Inflation is making itself at home
The Consumer Price Index posted a 5.4% increase in September compared to the same time last year, and up 0.4% from August. Yay for at 30-year high levels and wildly higher than the Fed’s 2% average target. Excluding food and energy, core inflation came in at 4%, which has normalized a bit since hitting its high in June at 4.3%. This is coming as prices for producers increased 8.6% for the month of September, likely the highest reading for producer prices since the early 1980s. Prices are rising pretty much across every product category – supply chain bottlenecks are basically clogging up the economy and now we’re also seeing rising gas prices and wage increases impacting producers in a big way.
Moral of the story: Inflation is here to stay and not as transitory as people would have thought, and these inflation numbers massively understate housing costs (to the tune of being understated by almost 10x) because of the calculation process. Elevated inflation is likely to persist through 2022 (it feels like that person who hangs around longer than you’d ever want them to at the party and you didn’t even want to invite them to begin with) but also likely means that the Fed will start looking at increasing interest rates sooner than we would’ve initially thought. Hopefully the rising rates will help curb some of the inflationary pressures…
Christmas might come early
Retail sales posted a 0.7% increase in the month of September, resulting in a healthy 14% gain compared to September 2020. Part of this (unfortunately) is driven by the fact that things are 5.4% more expensive this year, but regardless, it points to consumers being super willing to dish out the extra money for the things they want. In September, it happened to be recreational items – books, music, sporting goods, etc. – likely as the delta variant might have forced some people to hunker back down inside.
Moral of the story: All signs are pointing to really strong consumer demand for the holiday season. The biggest issue is going to be getting inventories out of the clogged-up supply chain so they can actually be bought. Consider this a PSA for all you holiday shopping procrastinators out there – probably not a bad idea to start buying those gifts while you can still find them. Can’t wait to hear all the crazy Black Friday stories this year as people battle it out for the three TVs on sale, will have my popcorn ready.
Reaching something like normal
Last week was the first time new unemployment claims fell below 300k since the pandemic brought total havoc to the labor market (tbh it might be more chaotic now than ever, the great resignation is such a real thing). The week’s 293k new jobless claims was actually not too far from the 256k we saw in the middle of March last year just as the pandemic was starting to intensify.
Moral of the story: The last two monthly employment reports have been super lackluster, but the improving trend in weekly jobless claims should hopefully be indicative of an improving picture for the labor market. If nothing else, it’s at least showing signs of stabilization.