Posted originally on the conservative tree house on December 15, 2021 | Sundance | 77 Comments

The Commerce Department November retail sales data was release today [DATA HERE] – [DETAIL pdf HERE].  The top line issue is a shocking drop in retail sales for November in key categories that align with previous discussion of inflation spending priorities for all U.S. consumers.

Before getting to the data, one point is critical to remember.  The commerce department sales figures are based on dollars spent. This point is important, because the items being purchased have inflation within them.  When prices are higher due to inflation, sales figures should be higher due to higher prices.  Ex. If there is an 8% increase in retail price, but only a 4% increase in retail sales, that means less stuff is being sold.  [Less units sold at a higher price gives the illusion of an increase in sales.]

Despite the start of the traditional holiday sales and shopping period, the total sales growth in November was 0.3% over October [Column A].  Factoring in inflation during the same month to month comparison at 0.9%, you can tell that overall in November there was a drop in units sold across the total of retail sales outlets.

A drop in sales at a time when holiday shopping should be taking place is concerning.  However, the sales reality aligns with the employment data last week showing a drop of 20,000 workers in the retail sector for November.  Put them together, and the picture shows retailers did not need employees, because consumers are not spending.

If we look deeper into the November sales figures, we can see that a contraction in discretionary spending is the primary issue. Electronics (-4.6%), Department Stores (-5.4%) and even online sales at ZERO.  We can also see a direct correlation in comparative inflation impact within the sales data for November 2021 when compared to November 2020 [Column B].

You will note that column B is an almost identical data set to the rate of inflation in those categories.  Example: the November 2021 sales data is showing an increase in gasoline station sales of 52.3% over November 2020.  That’s because gas prices have gone up 58.1% over the same time period.  The increase in sales at gas stations is because inflation is driving sales.   [Remember, these comparisons are in dollars being spent.]

A comparison to 2020 for sales dollars in 2021 is useless when you look at the rate of inflation in those categories.

However, to see electronics, department stores, general merchandise and even online sales (Nonstore retailers) showing declines in sales over October, tells us that consumer spending is being squeezed and contracting.

In the electronic sector, sales dropped 4.6 percent versus October.   However, the issue is larger.  With inflation within the electronics sector around 8 percent (BLS Table-2),  a contraction in overall sales of items that cost more means a lot less electronic units are being sold.

(Bloomberg) “U.S. retail sales rose by less than forecast in November, suggesting that consumers are tempering purchases against a backdrop of the fastest inflation in decades” (more)

Similarly, vehicles overall (new and used) are 20% higher in price this year {BLS DATA} and only achieved a net 13% increase in consumer sales for Nov 2021 -vs- Nov 2020.   Far fewer vehicle units are selling.

This data should not be surprising to anyone who has been paying attention.  Consumers overall, specifically the middle class and working class, are being squeezed hard by food, fuel, housing and energy inflation, and are cutting back their spending this Christmas.   The media are blaming the soft sales on COVID and supply chains again, but that’s not really the issue.

WASHINGTON, Dec 15 (Reuters) – U.S. retail sales increased less than expected in November, likely payback after surging in the prior month as Americans started their holiday shopping early to avoid empty shelves.

[…] The modest retail sales gain did not change views that the economy was regaining steam after a slowdown in the third quarter that was triggered by the COVID-19 Delta variant and rampant shortages.

[…] Retail sales rose 0.3% last month after surging 1.8% in October. Sales have now risen for four straight months. They increased 18.2% year-on-year in November. Economists polled by Reuters had forecast retail sales rising 0.8%. Estimates ranged from as low as being unchanged to as high as a 1.5% increase.

[…] The moderation in retail sales, which are mostly goods, was in part due to shortages and higher prices. Receipts at auto dealerships dipped 0.1% after accelerating 1.7% in October. Automobiles remain scarce because of a global semiconductor shortage. Sales at electronics and appliance stores fell 4.6%.

But sales at service stations increased 1.7%, lifted by higher gasoline prices. Receipts at food and beverage stores rose 1.3%, also reflecting rising inflation.

“Food and gas are forcing hard choices for consumers in other areas this holiday season,” said Tim Quinlan, a senior economist at Wells Fargo in Charlotte, North Carolina. “Consumers are no longer the price-takers they were when they were flush with cash from stimulus checks.”  (read more)

Armstrong Economics Blog/Inflation Re-Posted Dec 15, 2021 by Martin Armstrong

The US Producer Price Index (PPI) for November reached an 11-year high, according to the Labor Department. The PPI for final demand rose 0.8% in November, the index for final demand services increased 0.7%, and prices for final demand goods moved up 1.2%. Alarmingly, the final demand PPI soared 9.6% for the 12 months ending in November, marking the fastest 12-month advance since November 2020 when that data was first collected. Core PPI advanced 6.9%, marking the largest spike since August 2014. As a reminder, this measures the average price movement established by domestic producers for goods and services sold both domestically and internationally.

Companies are facing higher costs, and that cost is passed on to the consumer. As a result, the Consumer Price Index rose 0.8% in November, marking a 6.8% increase in inflation on an annual basis. The Labor Department noted that this was the fastest pace of inflation since June 1982.

These levels are unsustainable. The Fed’s 2% inflation target seems laughable considering prices in every area continuously rise with no end in sight. Fed Chairman Jerome Powell has stated that the central bank would step in with a more aggressive policy if they saw runaway inflation. How high do prices need to rise for the central bank to take action?

Posted originally on the conservative tree house on December 14, 2021 | Sundance | 142 Comments

Finally!  Good grief, it’s been a long wait to see someone on the TV pointing out the obvious.

CNBC’s Steve Liesman points out what all the financial pundits keep ignoring.

The price of raw material at origination is still climbing…. which means the prices of intermediate manufacturing goods will keep climbing… which means the prices of finished goods (to wholesalers) will keep climbing…..  which means consumer prices will keep climbing.   WATCH:

♦Here’s the kicker.  The rate of raw material price increases are still higher than the rate of intermediate price increases, which are still higher than the rate of price increases in finished goods, which are still higher than the rate of price increases in consumer goods (retail).

As long as the rate of price increase for raw material, the very first step in the supply chain, remains higher than the rate of the price increase for the next step in the process, then you can guarantee future prices will go up.  It’s a simple and commonsense way to look forward when evaluating inflation.

If the stuff starts at a higher price (day one), the end product at day 90 will be at a higher price than today.  This is how you can tell that inflation is not slowing down.  The first sign of inflation easing is when the rate of inflation for raw material is lower than the rate of inflation in the next step.

Posted originally on the conservative tree house on December 14, 2021 | Sundance | 280 Comments

We said it was happening {Go Deep}, and it is.  Last month CTH put the preparation window at 60 days +/- depending on region.  That window is now around 30 days before the next spike in inflation shows up from cumulative costs snowballing throughout the supply chain. The “producer price index” is essentially the tracking of wholesale prices at three stages: Origination (commodity), Intermediate and Final.

The final product inflation rate in July (reported in August) was alarming at 7.8%. However, we warned it would get worse. The Bureau of Labor and Statistics (BLS) then released stunning price data for October [DATA Here], showing an even more dramatic 8.6% price increase in final demand. More intense warnings shared.

Today, we get the November BLS Result [DATA Here], and unfortunately the results are showing what was expected.  The cumulative costs of massive increases in energy prices are building into the supply at an astonishing rate.  The November data shows a rate of wholesale final goods inflation at 9.6%, the largest single month comparative rate increase in history.

The bureau even went back and revised/increased the August price index from 7.8 to 8.4 percent, and revised/increased the October figure from 8.6 to 8.8 percent.  The average monthly price increase is almost a full percent… every month.  It looks like the BLS backward revisions are an attempt to smooth down the rate of increase.

(BLS) – “The Producer Price Index for final demand increased 0.8 percent in November, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices moved up 0.6 percent in each of the 3 prior months. (See table A.) On an unadjusted basis, the final demand index rose 9.6 percent for the 12 months ended in November, the largest advance since 12-month data were first calculated in November 2010.” (more)

I modified Table A (final demand product pricing), taking out some of the noise to make it a little easier to see the big picture of what is happening.

When you see the wholesale level of prices almost double the increase in consumer level inflation rate, you can predict that consumer prices will likely go even higher.  Future finished goods, at a retail level, will carry the current wholesale price increase.

Stuff costs a lot now… and because the inbound stuff to make the finished goods is still climbing in price…. stuff is about to cost even more.   You can see this in the inflation rate of intermediate goods which I have highlighted below.

You can see from Table A (above) that finished good prices are still climbing.  That’s the higher price inflation you are feeling when you buy a product.

More alarming is to look at the “intermediate demand” products [Table B below] as they flow through the manufacturing system.  Two types of products are at the intermediate wholesale level:  Processed Goods, and Unprocessed goods.

I have again modified Table B (above) to remove the noise.  Notice two key aspects:

(1) Prices for both types of products are still climbing in the manufacturing process.  Compare August, Sept., Oct., and now November, noticing how the prices are still climbing.  Some of that has to do with energy and fuel costs still climbing.  The increasing price for gasoline is built into each part of the transportation process.

(2) Notice the scale of the increase in the prices from prior months.  The trend line is not leveling off, instead it’s doing the opposite.  The rate of inflationary climb (price increase), at the intermediate level of goods coming into the system, is getting even more steep.  The stuff coming into the manufacturing process is not only costing more, it is costing much more than before.

The wholesale prices of products into the system that end up at the retail level are still through the roof. In a major way, this is being driven by massive increases in energy costs throughout the entire supply chain.

This is going to get even uglier. Even if wages jumped in price 5% overnight (single month), which would be a large increase in wages, those wage increases are nowhere near enough to deal with this level of price increase at a consumer level. A nickel more per dollar earned is futile against a loaf of bread costing $1 more, or gasoline at $4.00/gal.

Do what you can now to start preparing your weekly budget in ways you may not have thought about before. Shop sales, use coupons, look for discounts and products that can be reformulated into multiple meals or multiple uses. Shelf-stable food products that can be muti-purposed with proteins is a good start.

Consider purchasing the raw materials for cleaning products, and reformulate them yourself to avoid these massive increases in petroleum costs.

Remember, when inflation hits like this, you can NATURALLY expect an eventual demand side response.  People will stop purchasing things, because those things are just too expensive.  When that happens, the inflationary spike can/will start to level off as the demand slows and excess inventory builds, albeit with higher prices built into the unaffordable existing inventory.

Unfortunately this drop in demand, a contraction in the economy, is what’s known as a recession. That leads to layoffs and unemployment, which only exacerbates the problems and puts downward pressure on wages – while the prices remain high.

Joe Biden spending more to try and subsidize people through this inflationary economic cycle only makes things worse for the middle class.  More spending results in more inflation, which requires more subsidy, which requires more spending, which creases more inflation.

Your goal is to prepare yourself and your family for that moment when the economy starts contracting – yet prices remain high.   If you can avoid future expenses by taking action before the highest prices hit, you will be in a better position.  Be proactive with your household maintenance, and think about things that normally hit your monthly budget unexpectedly.

Try to avoid any unexpected expenses your memory provides you, by doing what you can do now.

Act or be acted upon.

Protect your family.  Even if, heck, especially if, your kids or grandkids cannot see what is coming.  Prepare yourself to help them even if they don’t know, or won’t admit, they will need the help. Be wise in your counsel, but do not alarm.  Do not distress yourself with dark imaginings. Fellowship is not only needed, it is critical.

It is empowering to be prepared for the storms of life, just as it is to be prepared in advance of storms from weather.

Posted Originally on the conservative tree house on December 13, 2021 | Sundance | 156 Comments

The New York Federal Reserve survey reflects the obvious.  Consumers see staple food and energy price increases far outpacing any wage gains, and the outlook moving forward does not show signs of improvement.

The distance between the inflation line and the wage line is the intensity of the hurricane coming our way.

We are in this very weird place where the politically motivated Fed cannot stop purchasing debt created by legislative spending.  At the same time, the political Fed is going to have to raise interest rates or we will enter an impossible spiral of policy caused inflation.  There are three options:  (1) stop buying debt; (2) increase interest rates; or (3) deploy some COVID mechanism to shut down people and hit the demand side.

Considering that Omicron didn’t work, and further panic pushing does not seem politically viable, that only leaves the two options of the Fed stops buying debt, and/or the Fed raises interest rates. Now, considering that these same political ideologues will not stop pushing the Build Back Better legislative agenda, that means the Fed cannot stop buying debt.  That leaves one option remaining, increase interest rates.

Dec 13 (Reuters) – U.S. consumers’ short-term inflation expectations pushed higher in November and expectations for future earnings growth dropped, suggesting they anticipate price increases will outpace wage gains at an even faster rate in the near term, according to a survey released on Monday by the New York Federal Reserve.

Prices for food and other goods are rising at the fastest pace since 1982, according to data released by the Labor Department last week, posing political challenges for President Joe Biden’s administration and cementing expectations the Fed will raise interest rates next year.  (read more)