{"id":1547,"date":"2019-06-12T14:01:43","date_gmt":"2019-06-12T18:01:43","guid":{"rendered":"https:\/\/naroffeconomics.com\/?p=1547"},"modified":"2019-06-12T14:01:43","modified_gmt":"2019-06-12T18:01:43","slug":"may-consumer-prices-and-real-earnings","status":"publish","type":"post","link":"https:\/\/naroffeconomics.com\/?p=1547","title":{"rendered":"May Consumer Prices and Real Earnings"},"content":{"rendered":"\n

KEY DATA:<\/strong> CPI: 0.1%; Over-Year: 1.8%;\nEx-Food and Energy: 0.1%; Over-Year: 2%\/ Real Earnings: 0.2%; Over-Year: 1.3%<\/p>\n\n\n\n

IN A\nNUTSHELL:<\/strong>  \u201cTame inflation is allowing consumer spending\npower to hold up as earnings growth is slowing.\u201d<\/em><\/strong><\/p>\n\n\n\n

WHAT IT\nMEANS:<\/strong>  Is the Fed worried about inflation?\nYes.  But it is probably because it is\ntoo low!  The Consumer Price Index barely\nbudged in May<\/em><\/strong> and even the modest rise was misleading.  Hardly any components posted significant\ngains while there were quite a few that had negative numbers.<\/em><\/strong>  Energy costs dropped but food prices\nrebounded.  Essentially a wash\nthere.  Used vehicle and medical goods\nprices declined but medical services were up. \nThe rest largely wandered around. \nBasically, there is little pressure on consumer costs that you can find in this\nreport. <\/em><\/strong><\/p>\n\n\n\n

And it is really good that inflation remains tame,\nas worker earnings are also going nowhere.<\/em><\/strong>  Yes, hourly earnings rose at a moderate pace,\nbut the gain over the year has stopped rising. \nBut of real concern is that hours worked is dropping.  When you add hours worked to<\/em><\/strong> earnings\nand adjust for inflation, that measure of weekly earnings is running at only\nabout 1%.<\/em><\/strong>  As I keep saying, it\nis hard to generate strong consumption spending if workers spending power is\nmodest, at best.  And right now, it is\nextremely modest even given the lack of inflation. <\/p>\n\n\n\n

MARKETS AND\nFED POLICY IMPLICATIONS:<\/strong>  The\nFed is facing a lot of problems and a key one is that inflation is below target.\nIt is the low inflation that is keeping consumer real income growth from\ntotally falling apart.  So, if the Fed\ntries to get inflation up by cutting rates, it could wind up causing\nconsumption to falter.<\/em><\/strong>  That\ncould offset the gains from any stronger growth from interest sensitive\nsectors.  If Chair Powell really is\nsignaling that he is going to cut rates, something I think is way too early to\neven consider, then he better hope that stronger growth does not cause inflation\nto accelerate. <\/em><\/strong> Luckily, even\nwith the unemployment rate below where most Fed members and economists think is\nfull employment, wage gains are not increasing. \nFirms seem to be willing to leave job openings high rather than pay up\nto get the workers.  Maybe that means a\nrate cut could encourage more growth without greater inflation.  However, to get that, you have to maintain the exceptionally\nstrong productivity growth we have seen recently.  Otherwise, you don\u2019t get more output, just\nlower rates.  On the other hand, the last\nthing the Fed wants to do is raise rates<\/em><\/strong>, which could slow growth, slow\ninflation, slow income gains further and cause investors to throw another\ntantrum. The Fed is stuck at the current rate and all this talk about a rate cut\nmakes no sense unless the Fed actually sees the economic fundamentals clearly weakening.  <\/em><\/strong>That could take quite a while to\nbecome clear.  To paraphrase Laurel and Hardy,\n\u201cWell, Jay, here\u2019s another nice mess you have gotten us into\u201d.  <\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

KEY DATA: CPI: 0.1%; Over-Year: 1.8%; Ex-Food and Energy: 0.1%; Over-Year: 2%\/ Real Earnings: 0.2%; Over-Year: 1.3% IN A NUTSHELL:  \u201cTame inflation is allowing consumer spending power to hold up as earnings growth is slowing.\u201d WHAT IT MEANS:  Is the Fed worried about inflation? Yes.  But it is probably because it is too low!  The … Continue reading May Consumer Prices and Real Earnings<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-1547","post","type-post","status-publish","format-standard","hentry","category-economic-indicators"],"_links":{"self":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1547","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1547"}],"version-history":[{"count":1,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1547\/revisions"}],"predecessor-version":[{"id":1548,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1547\/revisions\/1548"}],"wp:attachment":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1547"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1547"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1547"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}