDP will be better or worse, but 2nd quarter is over with today, so it is only a matter of waiting for the 1st read at end of July. Frankly, I think it will be positive for 2nd quarter, but the ship is starting to tilt, in my opinion. 

I can distinctly remember discussion of whether or not we were in a recession in spring 2008. I am not sure when the decision was finally made of it starting in December of 2007. It seems it was given that date after the recession "ended" in June of 2009. 

So we won't officially know whether we are in a recession, until it is over, or when the fat lady sings.  

End of the Month... April 2022 PCE, 2nd est. GDP, and Other Stuff.

 

The final results for April data is now in and it looks like a mixed bag. Sure the headline numbers are indicating deceleration of inflation, but there are still problem areas. The most important being my price index, which is increasing. I have highlighted some areas of acceleration of inflation. 

Remember that energy was flat for April and has risen in May, which comes out next month. The deceleration of inflation in overall CPI indicates a potential repeat of the April headline number. The core, which is without food and energy, indicates some moderation. We'll just have to wait. 

The Personal Income and Outlays for April came out and it isn't stellar in my opinion. Personal consumption expenditures were up 0.7% for the inflation adjusted month to month. The disposable personal income was flat on the inflation adjusted month to month. Credit cards anyone?

Somehow the concept of driving 120 mph on an ice covered road comes to mind, with a slight decrease in overall speed. Then the FED is slightly tapping the brakes. What could go wrong?

In other news, the 2nd release of the 1st Quarter GDP indicated a bit less than the Advance. I have read some comments about a potential negative 2nd quarter as meaning we are in a recession. WRONG! It is just a symptom. 2020 saw two quarters and no recession, as discussed by the gurus of such stuff. After debating most of 2008, it was finally decided that December of 2007, was the start of the great recession. The first back to back negative quarters were 3rd and 4th Quarter of 2008. So clearly more information than GDP numbers are a factor.

As for the 2nd quarter GDP, which will not be released until end of July... there is ample reason to believe it will not be negative. The trade numbers were a major hit to the 1st quarter GDP. The dollar has strengthened, which should reduce the deficit numbers, the inventory builds should be increasing, which is a plus for GDP, although troubling. The trade deficit should also be waning, due to a potential China slowdown.

So a positive number for GDP 2nd Quarter is in the offing... but that does not mean the economy is doing peachy keen. That expected positive inventory gain, could be a sign of demand destruction. With energy prices taking a bite out of disposable income, consumers will likely dial back in other areas.

So the outlook is a mixed bag in my opinion. A mixed bag is better than all negative, so there is some room for optimism. 

Have a good holiday!!

End of the Month... March 2022 PCE, Advance GDP, and Other Stuff.

With the PCE index report this morning, we can wrap up all the March inflation numbers. Granted, some slight improvement was seen in some areas, but still double digit increases on the upstream models seem to suggest more inflation to the consumer.

As mentioned last month, the core seems to be decelerating and the potential for further decreases appear on the horizon. A lot depends on China's current covid lockdowns and impact on the supply chain.

We also see the personal income and outlays for March. Note the current dollars and chained dollars. Chained dollars are only used in a couple of categories. So thrown in inflation and the numbers aren't exactly rosy.

Yesterday the GDP Advance 2022 1st quarter was released and failed to live up to expectations. Quite a bit was made about Consumers still lifting the economy and the trade gap really stifling the numbers. As for the consumers, the bulk of that lift was in the service sector as the goods sector was flat. The Services was up 1.0% quarter to quarter and the trade gap was down 1.4% quarter to quarter. Outside of those two, everything else was tepid, imo. Although Non-Residential Fixed Investment was 2.2% above previous quarter. 

One quarter does not a recession make, so the numbers could significantly change as more data becomes available. 

Of course, the books are now closing for March, and it is on to April numbers. So, the impact of China's covid shutdown policies will become evident real soon, the "official" impact won't begin to be known until June. 

As for consumer inflation for April, I would tend to believe that energy would be flat from March. Don't be misled, as gasoline appears to be edging up at this writing as well as Natural Gas. Core inflation might be decelerating a bit, but food does not appear to be decelerating. Overall, the CPI should "cool" to near 8.0%. Welcome to the late 70s and early 80s of last century.

The U.S. should once again become a net exporter, for the year, of Petroleum and Petroleum Products over the next few weeks, as the exports have ballooned to nearly a 1-million-barrel net exports on a daily average. That million-barrel daily release from the SPR is slated to begin May 1st.

Oh well, this is "fun" times we live in!

Other Stuff...

It amazes me in this day and age... how utterly devoid of knowledge, we Americans have become. Although I can find numerous instances where we are not alone in knowledge deficit.

A near direct quote "Our politicians are always promising to fund infrastructure, yet here we are in 2022 and they have done nothing", which is greeted with broad agreement. Apparently we must all forget Congress passing a $1.4 Trillion infrastructure bill and the President signing it on November 15, 2021.

Usually during this conversation, someone will mention that Trillion Dollar shovel ready infrastructure bill signed by Obama in 2009... and ask what ever happened to that? It never existed. There was a $787 billion stimulus bill, which included about $98 billion for infrastructure, of which a portion was for shovel ready.

We have become equally adept at ignoring stuff that happens and making up stuff that didn't happen.

There really is no hope, so why bother? Everyone slows down to see a car crash or a train wreck or any number of other such things. 

End of the Month... So February 2022 Inflation Numbers and Other Stuff.

 

With the PCE index report this morning, we can wrap up all the February inflation numbers. Granted, some slight improvement was seen in some areas, but still double digit increases on the upstream models seem to suggest more inflation to the consumer.

There does seem to be some potential for deceleration in core inflation, as decreased purchasing power is becoming more widespread. Inventories of retail and wholesale have increase ahead of inflation. Normally this could be seen as wonderful news, but it is hard to keep a straight face over lingering claims of supply chain shortages and increases in inventories, in my opinion. 

We all know that supply v demand is the determinant of pricing. If demand goes up and supply can't keep up... prices increase. Demand falls and supply increases... prices decrease. The past year saw demand pumped up with various stimulus checks and which contributed to "supply chain" issues. The benefit of that additional money is waning as retail sales minus inflation are flat to lower. Even more so with energy and food pulled from the equation.

As stated, core items might fall in the coming months, but what about energy and food?

Energy is struggling to supply to meet the demand. Regardless of any Strategic Petroleum Reserve activity... the demand will need to decrease for price relief. Going into the summer driving season, I am not so sure that will take place before August. Besides, that 1-million-barrel daily release will likely be exported, which may have impact on global prices, which may in turn trickle down to the US Consumer... eventually. We must remember the previous release announced last fall has not yet been completed. The 30 Million barrel release announced in March has not started, so just how quick will this happen?

Maybe in time for the midterms, but then you have the other headline issue...

Food, which accounts for about 14% of the Average American expense, compared to 8% for energy (>4% for Gasoline). Food is the one item that rarely sees a decline in demand and usually an increase as the global population is still growing. It really is all about supply and weather impacts of the past couple of years has NOT been conducive to slowing food price inflation. Throw in the Ukraine invasion and this is not an area that will likely seen any leveling off unless we get a good global weather pattern for crops and peace breaks out quick in war torn areas. 

Food is likely to be the issue for the next couple of years. A case could be made that Russia invaded Ukraine to control its large agriculture industry, to which it could use as influence amongst its friends, etc. Whatever the reason, it has clearly backfired, and the global community will become increasingly unsettled over food insecurity.

We will likely see the CPI in the mid 8% range in March's report and higher the following month. Much will be made about the high price of gasoline, but the food component is the real long-term story.

Forget the Oscars, as inflation is about to give us all a slap in the face. 

Near End of the Month, So January 2022 Inflation Numbers and Other Stuff.

 

ALL the inflation numbers are in and they are pointing upward, with the exception of PPI, which was flat. But the leading indicators of PPI are still in double digits. 

Quite a bit of chatter regarding energy prices and how they will ramp up inflation. There is no denying that, but every single number that excludes food and energy is up as well. Don't be misled by headlines screaming energy costs are going to cause double digit inflation. 

We might very well see double digit inflation, but if everything stays flat and energy were to drive up the overall inflation... then crude would need to be in the $180 @ bbl. We will be in recession, well before that occurs. Energy is a part of inflation, but not the entire story. Attempting to backward blame inflation on solely energy and current geo-politics, is to ignore the inflation prior to these events.

Those inflation factors are still prevalent and really no let up going forward the next couple of months. Previously the inflation was anticipated to peak in February (numbers due out in March), but those energy related and geo-political issues might edge up succeeding months. We were in the May/June timeframe of any year over year relief... which is prior to certain current events.

There is talk of the FED backing off rate hikes but maybe a bit premature. Granted the FED is looking for any excuse to avoid lifting rates, but they are behind the curve, so will raise rates, to make room for lowering them later on. 

As for Ukraine... they are not a member of the EU or of NATO, but a member of the UN. 30+ years ago, Iraq invaded Kuwait, which was also a member of the UN. A coalition was quickly and rapidly formed to kick Iraq out. Kuwait had oil, Ukraine not so much. 

Not sure how this thing will turn out, but it will soon become old news and everyone will move on. That is the sad state of things. There will be a period of media pictures and videos of bombs exploding, missiles being launched, but then this will become boring and no longer a driver of news ratings. 

Not unlike Covid, which still has a high death rate, but somehow is cured... at least to the extent it does not make more than a ripple in the news. Everyone is racing to get back to normal, which means accepting certain unpleasant facts. 

Currently the forecast for February CPI numbers (Due out in March 10th) stands in the range of 7.63% to 7.9%. 7.62% was the annual rate in February 1982. January 1982 was 8.39%.

Near End of the Month, So December 2021 Inflation Numbers and Other Stuff.

It's all the inflation numbers in one chart. As always, the MPI is most important to me, as it is what I spend.

The forecast across the board for January is upward... except maybe for the PPI. It's hard to imagine consumer spending slipping, inventories jumping and orders lagging... resulting in anything other than a deceleration of the PPI. But the experts seem to think May is when things will start to decelerate for all the above. In fact the PPI is forecast to reverse in May, back to 5 months ago range, which will somewhat stagnate the monthly CPI... not a reversal.  

BUT... a bit of history. Last year, there was consensus on helicopter money directly to the masses. Our leaders wanted it to jump start the economy and the FED said do it, we've got your back. The the term transitory became a popular word... until it was decided it might no longer be applicable to the current situation. 

So the FED is fixing to do something and the knives are out. Who knows what will happen?

Unfortunately for a lot of Americans on fixed income, it will not help, as the die is already cast. A fixed income limits any increases in spending and reduces the amount purchased. The alternative would be adding debt, which would now be costlier, if the rates are raised. It is a never ending cycle, imo.

Enough of the depressing news. I'll go watch some YouTube comedians or take a nap... or both.

Another Government Release on Inflation for October, 2021

For October, we've had the C-CPI-U, CPI-W, CPI-U, R-CPI-E, Median CPI-U, PPI Final, PPI Intermediate. Confused? Maybe that's the point!

Now it's time for the PCE, PCE sans Food and Energy, and Trimmed Mean PCE, to round out the inflation reports for October.

The Forecast... PCE 5.08% and the Core PCE at 4.09%.

The Result... PCE 5% and the Core PCE at 4.1%. Oh, and the Trimmed Mean PCE is at 2.6%.

The monthly PCE was forecast at 0.7% and the core at 0.44%. Result was 0.6% and 0.4% for Core.

What does any of this mean? Frankly, I am only concerned about My Price Index and the direction it might be headed, and right now that direction is upward. 

So naturally, I am interested in the FED decisions to raise interest rates to slow inflation. But which rate of inflation is being watched. I know everyone has their own belief and the FED is theoretically supposed to keep inflation near the 2% level. But again, which rate, is it core... or is it trimmed.

A bit of history about the 2% target. It is not set in stone. For most of the past decade the debate has been about raising that targeted rate. Google it, as there are many articles regarding this matter. 

To the matter at hand... the FED has adopted an average of 2% and to make up for past "low" inflation...

By adopting average inflation targeting, the Fed is communicating that 2 percent is not a ceiling for inflation and that it may let inflation exceed 2 percent modestly and temporarily to make up for past low inflation. The key aim of this policy shift is anchoring inflation expectations. 

Just how long is that timeline and which inflation method is being used?

I would say the FED is in between a rock and a hard place, but I think the more accurate description is as follows...

Image a silk table cloth on a table. Atop that table cloth a house of cards has been built. Now you must remove that silk table cloth... without bringing down that house of cards.

What does that mean? I still have an imagination at my ripe old age.

Other stats from this morning (monthly, not adjusted for inflation).

• Advance Durable Goods... -0.5%
• Advance Wholesale Inventories... +2.2%
• Advance Retail Inventories... 0.1%

 

The Good Ole Days Are Back!!?

 

Image by confused_me from Pixabay

Not really, but the PCE headline of highest inflation in 30 years, conjured back to a time 30 years ago when the PCE was the lowest it had been in awhile. It's all about the point of view or context or whatever.

A rational point of view...

Justice Kavanaugh tested positive for covid and is asymptomatic. Which brings me to why I am posting here. My old haunts have become so hateful and divided, some are wishing him the most horrible things. There are clearly some things far worse than Covid, imo.

United Kingdom...

The U.K is still experiencing petrol shortages and is still saying there is plenty of Petrol and to stop hoarding and purchase normally. Never mind the public had been purchasing normally, when the shortages began and nothing has really been changed.

Glad I live in a country where the leaders are always on the lookout for their citizens' best interest. ROFLMAO, c'mon... everyone could use a good laugh.

Debt Ceiling...

I read where Janet Yellen is proposing elimination of the "debt ceiling". May as well, as it always gets raised after much haggling back and forth. I get the idea of limiting increased debt, but each party drags their feet when the other is in power, etc. All in all, the debt just keeps on rapidly rising.

Problems with gas...

I see where China has ordered their energy companies to get supplies at any cost. At some point that has to be passed on to the customers, or the government (banks, etc) is stepping in to assist at any cost. It may not be passed on to the Chinese public, but likely to exporters. I wonder who that would be? Look out!

In addition, I read the price of natural gas is akin to $190 a barrel of oil, before this mad dash by China. Those kind of numbers would put a serious crimp in the economy, imo. How can coal prices be nearly double anything over the past 10 years, if we are moving away from coal? Oh wait... the Global consumption of Coal is not slated to start dropping until around 2030. So much for those Climate Change targets.

I owe, I owe, so off to work I go...

The U.S. International Net Position was released by the Federal Reserve. It ain't good...

It has rapidly deteriorated since last quarter. This can't end well. Of course I won't end well either, it is just which doesn't end well first. WHEW!!!

Not a lot else comes to mind and it is Friday afternoon. Back in to good old days meant the weekend was nigh. It's just another day for an old retired guy. BUT I was 30 years younger, 30 years ago and that is better than where I am now. Ugh!