more mixed economic signals; woke cultural revolutions, and a better way

There were four main economic reports out this week:

1. CPI (CPIAUCSL) +0.5% m/m [expected +0.4%], prior -0.1% m/m.  Inflationary.
2. Retail Sales (RSAFS) +3.0% m/m [expected +1.7%], prior -1.1% m/m.  Expansionary.
3. Industrial Production (INDPRO) +0.0% m/m [expected +0.5%], prior -1.0% m/m.  Mildly recessionary.
4. Producer Prices (PPIACO) -1.96% m/m, prior -0.7% m/m.  Deflationary.

It was a mixed bag.  Producer input prices (from commodities) continues to decline, but CPI remains far above the 2.0% inflation rate that the Fed is “transiently” focused on.  Much of the CPI inflation is due to CPI/services [+0.6% m/m] which boils down to labor costs.  So commodities are cheaper, while labor is getting more expensive.  Wolf has the CPI/services breakdown (Source – WolfStreet).  CPI/services has just been a straight line up; “for some reason” the dramatic series of Fed rate increases (to 4.5%) have not slowed the steadily rising services labor costs.

This pattern does not look like a typical recession.  Disinflation is here for commodity/input costs, but not for services.   And the jump in retail sales says that consumers are not even close to “pivoting” into a recessionary mindset: spending on home furnishing, clothing, food services & drinking places, and even new/used auto & parts stores moved higher.   See Wolf’s post for the breakdown.

There is the issue of credit creation and how it is dropping, and how declining credit growth ends up causing a recession.  Look at the chart below of all loans (FRED: LOANINV) % change y/y vs recessions.   A drop below 0% y/y says “very serious recession”, as it did back in 2008.  Are we there yet?  The current level (+5.86% y/y) is just at the lower end of the normal 5-10% range.  So no, we aren’t there yet.

Until the consumer stops spending and/or these consumers start losing their jobs, its gonna be tough to notice any sort of recession.  Most of the US economy is “services”, and there remains that curious services-labor-shortage.  It is only a recession when your neighbor loses his job, and a depression when you lose yours.   Retail Sales – currently – suggests that both you and your neighbor still have jobs.