Inflation
I’m fairly certain I’ve talked about inflation in the last few months more than I have in the rest of my life combined. Consumer prices increased 0.5% in December, bringing the annual rate to a whopping 7%, which is the highest level we’ve seen since June 1982. Some of the bigger culprits included used car prices, which have increased 37% in the last year, and gasoline prices, up almost 50% compared to 2020. Aside from those eye-popping numbers, we’re seeing pressure on prices across the board – apparel, food, rents, everything.
Moral of the story: Rising prices have become the regulatory zeitgeist recently and it does seem like policy-makers are acutely focused on addressing some of the things that can bring these prices down from the skies (stop pumping cash into the economy, help resolving supply chain bottlenecks at the ports, etc.).
Retail sales
Partly driven by Omicron and partly driven by people doing their holiday shopping early afraid of supply chain issues, retail sales fell 1.9% in December, worse than the 0.1% forecast from economists. Online sales were a big part of the decline in sales, down 8.7%, and was followed by home goods/furniture sales down 5.5% and restaurants/bars down 0.8% to close out the year. Despite the decline in December, sales compared to 2020 still showed a lot of strength.
Moral of the story: One month doesn’t make a trend and I’ll be watching other indicators to understand how consumers are spending, because it’s the strongest engine behind our economic growth.
Earnings season is back
Earnings season is off once again, and we heard the first few major reports this week from the financials – some of the biggest banks reported this week, including JPMorgan, Citi, and Wells Fargo. Results were mixed from the banks as results for the quarter came in ahead of expectations from a revenue perspective across the board but rising costs (mainly wages) are pressuring profits. Even though we’re only a few days into earnings season, this is likely to be the story for a lot of companies – great demand driving great revenues but costs pressuring their bottom lines.
Moral of the story: Investors are going to be extremely focused on the outlook for cost pressures – how meaningful they really are, how long they’re going to persist, and what it means for long-term growth for companies. Stay tuned for more to come…