Friday, June 10, 2022

Consumer prices rise 1% in May alone; owners equivalent rent at 30 year high; expect the Fed to keep stomping on the brakes

 

 - by New Deal democrat

Today is a travel day for me, so I’ll keep this relatively brief.


People who were hoping inflation would abate did not get the news they wanted from the May CPI. Consumer prices rose 1.0% in that month alone. Inflation less energy rose 0.7%, and “core” inflation less food and energy rose 0.6%. On a YoY basis, prices are up 8.5%, tied for a multi-decade high with a few months ago. Core prices are up 6.0%, down slightly from their February and March peak:



The news was relatively “good” in the prices of used cars and trucks, up 1.8% for the month, but “only” up 1.6.1% YoY, down from 45% half a year ago:



Finally, as expected, house prices (as shown via the FHFA Index in blue below) have continued to bleed over into owner’s equivalent rent, which rose 0.6% for the month, and is up 5.0% YoY, a 30 year high:



Bottom line: the Fed is going to continue stomping on the brakes. The only issue will be whether we get an old-fashioned “bust” before short term rates get raised high enough to invert the yield curve, a la the late 1940s and early 1950s.

Thursday, June 9, 2022

Initial jobless claims now in a clear uptrend, and other economic notes for the week

 

 - by New Deal democrat

First, a note on other economic news from earlier this week. 

The housing market is getting absolutely crushed by 10 year+ high mortgage rates. Mortgage applications fell to levels not seen since 2017 (except for a few weeks during the 2020 Covid lockdowns). Refinancing is at 20 year lows. The next questions are when prices will peak, and what will happen with the huge backlog in housing starts from properties already permitted? We’ll find out more in a week with the next report on housing starts and permits, but we won’t get more price information for a couple more weeks.

I saw a couple of comments on consumer credit increasing. As I’ve noted, the consumer is in a typical late expansion mode, where real income growth if flagging, and consumers are extending themselves on more credit. I don’t see anything drastic happening here.

I also read a few reports that retailers are reporting marked dips in sales in the past month. I think we have reached the point where gas prices are high enough that consumers are cutting back on other purchases. I doubt we’re at an “oil shock” point, though, where consumers *over*compensate becoming extra cautious about other purchases.

Finally, there’s been some discussion about the future course of inflation. One highly compensated Wall Street pundit claimed that consumer spending had not caused any inflation, because - wait for it - in inflation-adjusted terms, it had kept up with inflation. In other words, consumer spending behaved exactly as you would expect it to if more money were chasing the same amount of goods. Although that’s clearly *not* the case with gasoline and cars, where demand has never completely returned to pre-pandemic levels, and yet prices are much higher.

Meanwhile, Paul Krugman among others is touting that inflation may be subsiding, so the Fed should be wary of over-reacting. Measured by wages for non-managerial workers, it has abated just slightly, so I’m not so sure. Beyond that, as I’ve pointed out in a few recent missives, this is how Booms turned into Busts in the immediate aftermath of World War 2. The Fed never raised rates, but price and mortgage rate increases overwhelmed the ability of consumers to keep pace. So they didn’t. Inflation abated, because there were brief recessions which caused an abatement of interest rates and price increases. I.e., be careful what you wish for.

Turning to the news actually at hand  . . .

Initial jobless claims rose 27,000 to 229,000 last week, continuing above the recent 50+ year low of 166,000 set in March. The 4 week average also rose 8,000 to 215,000, compared with the all-time low of 170,500 nine weeks ago.  Meanwhile continuing claims were unchanged at 1,306,000, tied for a 50 year low:


It’s now safe to say that initial claims have been in an uptrend over the past 2.5 months. If this continues a few more weeks, they will no longer qualify as a “positive” in my array of short leading indicators. I will be interested to see if this is confirmed by a significant decline in the “job openings” category of the next release of the JOLTS report, which would indicate that employers are affirmatively cutting back on their hiring plans.

In any event, yet more (slight) weakening in the economic indicators, and yet more reason for concern as we get to 2023. A few weeks ago I went on “Recession Watch” beginning with Q1 2023 and noted that, because I rely in large part on Prof. Geoffrey Moore’s long leading indicators, which also were the basis for ECRI’s forecasts (the last time they were public about their metrics), I expected ECRI to start talking about recession as well.

Well, within the past week, via a Lakshman Achuthan interview on CNN, they have.

Tuesday, June 7, 2022

Coronavirus variant update: and on to the BA.4/5 wave

 

 - by New Deal democrat

Last week the CDC update showed variant “Ba.1.1.526” increasing quickly to 6.6% of all cases. Although they did not note it, I wrote that this was almost certainly Ba.4/5; they simply had not made the change yet.

Well, this week they did. This morning’s “nowcast” update of variants shows Ba.1.1.526 having vanished, with Ba.4/5 having taken its place, and having doubled to 13% of all cases in the past week, even as Ba.2.12.1 slowly increased from 59% to 62%:


Here’s the regional breakout:


Ba.2.12.1 now makes up a little over 80% of cases in NY, NJ, and PR, while BA.4/5 combined make up 18% of all cases in the northern Rockies and 22% of the southern Plains, including Texas.

It is unclear it this point how much, if at all, nationwide cases will increase. It depends on how much Ba.2.12.1 fades compared with how quickly Ba.4/5 take over. In South Africa, the Ba.4/5 wave rolled in and out very quickly earlier this spring:


There the Ba.4/5 wave rolled in over about a 3 week period, and rolled out almost as quickly. Cases were only 1/3rd as many as the original Omircron wave at peak, while deaths were only 1/5th as high. Hopefully the same will happen here. 

Monday, June 6, 2022

Coronavirus dashboard for June 6: transitioning ever so gradually into a less fatal endemic condition

 

 - by New Deal democrat

The economic calendar is very light this week, with no significant news until Thursday, so let’s take this opportunity to update the situation with COVID-19.


First, as of one week ago subvariant BA.2.12.1 continues to increase very slowly its share of overall cases, up to 59% nationwide:




This subvariant makes up 78% of cases in NY and NJ, but only 38% in the Northwest. Meanwhile new subvariants BA.4/5 (still listed as BA.1.1.529 by the CDC) has risen to 6.1% of all cases, with a high of 12.4% in the northern Great Plains, and a low of 2.9% in NY and NJ:




The BA.2.12.1 wave appears to have peaked 8 days ago, at 115,700 cases. It is presently down to 106,800. Meanwhile deaths have *still* continued to decline from their Omicron peak of February, making a new 10 month low of 258 on June 3rd:




Hospitalizations have continued to increase, up to just over 29,000, compared to their low of 10,264 on April 6:




The trend of COVID not being nearly so lethal as it was originally (regardless of the causation) continues. Two really important trends stand out.


The first is that we are now more than 2 full months after the post-Omicron trough, and yet deaths have continued to ever so slowly decline, as noted above making a new low just a few days ago. Typically, as is shown in the chart below, hospitalizations have made peaks and troughs simultaneously with or just slightly after cases, while deaths make equivalent peaks or troughs within 3-4 weeks later:


Event 

Peak

Cases

Date

Hosps

Date 

Deaths

Date


Alpha  

1/11/21

1/9/21

1/13/21


Delta

9/5/21

8/27/21

9/21/21


Omicron

1/15/22

1/15/22

2/1/22


BA.2.12.1

6/3/22*

N/a

N/a







Event

Trough





Alpha

6/21/21

6/25/21

7/8/21


Delta

10/26/21

11/5/21

11/27/21


Omicron

4/4/22

4/6/22

6/3/22*


BA.2.12.1

N/a

N/a

N/a

















---





---






So the fact that deaths are *still* declining more than 2 months after cases started to rise again speaks of a big change having happened.


Secondly, when we look comparatively at hospitalizations and deaths vs. confirmed cases, we see that with each successive wave, there are fewer hospitalizations vs. confirmed cases, and even fewer deaths.


The below chart norms the “Alpha” wave of winter 2020-21 to 1.00 for all metrics, and then compares successive peaks and troughs of subsequent waves with that respective peak and trough.


Note that, with one exception (hospitalizations due to Delta at peak), hospitalizations rose less and fell more than cases did during each successive wave after Alpha. Deaths have declined comparatively even more:


Event 

Peak

Cases

#

(Thous.)

Hosps.

#

(Thous.)

Deaths

#

(Number)


Alpha  

1.00 (251.8)

1.00 (117.7)

1.00 (3,393)


Delta

0.66 (166.2)

0.74 (87.4)

0.62 (2,117)


Omicron

3.21 (807.8)

1.31 (154.0)

0.77 (2,609)


BA.2.12.1

0.46* (115.7)

0.25* (29.0)

N/a







Event

Trough





Alpha

1.00 (11.5)

1.00 (13.1)

1.00 (223)


Delta

6.17 (70.9)

2.71 (35.5)

3.68 (821)


Omicron

2.32 (26.7)

0.77 (10.3)

1.16* (258)


BA.2.12.1

N/a

N/a

N/a

















---





---






At the peak of Omicron in January, more than 3x as many people had confirmed cases as compared with Alpha, but there were only 1.3x as many hospitalizations, and less than 0.8x as many deaths.


As of the most recent post-Omicron trough, cases were still nearly 3x as high as the post-Alpha trough, but hospitalizations made a new all-time low of .77x compared with the post-Alpha trough, and deaths - still declining as of a few days ago - are less than 1.2x as many as the post-Alpha trough.


Probably the recent relative decline is hospitalizations is due more than anything else to Paxlovid, which when taken promptly after the onset of symptoms, has been very effective.


When it comes to deaths, the causation may be one or more of many things: an inherent weakening of the successive variants, resistance due to the prevalence of vaccinations and/or previous infections in the population, more effective treatments in the hospital, or simply that the most vulnerable population already died of the disease, so there are many few extremely susceptible individuals left - or something else, or any combination of the above.


But, whatever the reason, COVID now has the approximate fatality rate as a typical  bad flu season. I expect new variants and new waves of COVID to continue, but appears more and more likely that it is ever so gradually transforming into an endemic condition.