Will the Consumer Continue to Carry the U.S. Economy?

Hmmm... The real earnings are almost healed compared to February 2020...

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with unemployment rate, now matching that date as well...

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As well as the number of employed near the same number or slightly higher...

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So, everything should be hunky-dory... right? Even when counting in the various stimuli and inflation adjusted retail trade...

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Everything almost matches up, when considering the consumer credit...

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Except the real earnings are inflation adjusted, the retail trade has been inflation adjusted, but the consumer credit is nominal. Which is ever so slightly slipping behind, when factoring inflation. At least that is my take.

Of course, the graph does not capture all credit numbers.  From the Federal Reserve. 

In August, consumer credit increased at a seasonally adjusted annual rate of 8.3 percent. Revolving credit increased at an annual rate of 18.1 percent, while nonrevolving credit increased at an annual rate of 5.1 percent.

The inflation rate from the CPI was 8.3 percent annually for this period. Revolving credit has jumped 2.5% since June and nonrevolving was 0.9% during that period. We all know that interest rates are moving up, but which would have the higher interest rates? Revolving or nonrevolving?

In normal times, the revolving credit would increase roughly 3.6% annually and nonrevolving credit would edge up about 5% annually. So the 2 month jump in nonrevolving of 0.9%, does stay within the norms. That 2.5%, 2 month revolving credit jump does not translate very well to annual... 15%. It's basically four times higher, against a backdrop of increasing interest rates. 

Those believing the consumer can keep the economy going... are living on borrowed time. It will not be long, before the evidence of a consumer spending decline is clear. 

My guess would be the month following the first cold shock and those higher heating bills arrive. 

Retail Trade Report for September 2022

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

Advance estimates of U.S. retail and food services sales for September 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $684.0 billion, virtually unchanged (±0.5 percent)* from the previous month, but 8.2 percent (±0.7 percent) above September 2021. 

Total sales for the July 2022 through September 2022 period were up 9.2 percent (±0.5 percent) from the same period a year ago. The July 2022 to August 2022 percent change was revised from up 0.3% (±0.5 percent)* to up 0.4 percent (±0.2 percent). Retail trade sales were down 0.1 percent (±0.4 percent)* from August 2022, but up 7.8 percent (±0.7 percent) above last year. 

Gasoline stations were up 20.6 percent (±1.6 percent) from September 2021, while Non-store retailers were up 11.6 percent (±1.1 percent) from last year

Allow me to give my interpretation. They revised the August data upward and September's advance estimate is almost no change, against an anticipated 2% rise. Which factoring in inflation, means "stuff bought index" was -0.2% less than August. 

So to really be clear, the money spent since September, 2021 has risen 8.23%, yet the stuff bought has edged up 0.02%.

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With every report, there are "winners" and "losers". It would be premature to see any trends, but I just can't help myself.

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It would almost seem the spending is closer to home, as in personal type things. We're slowing down on vehicles, furniture, electronics, building material, sporting good and focusing on feeding our bellies, dressing in style, beautifying ourselves, eating out and drinking away our misery.

What does it all mean? I have not a clue, which is why I am asking. BUTT, I just can't help myself and must opine some meaningless nonsense.

Just about everyone is screaming a recession is near. Just like that phrase "build it and they will come", saying recession over and over by enough people will bring on a recession. At this point, it is almost a certainty. The only things to determine are when, depth and duration.

I think a lot of people are altering their spending habits in preparation.

Breakdown of the CPI DATA and Real Earnings reports for September 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...

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.

Hmm... 

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4 percent in September on a seasonally adjusted basis after rising 0.1 percent in August, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 8.2 percent before seasonal adjustment.

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My own personal CPI was 8.1% year over year and up 0.3% from last month.

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The C.O.L.A. for 2023 is set at 8.7%...

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Last month I had stated the likelihood of 8.7%, but then got antsy an edged up the forecast to 8.8%. I really did not anticipate the CPI-W would underperform, compared to the CPI-U. That string since the start of covid has apparently ended. In any case, it almost was 8.8%, as pushing out a couple of digits was 8.746%. That 291.854 was just off the 291.879 to edge it to 8.750% and rounding to 8.8%. 

That was me trying to justify my errors. Close only counts in horseshoes and hand grenades. 

As for the Real Earnings ...

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It still has not gotten back to pre-covid purchasing power and slipped last month. Of course that is for hourly workers, while the earnings for production and non supervisory employees was actually up $.03 hourly, from pre-covid and $3.68 weekly. So, the working stiffs are healing faster.

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Real earnings are already adjusted for inflation.

And an apples to apples comparison can also be made as unemployment now matches February 2020.

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We should remember Covid hit the lower wage earners the hardest, as they were originally deemed non-essential and sent home, thus distorting the hourly and weekly rate. The higher wage earners were able to "work from home" while masturbating on zoom calls, etc. Until they realized that some of those non essentials were actually a bit more essential than first thought.

In any case, a fair apples to apples is now compared to February 2020. At least that is my opinion.

Seemed like I was going to mention petroleum. Crude Oil inventory up nearly 10M barrels, with Gasoline up 2M barrels, and uh oh... distillates down 4.8M barrels. Natural Gas inventories are starting to gain ground as well.

Tomorrow is the retail report, which should be interesting.

Oh yeah... next month CPI at 8.1%~8.2%, with m/m of +0.8%.

Producer Price Index for September 2022

Isn't this exciting... the BLS has released the September Producer Price Index Report. (historical releases)

The Producer Price Index for final demand increased 0.4 percent in September, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices declined 0.2 percent in August and 0.4 percent in July. (See table A.) On an unadjusted basis, the index for final demand advanced 8.5 percent for the 12 months ended in September.

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After two months of declines, it popped back up. The CPI remained flat those two months, so it would not be unreasonable to think tomorrow CPI, to show a gain.

Far greater minds than I have indicated the Food and Energy Index, is moving upwards and sticky prices (core) have become stuck. I mean we have forecasts from really smart people, saying September CPI will advance +0.3% and October at +0.8%. That with core stagnating at +0.5% for each month.

So gasoline is back in the picture, as pump prices are on the rise. The average for October is +3.5%, after falling in July by -7.7%; August by -10.1%; and September at -5.2%. That helped cover up a lot of sins. Supposedly, weaker demand would drive down prices. However, the actual data, points to demand slightly increasing, the past 3 weeks and back to August levels.

Having followed EIA.gov weekly reports on energy for over 15 years, I was amazed at the discrepancies in last week's report. I would expect some wild swings in tomorrow's report. More on that... tomorrow.

Food is near and dear to my heart (Stomach and heart are less than a foot apart, and that is foot in measurements, not that other body part. Less than 30CM.)...

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There does not seem to be much relief in the food category either. The index is up 11.9% from last year, and +1.2% for the month. The latter being +14.4% annualized and not a good indicator of things to come. I would expect the annualized to slip below the year to year actual, for relief to be seen.

What does all this mean? OPEC+ is supposedly dropping production by 2 million BPD, beginning November the 1st., although Russia says they have already done half of that. That 180 million barrel SPR release is slated to end on October 31st. 

Biden has suggested another SPR release, but I doubt it... as he needs to save some ammunition for the 2024 election. The mid terms are November the 8th. 

The advance GDP for 2022 3rd quarter comes out at end of October. However the CPI comes out tomorrow and I cannot help but think, it will be a disappointment for those expecting some dramatic easing (stock markets). 

Possibly the Real Earnings report from tomorrow, might get some positive spin, but still likely not to get back to pre-covid level. 

Retail Sales comes out on Friday and I do not expect happy news either, ONCE you factor the inflation in. This report is always in current dollars, NOT chained dollars or adjusted for inflation.

We have 26 days of political theater, before the mid-terms. Then it revolves around 2024. So prepare to clean your B.S. meter very quickly after November the 8th and possibly consider a major upgrade, with expanded capacity. It will be needed.

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.