A more “normal” consumer inflation reading for August belies damage to the economy going forward

 

 - by New Deal democrat

Inflation, along with the expiration of the emergency pandemic payment, is one of the two big threats to this expansion. This morning August consumer inflation was the lowest in 6 months, up only 0.3% - within the range of a normal reading in normal times. Since wages increased 0.5% in August, this means that real wages increased. Let’s take a closer look.

YoY inflation is now 5.2% (blue in the graph below), but typically inflation has not been a concern unless inflation ex-gas (red) has been in excess of 3.0%. After peaking two months ago at 4.1%, it is now 3.9%:

The spike in inflation has gone on long enough at this point that I expect it to inflict some actual damage on the economy.

Housing (shelter) is over 1/3 of the entire index, and reflects households’ biggest monthly expense. The good news is that on a monthly basis both inflation in shelter (blue in the graph below) and rent increases (red) were within their normal ranges in August:

With the expiration of the eviction moratorium due to COVID, most observers are expecting a rapid increase in rents, which will bleed over into the general shelter index (note that the situation would be much different if price increases in housing as measured by the FHFA or Case-Shiller Indexes were employed).

Further, the increase in new car prices decelerated this month, and used car prices finally hit a wall and actually decreased in August:

On a YoY basis, new car prices are still up nearly 10%, while used car prices are up over 30%!:

Almost certainly, price pressures in these two most important sectors of the consumer economy are now constraints going forward into 2022.

There is some limited good news “upstream” in commodities and finished consumer goods, as the former (gold in the graph below) increased a more “normal” 0.7% in August. While finished producer goods increased a fairly “hot” 1.0% (red):

Residential building materials for the second month in a row held almost steady:

But they are still up over 30% YoY. We need this to decline, sharply, and soon.

There is also some limited good news in the real wages department. Wages (more broadly, household income) failing to keep pace with inflation has been one of the tradition “real” harbingers of a recession:

After several months of decreases, real hourly wages, I.e., wages deflated by consumer prices, increased slightly in August. In the longer view real wages have been more or less flat in the past year, they are down about 3% from their pandemic peak:

As indicated above, heightened inflation has gone on long enough now that I expect some damage to show up in consumer spending. We will get that information on Thursday with the report on retail sales.

Coronavirus dashboard for September 13: on the downside of the Delta wave, vaccinations make all the difference

 

 - by New Deal democrat

With each passing day, it becomes increasingly likely that the peak of the Delta wave was just before Labor Day. We’ll probably get a pop in the weekly average number tomorrow, as today’s numbers replace the Labor Day holiday numbers, but unless there is a big surprise, it appears we are into the downside of the wave.

But we are still on the upside when it comes to deaths, which probably won’t peak for another week or two.

Below are cases (solid line) and deaths (dotted line) for the past year:

The winter wave peaked at an average of 250,000 cases and 3,500 deaths/day. If that ratio exists for this wave, deaths will peak at roughly 2400/day. But at the June trough, there were 11,300 cases and 218 deaths. Cases increased over 14x to their peak. If deaths do the same, their peak will be just over 3,000/day - at some point by the end of this month.

So the next couple of weeks are going to look pretty grim as to deaths, and it’s already baked in the cake.

More evidence that we are on the downside of the wave for cases comes when we examine what is happening with the first hard-hit States, shown in bold in the graph below:

It is very clear that in all cases except for Wyoming, the wave has peaked, and in some cases the decline is already precipitous. Wyoming is something of an exception because it never really got below 10 cases per 100,000/day, even in June.

Meanwhile, the benefit of vaccinations is extremely clear in the State-by-State evidence. Here are the 10 least vaccinated States:

These States make up the vast majority of the worst-performing States for infections during the Delta wave.

At the other end of the scale, here are the 10 most vaccinated jurisdictions:

With the exception of Hawaii (not sure what happened there), these States and Puerto Rico are the best-performing of all the US jurisdictions. Vaccinations work!

I anticipate paying particular attention to all of the northern US States in the coming several months, to see if the cooler weather increases Delta’s footprint there, and if so to contrast the extremely well vaccinated New England States with the extremely poorly vaccinated States of the northern Plains and Mountain West.