{"id":1641,"date":"2020-01-14T10:12:00","date_gmt":"2020-01-14T15:12:00","guid":{"rendered":"https:\/\/naroffeconomics.com\/?p=1641"},"modified":"2020-01-14T10:12:00","modified_gmt":"2020-01-14T15:12:00","slug":"december-consumer-prices-real-earnings-and-small-business-confidence","status":"publish","type":"post","link":"https:\/\/naroffeconomics.com\/?p=1641","title":{"rendered":"December Consumer Prices, Real Earnings and Small Business Confidence"},"content":{"rendered":"\n

KEY DATA:<\/strong>  CPI: +0.2%; Over-Year: +2.3%; Ex-Food and\nEnergy: +0.1%; Over-Year: +2.3%\/ Real Hourly Earnings: -0.1%; Over-Year: +0.6%\/\nNFIB: -2 points<\/p>\n\n\n\n

IN A\nNUTSHELL:<\/strong>  \u201cDespite reasonably tame inflation, household\nspending power continues to fade.\u201d<\/em><\/strong><\/p>\n\n\n\n

WHAT IT\nMEANS:<\/strong>  With the Fed happy with its position on\ninterest rates, we have to ask what could knock it off its stand.  They could hike rates if inflation or growth\naccelerates sharply or even reduce rates further if the opposite occurs.  Today\u2019s data contain some insights into both\ngrowth and inflation.  On the household\ncost side, the Consumer Price Index rose moderately in December.  Energy prices jumped, as expected and food\ncosts were up moderately.<\/em><\/strong>  Taking\nout those two volatile components, the so-called core index rose\nminimally.  <\/em><\/strong>There are always\noutliers and in this report there were two. \nFirst, medical costs, including both commodity and services, are rising faster\nand faster.  Medical costs had been\nsurprising tame for much of the past decade but that is changing. <\/em><\/strong> It may be too early to conclude this but it is\nbeginning to look like the current laissez-faire approach to health care is\nallowing providers to ramp up prices.  On\nthe other hand, used vehicle prices cratered in December<\/em><\/strong>.  The record sales we saw are now creating huge\ninventories of vehicles coming off lease and that is an issue for dealers.  Overall, though, it looks like inflation is\nnow running at a pace near the Fed\u2019s target. \n <\/em><\/strong><\/p>\n\n\n\n

On the growth side, my concern has been and will\nlikely continue to be the diminishing gains in consumer purchasing power.<\/em><\/strong>  This is defined as the increase in earnings\nadjusted for inflation.  Real hourly\nearnings fell in December and the gain was well under 1% over the year.  When hours worked were factored in,\ninflation-adjusted weekly earnings were absolutely flat since December 2018. <\/em><\/strong> It is hard for the average household to keep\nup the spending we have seen if their spending power is going nowhere.  <\/em><\/strong><\/p>\n\n\n\n

Meanwhile, small businesses remain pretty\nupbeat.  Yes, the National Federation of\nIndependent Business\u2019 Optimism Index eased in December.  But the level remains high<\/em><\/strong> and the components are\nstill fairly strong.  But\nthere is a warning sign in the report.<\/em><\/strong> \nEarnings growth continues to fade, led by a growing softness in sales. <\/em><\/strong> If the small business sector is the canary in the\ncoal mine, the bird is still chirping but not quite as loudly as it had been.     <\/em><\/strong>MARKETS AND FED\nPOLICY IMPLICATIONS:<\/strong>We\nget the first reading on fourth quarter growth in two weeks.  It should be in the 2% range, meaning the\ngain for the year should be about 2.3%.<\/em><\/strong> Basically, growth started off strong but\nfaded as we went through the year.  <\/em><\/strong>Will\nthat softening in growth continue?  One\nmajor factor restraining activity, especially capital spending, was the trade\nwar.  As long as that doesn\u2019t get out of\ncontrol again, business spending may improve. \nHowever, the deceleration in household earnings is likely to force\nconsumption growth to slow.<\/em><\/strong>That likely\nmeans this year should be slower than 2019.<\/em><\/strong>  The January Blue Chip consensus is for 1.9%\ngrowth this year. I am a member of that survey panel and that is my forecast as\nwell.  That may be enough to keep the\nunemployment rate relatively stable (I expect it to start rising slowly in the\nsecond half of the year), but it raises serious questions about corporate\nearnings.  Profits were soft last year\nand fading growth doesn\u2019t point to better gains this year.  It could take additional financial\nmanipulation, such as further stock buybacks, to keep equity prices up.  So, the Fed may be satisfied with inflation and\ngrowth right now, but that doesn\u2019t mean everything is as beautiful as the\nmembers seem to believe it to be. <\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

KEY DATA:  CPI: +0.2%; Over-Year: +2.3%; Ex-Food and Energy: +0.1%; Over-Year: +2.3%\/ Real Hourly Earnings: -0.1%; Over-Year: +0.6%\/ NFIB: -2 points IN A NUTSHELL:  \u201cDespite reasonably tame inflation, household spending power continues to fade.\u201d WHAT IT MEANS:  With the Fed happy with its position on interest rates, we have to ask what could knock it … Continue reading December Consumer Prices, Real Earnings and Small Business Confidence<\/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-1641","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1641","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=1641"}],"version-history":[{"count":1,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1641\/revisions"}],"predecessor-version":[{"id":1642,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1641\/revisions\/1642"}],"wp:attachment":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1641"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1641"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1641"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}