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more mixed economic signals; woke cultural revolutions, and a better way

The User's Profile davefairtex February 19, 2023
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There were four main economic reports out this week:

  1. CPI (CPIAUCSL) +0.5% m/m [expected +0.4%], prior -0.1% m/m.  Inflationary.
  2. Retail Sales (RSAFS) +3.0% m/m [expected +1.7%], prior -1.1% m/m.  Expansionary.
  3. Industrial Production (INDPRO) +0.0% m/m [expected +0.5%], prior -1.0% m/m.  Mildly recessionary.
  4. Producer Prices (PPIACO-1.96% m/m, prior -0.7% m/m.  Deflationary.

It was a mixed bag.  Producer input prices (from commodities) continues to decline, but CPI remains far above the 2.0% inflation rate that the Fed is “transiently” focused on.  Much of the CPI inflation is due to CPI/services [+0.6% m/m] which boils down to labor costs.  So commodities are cheaper, while labor is getting more expensive.  Wolf has the CPI/services breakdown (Source – WolfStreet).  CPI/services has just been a straight line up; “for some reason” the dramatic series of Fed rate increases (to 4.5%) have not slowed the steadily rising services labor costs.

This pattern does not look like a typical recession.  Disinflation is here for commodity/input costs, but not for services.   And the jump in retail sales says that consumers are not even close to “pivoting” into a recessionary mindset: spending on home furnishing, clothing, food services & drinking places, and even new/used auto & parts stores moved higher.   See Wolf’s post for the breakdown.

There is the issue of credit creation and how it is dropping, and how declining credit growth ends up causing a recession.  Look at the chart below of all loans (FRED: LOANINV) % change y/y vs recessions.   A drop below 0% y/y says “very serious recession”, as it did back in 2008.  Are we there yet?  The current level (+5.86% y/y) is just at the lower end of the normal 5-10% range.  So no, we aren’t there yet.

Until the consumer stops spending and/or these consumers start losing their jobs, its gonna be tough to notice any sort of recession.  Most of the US economy is “services”, and there remains that curious services-labor-shortage.  It is only a recession when your neighbor loses his job, and a depression when you lose yours.   Retail Sales – currently – suggests that both you and your neighbor still have jobs.

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Top Comment

Ev’s And Smoke
Thanks Dave. One comment regarding the government being able to shut your electric car down since it is electronic, well they could do...
Anonymous Author by mark_bc
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