{"id":1731,"date":"2020-05-12T11:53:43","date_gmt":"2020-05-12T15:53:43","guid":{"rendered":"https:\/\/naroffeconomics.com\/?p=1731"},"modified":"2020-05-12T11:53:43","modified_gmt":"2020-05-12T15:53:43","slug":"april-consumer-prices-and-real-earnings-3","status":"publish","type":"post","link":"https:\/\/naroffeconomics.com\/?p=1731","title":{"rendered":"April Consumer Prices and Real Earnings"},"content":{"rendered":"\n

KEY DATA:<\/strong>  CPI: -0.8%; Over-Year: 0.3%; Ex-Food and\nEnergy: -0.4%; Gasoline: -20.6%; Ex-Energy: -0.2%.  Food at Home: +2.6%\/ Real Hourly Earnings:\n+5.6%; Over-Year: +7.5%<\/p>\n\n\n\n

IN A\nNUTSHELL:<\/strong>  \u201cThough most consumer prices fell,\nsupermarkets did manage to push through some pretty hefty price increases.\u201d<\/em><\/strong><\/p>\n\n\n\n

WHAT IT\nMEANS:<\/strong> It\nshould be no surprise that when the economy shut down, prices fell.  And in April, that is precisely what\nhappened.  Household expenses cratered,\nled by a massive drop in motor fuel costs.<\/em><\/strong>  Excluding food and energy, consumer costs\nwere down by the largest amount ever.  <\/em><\/strong>The\ndecline was only the ninth in the sixty-three years the series has been in\nexistence.  With people not able to shop\naround, supermarket prices jumped<\/em><\/strong>. \nMost distressingly, the prices of bakery goods soared.  However, Wawa has been running specials on my\nnew favorite breakfast nuggets, Entenmann\u2019s Pop\u2019ems, so I was okay.  Restaurants that were open for take out\nmanaged to push through increases, though it is hard to criticize them for\ndoing that as their sales collapsed.  On\nthe goods side, alcohol, appliance and home furnishings prices soared but\nclothing and most medical supplies, excluding prescriptions of course,\ndeclined.<\/em><\/strong>  As for services, most travel\nrelated prices cratered.<\/em><\/strong> \nHowever, our wonderful cable and satellite operators jacked up\nprices.  People were stuck at home so it\nwas time to stick it to them.  <\/p>\n\n\n\n

It is becoming clear from the data that the people\nbeing clobbered by the shut downs are low paid workers. Inflation-adjusted hourly wages skyrocketed.  Did worker wages really soar?  Not really.<\/em><\/strong>  But if you take out the bottom of the wage\ndistribution, you wind up with a higher weighted average wage.  That wages were up so much implies that much\nof the loss of jobs were predominately in the lower wage segments of the\neconomy.    <\/em><\/strong><\/p>\n\n\n\n

IMPLICATIONS:<\/strong>  Consumer prices fell sharply in April, but\nthe decline looks a lot more positive on the surface than in reality.  The majority of the drop came from\nenergy.  <\/em><\/strong>Excluding energy, costs fell\nmodestly.  When you are living on savings\nand unemployment, the key expense is food, and that was where prices surged.  <\/em><\/strong>Gasoline prices have stabilized and\nare starting to rise, so the May report should look a lot different.  It will be interesting to see what happens\nto prices once the economy reopens.  Will\nfirms try to recoup lost revenues by raising prices or will they try to attract\ncustomers back by running sales?<\/em><\/strong> \nSupermarket weekly circulars have shrunk dramatically and a lot of\nproducts are being sold at full price.  Will\nthat be sustained?  I doubt it.  On the other hand, I would not be surprised\nto see restaurants raising prices in an attempt to make up for their lost\nsales.  Once workers start commuting\nagain, gasoline prices are likely to rise. \nBut ultimately, it will be how households shop that will matter.  Goods that require some form of in-person\nsales have been able to raise prices, as the inability to comparison shop has\nbeen limited.  That advantage will likely\nbe lost with increased mobility.<\/em><\/strong> \nBut now that people have a better handle on internet shopping for a\ngreater variety of products, those goods that can be readily comparison shopped\nonline are likely to see a permanent increase in demand.  So the shopping patterns that emerge from the\nshut down will determine if inflation accelerates or decelerates.  <\/em><\/strong><\/p>\n\n\n\n

As for investors, the markets are back to where they\nwere in the last quarter of 2019.<\/em><\/strong>  I keep\nasking the same question: Are earnings estimates the same now for 2020\nand 2021 as they were toward the end of last year?  The only way that can be is if you believe in\nthe Big-V recovery scenario.  Most of my\ncolleagues have abandoned that forecast.<\/em><\/strong>  Most are now looking for a short-term sharp\npick up in growth followed by an extended slow to moderate period.  That doesn\u2019t argue for strong earnings growth\nover the next 12-18 months.  More\nimportantly, the level of activity is now well below what was expected at the end of\n2019.  <\/em><\/strong>The consensus is for a\ndecline in the current quarter by 25% to 30%. \nAssuming a 25% annualized drop, GDP would be about 7.5% below the level\nposted in the last quarter of 2019.  To\nget back to the previous peak, the economy would have to average a 3.9% annual growth\npace for two full years.<\/em><\/strong>  Is that\npossible?  Hard to see.  For example, even if growth were 5% in the\nfirst year, it would still have to be over 2.8% in the second year. And then, total\neconomic activity would only reach the fourth quarter 2019 level in spring\n2022!  So, are the earnings forecasts that\nhave to underlie the current market prices realistic?  I don\u2019t know, but investors seem to think\nthat is possible.   <\/em><\/strong>   <\/p>\n","protected":false},"excerpt":{"rendered":"

KEY DATA:  CPI: -0.8%; Over-Year: 0.3%; Ex-Food and Energy: -0.4%; Gasoline: -20.6%; Ex-Energy: -0.2%.  Food at Home: +2.6%\/ Real Hourly Earnings: +5.6%; Over-Year: +7.5% IN A NUTSHELL:  \u201cThough most consumer prices fell, supermarkets did manage to push through some pretty hefty price increases.\u201d WHAT IT MEANS: It should be no surprise that when the economy … Continue reading April 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":[3,1],"tags":[],"class_list":["post-1731","post","type-post","status-publish","format-standard","hentry","category-economic-indicators","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1731","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=1731"}],"version-history":[{"count":1,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1731\/revisions"}],"predecessor-version":[{"id":1732,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1731\/revisions\/1732"}],"wp:attachment":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1731"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1731"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1731"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}