March CPI: this is the report we have been waiting for

 

 - by New Deal democrat

In March, with the exception of the usual problem child of shelter, almost every other component of consumer prices was tame - except for meat and eggs. And even shelter continued to decelerate. If Jerome Powell hadn’t tied his wagon to the core CPI number that includes shelter, he could simply declare victory over inflation.

Let’s get to the almost all good graphs.

First, here are the headline (blue), core (red), and ex-shelter (gold) m/m numbers m/m for the past two years:

Only last May and June were comparably low.

And here they are YoY:

Headline prices *declined* -0.1% for the month, the lowest reading since the Covid lockdowns of 2020. Core inflation was 0.1%, the lowest since January 2021, and CPI less shelter also declined, by -0.2%, the lowest since March 2023. On a YoY basis, headline prices were up 2.4%, the lowest since February 2021. Core prices were up 2.8%, the lowest since November 2021, and CPI less shelter was up 1.5%, the lowest since last October.

Last month I noted that the February readings in shelter have typically been among the highest of the year, suggesting unresolved seasonality issues, and that certainly appeared to be the correct understanding, given this month’s retreat (m/m is light blue, right scale; YoY is dark blue):

On a monthly basis, shelter increased 0.3%, tied for the 2nd lowest monthly increase in the past 2.5 years. And on a YoY basis, at +4.2%, it was the lowest in over 3 years. 

Breaking shelter down further, rent increased 0.3% for the month, and owner’s equivalent rent increased 0.4%. Nevertheless rent was among the lowest monthly increases in the past 3.5 years, and although owners equivalent rent did jump, it was lower on a monthly basis than at any point between the beginning of 2022 and May of last year. When we look at the YoY % change, you can see that the downtrend is intact:

Both measures are at 3 year lows, at 4.4% and 4.0% respectively. Given the recent monthly readings for house prices, I continue to expect slow disinflation winding up somewhere around the 3.5% range within the next 12 months.

The big positive surprise was in even more lagging problem child, transportation services (mainly motor vehicle insurance and repairs), which declined -0.7% for the month! This is the lowest monthly reading since September 2021. On a YoY basis, it decelerated sharply to 3.1%, the best reading in 4 years:

This deceleration was driven by a decline in airfares (perhaps all those Canadians and other foreigners who no longer want to visit the US), and also a -0.8% decline in insurance, although that was still higher by 7.5% YoY. Maintenance and repair prices did continued to soar, up 0.8% for the month.

Further, the former problem children of both new and used vehicle prices appear to have nearly completed their normalization process. New car prices were up only 0.1% for the month and unchanged YoY, while used car prices reversed their February increase and declined -0.7% for the month, and are only up 0.6% YoY:

And the icing on the cake was that energy prices declined a sharp -2.4% for the month, and are down  -3.2% YoY:

In addition to vehicle insurance and repairs, the only other “problem children” were piped gas utilities, tobacco products — and meat and eggs (m/m light blue, right scale, vs. YoY dark blue):

In addition to egg prices, which are up 60%! YoY, beef and pork prices are also sharply higher.

 

Bottom line: with the continued exception of shelter, this is the consumer inflation report we have been waiting for, for about the past three years. With the exception of motor vehicle repairs, meat — and eggs — everything broke lower this month. And shelter, as expected, has continued its slow deceleration. This is an economy which *ought to* enjoy smooth sailing in the months ahead on the inflation front — so long as no Idiot King comes along to mess it all up.

Jobless claims continue to reflect slowly expanding economy

 

 - by New Deal democrat

Before I deal with this morning’s March CPI report, let’s first update jobless claims.

On a weekly basis, initial claims rose 4,000 to 223,000. The four week moving average also was at 223,000, unchanged from last week. And with the typical one week delay, continuing claims declined -43,000 to 1.850 million:

As per usual, the YoY% changes are more important for forecasting purposes. On that basis, initial claims were up 5.2%, the four week average up 3.5%, and continuing claims up 2.5%:

I’ll dispense with the usual graph comparing with the unemployment rate since we are so early in the month.

The bottom line for claims remains generally neutral, representing a slowly expanding economy in the immediate future (everything subject to what the Idiot King does in the meantime of course).

Finally, as a postscript let me just note on the daily data for purposes for tracking any tariff impact, restaurant reservations through April 6 were up 3% on a 7 day moving average basis.

The “Major Questions Doctrine” and the T—-p tariffs

 

 -by New Deal democrat

The financial market thrill ride continues on. I considered writing up a post on bond yields this morning, but who knows where they will be at the close of markets this afternoon?!?

So let me point out that the Roberts Supreme Court has created a legal doctrine under which the T—-p tariffs are almost certainly void as an invalid excercise of Executive power: to wit, the “Major Questions Doctrine.”

The very simple gist of the doctrine is that the Executive may not undertake any major changes without an explicit delegation of that specific type of major change. An implicit delegation, even one in the text of legislation, is not enough. The Executive must go back to Congress to see if they *really* meant what they apparently said. Thus for example Joe Biden’s cancellation of student loan debt was invalid, even though the Congressional enabling statute said that the President could “waive or modify” the terms of that debt. “No, not that much!” the Supreme Court said. If Congress wanted to cede that sweeping a power, Biden had to go back to Congress and get Congress to explicitly say so. 

More charitably it can be said to restrain federal agencies from asserting highly consequential power beyond what Congress could reasonably be understood to have granted. And more broadly that statutes must not be interpreted as delegating power to decide major questions unless the text clearly grants such power.

By way of a iittle more background, here is a basic primer on the history of the “Major Questions Doctrine.” [Note: much of the following is a summarization or cribbing from the “Constitution Annotated” website].

Article I, Section 1 of the Constitution says, “All legislative powers shall be vested in a Congress of the United States ….” Section 8 further provides that Congress has the power “To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers,” one of which, explicitly in Section 8 is, “To lay and collect Taxes, Duties, Imposts and Excises.”

The Supreme Court has observed that this “Necessary and Proper Clause” authorizes Congress to establish federal offices.4 Congress accordingly enjoys broad authority to create government offices to carry out various statutory functions and directives. The legislature may establish government offices not expressly mentioned in the Constitution in order to carry out its enumerated powers.

But the power is not unlimited. In 1935, Chief Justice Charles Evans Hughes, on behalf of the Court, declared that Congress is not permitted to abdicate or to transfer to others the essential legislative functions with which it is thus vested. This principle is the basis of the nondelegation doctrine that serves as an important, though seldom used, limit on who may exercise legislative power and the extent to which legislative power may be delegated. 

The “Major Questions Doctrine” was first formulated by the Supreme Court in the 2002 case of FDA v. Brown and Williamson Tobacco Corp., in which they said: "[W]e must be guided to a degree by common sense as to the manner in which Congress is likely to delegate a policy decision of such economic and political magnitude to an administrative agency."

The doctrine was first made explicit by Chief Justice Roberts in West Virginia v. EPA in 2022, where he wrote: “[I]n certain extraordinary cases, both separation of powers principles and a practical understanding of legislative intent make us "reluctant to read into ambiguous statutory text" the delegation claimed to be lurking there…. To convince us otherwise, something more than a merely plausible textual basis for the agency action is necessary. The agency instead must point to "clear congressional authorization" for the power it claims; an further that “a decision of magnitude and consequence rests with Congress itself, or an agency acting pursuant to a clear delegation from that representative body

And as pointed out above, in Biden v. Nebraska, in 2023, the Court held that Congress did not authorize the Department of Education to institute a sweeping student loan forgiveness program under the HEROES Act of 2003, despite the explicit language in the statute allowing the Deparment to “waive or modify” the terms of the loans. Which looks pretty darn explicit.

So let’s turn to the issue of tariffs. Traditionally courts have shown great deference to Presidents using delegated authority to regulate specific tariffs, and also where there are national security implications. But T—-p’s actions last week arose under the International Emergency Economic Powers Act of 1977, which gave the President authority "to deal with an unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat.

It’s pretty clear that the main driver of the tariff announcements last week were to deal with the decades’-long and chronic issue of the US’s trade deficits. There is absolutely nothing that has happened in the past year that would transform this chronic issue - that Congress has never significantly legislated about - into an “emergency.”

Further, the tariff pronouncements are such that they have almost instantaneously upended the decades’ long integration of global markets.

Was there ever a “clear congressional authorization" for the President to completely reorder the global trade relationships of the United States? Does it sound like “a decision of a magnitude and consequence [that] rests with Congress itself, or an agency acting pursuant to a clear delegation from that representative body?

Let me put it this way: is there the slightest doubt that if President Obama or Biden had done this that the Roberts Court would not cite the Major Questions Doctrine to stop it?

The bottom line is that it is not just Democrats in opposition who are horrified by T—-p’s tariffs. It is the core GOP constituencies of Wall Stree and corporate America who are screaming the loudest.

The Roberts Court has made a thoroughgoing record of being partisan. But in this case the disagreement is not between the Left and Right, but between two core constituencies of the Roberts Court itself. And the economic damage to the United States might prove catastrophic, and quite quickly too.

Under those circumstances the Roberts Court might well be receptive to enjoining the T—-p tariffs under the “Major Questions Doctrine.”

Daily T—-p tariff recession watch: no evidence of hard data deterioration to start

 

 - by New Deal democrat

Are the T—-p tariffs quickly putting the US into a recession? 

As I wrote yesterday, there are two daily and two weekly indicators, as well as five regional Fed broad economic reports released during the month, that should give us a quick heads-up.

Today’s editions is something of a baseline, since even the daily reports ended no later than April 6. Let’s take a look.

First, Redbook retail sales last week jumped to a high of 7.2% YoY, the 2nd highest comparison in the entire past year. The four week average was 5.7%, about average for the past 10 months:

Next, restaurant reservations also continue to be healthy, up 2% YoY during the past week, within the average range of YoY comparisons this year.

Next, if there are layoffs, tax withholding begins to suffer. It also suffers when stock prices decline such that supervisors and executives are unable to cash in stock options. Matt Trivisonno of the Daily Jobs Update has a graph (delayed by 3 months for non-subscribers) comparing the entire past 365 days of payments vs. the 365 previous days. As you can see, by early this year it was up about 6% YoY:

I have crunched the numbers through last Friday’s report, the latest date available, and currently the 365 day YoY comparison is up 7.1%.

I also looked at the 13 week and 4 week averages YoY. As of last Friday’s report, they were higher by 7.4% and 8.3%, respectively.

So again, no sign of a consumer pullback at this point.

Finally, even though initial jobless claims won’t be reported until Thursday, economist Aaron Sojourner pioneered a study looking at google searches for “file for unemployment”. He found no spike through the end of last week:

On the other hand, Guy Berger found a substantial YoY% increase:

I am a little leery of this, because it should correspond to the YoY% change in initial claims. The search history shows a bottom in August of last year, and a sharp acceleration in the YoY comparison starting in February, but initial claims do not show any YoY deterioration since last autumn:

The only explanation that may fit is if Federal employees who either had been, or were in fear of, being DOGE’d, searched on google, even though they have received severance benefits.

So the conclusion as I begin this watch is that there is no evidence of a significant downshift in any of the high frequency hard data at this point.

Is a T—-p Tariff recession starting? My plan for real-time daily, weekly, and intramonth updates

 

 - by New Deal democrat

Normally on the Monday after the employment report, I do a deeper dig into its details. But today that seems a little quaint, sort of like rhapsodizing about the Roaring 20’s the week after the great Crash of 1929.

Lots of other people, e.g., Bill McBride, have looked into their crystal balls and seen a recession coming, or at least heightened risk. No doubt that is true. But I am a data nerd, and my mission is to pay attention to what the actual hard data says.

Over the weekend on Seeking Alpha I was asked if I could “reassure” people that the economic indicators - even high frequency ones - would telegraph a recession before it began. My response was that with exogenous events, in particular an event caused by a single human actor, nothing could be “assured.” For example, I wrote that “Given [T—-p‘s] mercurial record, I would give not more than 50% odds that these tariffs will remain substantially in place for more than a month or two;” but that the weekly data like new jobless claims and retail spending, and even daily updated “hard” data such as withholding tax payments and restaurant reservations would give almost instantaneous warnings that producers and consumers had started to pull back.

So, in view of the fast moving events, my plan is to add a focus on two general sources of information.

First, I plan to include daily updates on tax payments and restaurant reservations, as well as updates on Tuesday as to weekly retail spending, in addition to the Thursday updates on jobless claims that I already do.

Secondly, the five regional Feds that issue monthly manufacturing reports before the month is over - New York, Philadelphia, Richmond, Kansas City, and Dallas - also issue similar updates about the services economy. I have not written about these before because they appear to be coincident indicators, and you know I focus on what is ahead, not what has just happened. But at least for this month, I plan on highlighting these as well, because they will be among the very first “hard” indications that consumption of services is taking a hit. The NY Fed will be the first report, on the 16th, followed by Philly and Richmond on the 22nd, Kansas City on the 25th, and Dallas on the 29th.

Between the above daily, weekly, and intramonth reports, we should have as close to a real-time report of the tariffs’ effects on the economy as possible.

——-

Edited to Add: I happen to think the Roberts Court has handed potential plaintiffs challenging the legality of these tariffs a theory that is a very potent weapon. I hope to explain that tomorrow.