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. 

Breakdown of CPI DATA and Real Earnings, December, 2021

 

The BLS report for December, Indicated a 7.0% yoy inflation rate with the month on month being 0.3% unadjusted of 0.5% after adjustments.

With this release comes a variety of other numbers...

I am at the 5.0% annual rate...

I had a better than expected outlook for my personal rate of inflation, but this continues to be due to medical costs rising at a much slower rate than everything else, AND at a slower rate than in recent years. I just cannot be so optimistic as to call this a long term trend.

I had previously forecast...December is likely to be between that 6.98% and 7.16%.

The likelihood of January's numbers falling between 7.04% and 7.40% are fairly high at this point. While there was joy in the easing of energy prices, not sure the rough patch of weather in the next 2 weeks will not negate some of that joy. For comparison... June 1982 was 7.06% and then February 1982 was 7.62% and January 1982 at 8.39%. I throw that out as we heard highest inflation in nearly 40 years for last month and again for this month. Also, for the record, that 7.62% (2-1982) was the lowest rate since June of 1978.  

Also, beef prices are easing a bit, but Covid may mess up the work force in that category. In any case, the month to month changes will be the real guide going forward, as YOY increases might start to ease. Not that inflation is easing, but January 2021 saw inflation percolating and then lifting off in February. 

Historically, the June 1982 YOY inflation was pegged at 7.06%, compared to last months 7.04%. From there it is February 1982's 7.62%. Next month's headline will be highest inflation in nearly 40 years.

On to Real Earnings...

Basically the report indicates wages are keeping up with inflation on month to month, but still below the recent peak of September.

Saving Social Security and Changing C.O.L.A.

 

via GIPHY

I have been reading about attempts to save Social Security of which I partake. Does Social Security need saving?

The short answer is no, as social security will not come to an end in 2033/34. Think of the S.S. trust as a bank account. You put money into the bank and the bank uses it to make loans, which is how the bank can afford to pay interest into your account. That is the basic foundation of S.S. from the beginning in 1935.

The issue is... your expenses are now exceeding the amount you are putting into that bank account as well as the interest being paid to that account by the bank.

At some point in 2033/34, the amount being withdrawn cannot exceed the deposits, which results in something like 80% of withdrawals compared to previous.

The ideas being put forth, while ignoring the likelihood of congress doing anything...

A. Raise the eligibility ages. Considering the longevity of the average American is now older... probably an good idea, but not a complete resolution. 

B. Remove the cap on taxable earnings or raise it substantially. Probably the best solution across the board and can take various forms to alleviate the issue going forward. Whether deducting only from the worker and continuing cap on employers, etc.

C. Change the method for calculating increases. This runs into changing from current Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to either Consumer Price Index for All Urban Consumers (CPI-U, which is current headline used) or Chained Consumer Price Index for All Urban Consumers (C-CPI-U) or Research CPI Experimental for Americans age 62 years of age and older (R-CPI-E). 

As an elder, I can narrow down the choice fairly quickly, based on which would have benefited me. The current method of CPI-W had fairly consistently moved with CPI-U and outpaced C-CPI-U on a historical basis. It does strike me as odd that the current CPI-W year over year is outpacing those two by a large margin. 

Historically, the following is based on typical rank of inflation (from highest inflation to lowest, based on August BLS release)...

• R-CPI-E (100=1982; current 297.114 (217.8=2007, 36.42% increase since 2007)
• CPI-W (100=1982; current 268.387)(205.777=2007, 30.42% increase since 2007)
• CPI-U (100=1982; current 273.567 (210.236=2007, 30.12% increase since 2007)
• C-CPI-U (121.295=2007: current 153.715) (26.73% increase since 2007)

Based on data from August BLS release...

• CPI-W (5.8%)
• CPI-U (5.3%)
• C-CPI-U (5.1%)
• R-CPI-E (4.8%)

So obviously for the long haul, I would have preferred the R-CPI-E, based on the above, but... since December 2016 until July 2021, the changes have been this by rank... (did not update to August numbers.)

• CPI-W: 13.8%
• CPI-U: 13.1%
• R-CPI-E: 12.86%
• C-CPI-U: 11.68%

Clearly something has changed since 2016 and the near term data favors the CPI-W. 

Until something better comes along, the CPI-W remains the best option as the E in R-CPI-E stands for experimental. Not sure why so many on the left are pushing the R-CPI-E. I understand the right's fascination with C-CPI-U.

The answer to the Social Security dilemma is a combination of A and B. While it is a fun task for me to opinionize about the matter, it still falls to a future congress to actually do something.

Congress does not move on major projects unless pushed into a corner. My guess would be about 10 years from now... that corner will come into view. Truly, I do hope to be around to see that take place.