We all expected inflation to arrive: now it’s here

 

 - by New Deal democrat

This morning’s report on April inflation confirmed what we already knew: inflation, both from the demand and the supply side, was coming. Now it’s here.

First of all, take the YoY numbers with a grain of salt. Last April saw actual price declines in the teeth of the worst of the pandemic deaths and lockdowns. Here’s the monthly %change since the beginning of 2020 in total inflation (blue), core, i.e., less food and energy (red), and less energy only (gold):

So let’s delete last April, and look at the price increases in the 11 months since last May:

Total prices are up 4.3% since then, but only 3.0% in the “core” groups, and 2.8% less energy. That’s not enough to excite the Fed into action just yet. 

As I’ve previously pointed out, typically there’s no problem in the economy till CPI excluding gas prices exceeds 3%, and per the above, we’re not there yet.

Further, below I show total inflation YoY (blue), inflation ex-gas (gold), and Fed funds rates (red, /2 for scale). As shown there, spikes in inflation for a month or two typically haven’t caused the Fed to raise rates (see, e.g., 1995, 2003, and 2013):

Last year, the demand-side effects on spending caused by stimulus payments petered out after a few months:

I expect the same to be the case this year.

So the question is whether the supply side bottlenecks persist enough to spook the Fed. While they might start making noises about raising rates if we get another number like this next month, I think it will take at least two more months of big jumps in prices to actually move them into action.

March JOLTS report confirms that month’s strong jobs report

 

 - by New Deal democrat

This morning’s JOLTS report for March confirmed that month’s stellar jobs report. Job openings made a new series high, while layoffs and discharges made a new series low. Hires, quits, and total separations all also moved in the right direction.

This report has only a 20 year history, and so includes only two prior recoveries. In those recoveries: 

• first, layoffs declined
• second, hiring rose
• third, job openings rose and voluntary quits increased, close to simultaneously

The recovery from the worst of the pandemic almost one year ago at first followed this script, but the winter surge, which led to a few month of flat, or worse, jobs reports, disrupted that trend. We now appear to have reverted to that prior trend.

Let’s start out with layoffs and discharges (red) and total separations (blue), showing that these have followed their past patterns, as layoffs rapidly declined to a normal rate after last March and April. As noted above, this month’s report made a new series low:

Next, here is the series-long record of hiring, quits, and job openings:

Here is the zoom-in look at the past several years:

What has been different this time around is that, after rapidly improving, hires declined again until bottoming in December and January. All three are now moving in the right direction.

In the past few months, I have also highlighted YoY changes, but that view is useless now, as comparisons are with the worst of the March and April 2020 lockdowns.

Last month I flagged the issue of whether “hires reassert themselves, as in the past two recoveries, or whether openings without actual hiring continue to soar as they did starting in 2015.” In March both happened, as hires increased and openings made an all-time high. Given the relatively subpar April employment report, the jury is still out on whether hires will continue to increase - as that appears to be the missing link in this jobs recovery.

By the way, I plan on having more to say about Friday’s jobs report, but I will do that in a separate post.

Coronavirus dashboard for May 10: stay the course!

 

 - by New Deal democrat

The story in the US continues to be that vaccinations work!

As of today, the 7 day moving average of new cases is down to a new 8 month low of 40,873 per day. The 7 day moving average of deaths is down to a new 11 month low of 667:

Cases are down 5/6’s from their wintertime peak. Deaths are down over 80%.

And cases are declining, sometimes strongly so, in almost all the 10 worst States, including Michigan, where they are down over 60% (and look how well one of the best States, California, is doing!):

I found only 4 States where the overall trend in the past months could colorably be called increasing vs. sideways or declining - Maine, Oregon, Washington, and Colorado:

Within the week, at least 60% of all US adults will have received at least one dose of vaccine. If we figure that somewhere between 15% to 20% of all Americans have already had COVID, and that is randomly spread out among the remaining 40% of adults, then that puts the total % of adults with natural or vaccinated resistance to the disease at 69% to 72% - likely very close to herd immunity, or at least within striking distance.

That being said, we still have a ways to go to match the champions Israel and the UK, both of which have seen a decline of 95% or more in both cases and deaths - in the case of Israel, about a 99% decline:

Stay the course!