{"id":1621,"date":"2019-11-13T10:38:12","date_gmt":"2019-11-13T15:38:12","guid":{"rendered":"https:\/\/naroffeconomics.com\/?p=1621"},"modified":"2019-11-13T10:38:12","modified_gmt":"2019-11-13T15:38:12","slug":"october-consumer-prices-and-real-earnings","status":"publish","type":"post","link":"https:\/\/naroffeconomics.com\/?p=1621","title":{"rendered":"October Consumer Prices and Real Earnings"},"content":{"rendered":"\n

KEY DATA:<\/strong>  CPI: +0.4%; Year-over-Year: 1.8%; Ex-Food and\nEnergy: +0.2%; Year-over-Year: 2.3%\/ Real Hourly Earnings (Y-o-Y): +1.9%; Real\nWeekly Earnings (Y-o-Y): +1.6%<\/p>\n\n\n\n

IN A\nNUTSHELL:<\/strong>  \u201cInflation is firming and with hours worked\ndown and wage increases flattening, household purchasing power gains are\nslipping. \u201d<\/em><\/strong><\/p>\n\n\n\n

WHAT IT\nMEANS:<\/strong>  You know all that room the Fed had to cut\nrates because inflation was going nowhere, well that is no longer the\ncase.  Consumer prices jumped in October,\nled by large increases in energy, used vehicles and medical services.<\/em><\/strong>  There was even a solid rise in food costs, though\nthis month it was food at home more than restaurants. The one component that is not\nshowing signs of rising costs is apparel<\/em><\/strong>, which posted another sharp\ndrop.  Imported apparel prices are up\nmodestly over the year and it looks like the Chinese devaluation of their\ncurrency has had its intended effect of partially insulating the country from\nsharp rises in prices due to tariffs. \nExcluding the volatile food and energy components, retail prices rose\nmoderately.  But the real information is in\nthe year-over-year numbers.  The overall\nindex remains above the Fed\u2019s 2% target and the core\/ex-food and energy\ncomponent is pushing 2%.<\/em><\/strong>  While\nthe Fed prefers the Personal Consumption Expenditure price index to the CPI,\nthis is still an indication that inflation is no longer something the Fed can\nuse as an excuse to do the inexcusable, which is to cut rates again. <\/p>\n\n\n\n

With inflation rising, consumer purchasing power is\nfaltering.  Inflation adjusted (real) wages\ndeclined in October, as did real weekly earnings.<\/em><\/strong>  Once again, the key numbers are the\nyear-over-year changes and the growth in hourly and weekly earnings remains\ntepid.  It is hard to sustain consumer\nspending at a 3% pace, which we have seen for most of this year, when\npurchasing power is increasing at less than 2%.<\/em><\/strong>  Something has to give and while savings may\nbe the first casualty of the earnings slowdown, spending will likely be next.<\/p>\n\n\n\n

Yesterday, the National Federation of Independent\nBusinesses released its October survey and optimism posted a small increase.<\/em><\/strong>  Eight of the ten components were up.  The economy may be slowing, but the\nearly-warning sector, small businesses, is not signaling any major faltering in\neconomic activity.<\/em><\/strong>  I guess the\nFed doesn\u2019t read the report (just kidding, Dunk). MARKETS AND FED POLICY IMPLICATIONS:<\/strong>There\nis little reason for the Fed to cut rates again anytime soon.  Inflation is not trending downward, the trade\nwar has moved back, at least for now, to trade skirmishes and longer-term interest\nrates have risen in response to the easing in tensions.<\/em><\/strong>  Indeed, in today\u2019s testimony in front of the\nJoint Economic Committee of Congress, Chair Powell seemed to take a victory\nlap, though it probably had little to do with the Fed\u2019s actions.  He noted: \u201cLooking ahead, my colleagues and I see a sustained expansion of\neconomic activity, a strong labor market, and inflation near our symmetric 2\npercent objective as most likely. This favorable baseline partly reflects the\npolicy adjustments that we have made to provide support for the economy.\u201d  <\/em>His puffery not withstanding, the\neconomy is just where so many of us thought it always was and would be, if and\nonly if the trade war fears were eased or even alleviated.  That is, modest to moderate growth and\ninflation near the Fed\u2019s target.  Thus, there\nis little reason to make any additional moves<\/em><\/strong> \u2013 as long as the trade\nskirmishes don\u2019t break out into full-fledged war.  Of course, as I have argued repeatedly, lower\ninterest rates do almost nothing to counter the fears created by a political\ndecisions to impose higher tariffs, but that is not likely to resonate in the\nhalls of the Federal Reserve building. \nRegardless, the best estimate is that we could see the Fed on hold for\nan extended period (assuming no trade war). \nThe Fed Chair made one other major comment in today\u2019s testimony.  He made it clear he was concerned about the\ngrowing, seemingly out of control U.S. budget deficit.  And he should be worried.  It is likely that the current fiscal year\u2019s\ndeficit will be well in excess of one trillion dollars and if a recession hit,\nfiscal policy could be in a straitjacket. \nGiven the Fed also fitted itself with a straitjacket by lowering rates\nto a level that gives it minimal room to cut further, a recession could be\nextremely hard to counter. <\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

KEY DATA:  CPI: +0.4%; Year-over-Year: 1.8%; Ex-Food and Energy: +0.2%; Year-over-Year: 2.3%\/ Real Hourly Earnings (Y-o-Y): +1.9%; Real Weekly Earnings (Y-o-Y): +1.6% IN A NUTSHELL:  \u201cInflation is firming and with hours worked down and wage increases flattening, household purchasing power gains are slipping. \u201d WHAT IT MEANS:  You know all that room the Fed had … Continue reading October 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":[1],"tags":[],"class_list":["post-1621","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1621","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=1621"}],"version-history":[{"count":1,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1621\/revisions"}],"predecessor-version":[{"id":1622,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1621\/revisions\/1622"}],"wp:attachment":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1621"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1621"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1621"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}