November Consumer Prices, Real Earnings and Weekly Jobless Claims

KEY DATA:  CPI: +0.2%; Ex-Food and Energy: +0.2%/ Real Hourly Earnings: +0.1%; Over-Year: +3.2%/ Claims: +137,000

IN A NUTSHELL: “With the labor market cooling, there is little reason to think that inflation will remain anything but tame.”

WHAT IT MEANS:  Is the economy starting to falter as the virus surges?  The data are not clear on that yet, but the latest news on the unemployment front was not what we wanted to see.  New claims for unemployment insurance surged last week, after having dropped moderately the week before.  These data are volatile, and we have seen a number of instances where they have either plummeted or surged, only to see the large change wiped out the next week.  So, don’t jump to conclusions on this acceleration in unemployment claims.  Nevertheless, the weekly number hit its highest level since mid-September and the four-week moving average, which smooths out the volatility, has been largely flat for the past six weeks.  That is at least an indication that labor market conditions are no longer improving. 

Consumer prices rose moderately in November.  That was also true when you exclude the more volatile food and energy components.  There was some pressure on energy costs, despite a fall in gasoline prices, and airlines took advantage of the Thanksgiving holiday to jack up their prices. Otherwise, there weren’t many sources of inflation that you could find.  On the positive side, the surge in used car prices may be over.  They are still up double-digits from a year ago, though. 

Real, or inflation-adjusted earnings edged up in November. Hourly wage gains were decent, but the moderate inflation ate into the increase.  Over-the-year, real weekly earnings rose a strong 4.7%, but that was due more from a jump in hours worked than from a surge in hourly wages.   

IMPLICATIONS:  A stimulus bill is needed to keep the economy from stalling.  Without one, a number of emergency programs will expire and tens of million people could lose their income support.  As the data show, the government ran the largest welfare program in history this year and over nineteen million people continue to draw unemployment compensation payments. And those numbers don’t include any workers still being paid through the PPP program, which is an indirect form of unemployment compensation.  With so many on the dole, the ending of the income support could greatly damage consumer spending.  It was those funds which allowed consumption to rebound and be strong starting in the spring. But fun in Washington comes from seeing how much pain can be inflicted before compromises are made, so we will have to suffer for a little while longer.  Meanwhile, while investors may be a little wary of the political machinations, they don’t seem to be so concerned that they are selling stocks at any great pace.  It would be surprising if the markets go on an extended downturn, despite the terrible reality that the virus is killing people at an incredible, horrible pace.  Another sign that Wall Street and Main Street exist in separate universes.