Hot, hotter, hottest
The consumer price index (CPI), which measures the changes in the price of a good of baskets over time (aka inflation), increased 6.2% on an annual basis in October. This is the highest reading in the index since the end of 1990. If you exclude food and energy (two of the more volatile goods in the basket), core inflation increased at an annual rate of 4.6%, which is the highest gain since the summer of 1991. Never have I ever seen this level of inflation in my lifetime. Meanwhile, pricing for producers continues to remain elevated, up 8.6% in October, so we likely haven’t seen the end of pricing pressure for consumers.
Moral of the story: With inflation running this hot, the expectation is that the Fed will start raising interest rates sooner rather than later. Higher interest rates mean the discounted value of future earnings becomes less valuable today, which acutely impacts technology and other high-growth types of stocks. On the other hand, bank earnings benefit from higher interest rates (they’re charging more for loans), which helped offset the overall market’s negative reaction to the news.
Confidence taking a plunge
As inflation has continued to hit the average American in a real way (through food, energy, housing, other daily necessities), consumer confidence has continued to be impacted. November’s initial consumer confidence read fell 6.8 points and came in at the lowest in a decade. Consumers are expecting inflation to continue to be around 5% in the coming year and 25% of consumers have had to reduce their standard of living due to price increases.
Moral of the story: The crux of the falling consumer sentiment is the notion that inflation is real, their wages aren’t keeping up, and there’s no action being taken by policy-makers to help curb the impact. The Biden administration did announce some proposals to help with the supply chain issues, but doesn’t seem like there’s aggressive enough movement from Capitol Hill or the central bank to help resolve this issue.
The great resignation
Potentially to help ease concerns about wages keeping up with inflation, consumers are leaving their jobs in record numbers as the “Great Resignation” continues. Those who switched jobs were going into other positions that paid, on average, 4.3% more. Higher-income jobs are seeing that impact even more – with those moves on average resulting in 4.9% higher wages.
Moral of the story: There are 10.4m open jobs out there right now, and only 7.7m people actively searching for jobs. Higher demand than supply means higher prices for these workers, which checks out. The strength in the labor market is further supported by the weekly unemployment claims continuing to trend down, hitting a fresh pandemic-era low last week.