Latest Inflation Numbers and Discussion

[Turbo29]

Regular unleaded $4.99/gal in the Phoenix area

 

[Koolau]

PCE, like CPI measures the rate of pricing changes overall in the economy. But they are not identical

Unlike CPI which has a static basket of goods, PCE considers the impact of substitution of goods, which is how most folks make purchases. PCE is also a broader measure and has different data sources.

The more important measure to the Fed is the so-called Core PCE which excludes food and energy costs. The reason for excluding these is because food and energy prices are highly volatile (both up and down). It is difficult to set policy based on measures which change so rapidly. Instead the Fed is interested in the extent to which all other prices are changing.

It doesn't mean food and energy price changes are not important.

We can always find individual prices we perceive to be rising more rapidly than overall prices. But these measures look at overall price changes but in a very methodical fashion.

Also the current report does not attempt to measure price changes more than a year ago. So even with relatively low inflation currently, prices reflect inflation which has happened prior to that also.

Thanks. That helps. And I do recognize that much of this has been discussed before. It just takes longer for some of us than others to let it sink in.

 

[Koolau]

Looking at the PCE data in depth, the automobile components are down significantly month over month. The effect of the strike is still playing out and won't impact the Sept data. We'll see about October...

Incomes are up and the Fed looks at that too.

There's a lot of data here, all very interesting. And frankly, it is a PITA that BEA presents the data completely different than BLS. Leave it to competing government agencies. Full employment, I guess.

Heh, heh, I saw the same thing (smaller scale) at Megacorp of all places. I think it's the way of the world to express/manipulate data in a way that w*rks best for YOU - not the other guy.

 

[Montecfo]

ADP report came in soft at just 89K jobs added versus 160K expected and 180k last month.

So along with report of higher than expected job openings and steadily reduced hiring it seems employment picture is becoming mixed.

Perhaps good for rate path and equities. Perhaps a precursor to lower rates.

But then Friday's jobs report is next on deck.

https://www.cnbc.com/id/107311245?&view=story?__source=androidappshare

 

[GenXguy]

So the Fed's preferred inflation gauge is still running about 200% of the target rate after all this time. Not good. They really need to reel in this high inflation.

 

[MichaelB]

So the Fed's preferred inflation gauge is still running about 200% of the target rate after all this time. Not good. They really need to reel in this high inflation.

Core PCE is declining month over month and together with the 3 month average both are less than 3%. Core PCE has also declined in 6 of the past 7 months and is on a clear downward trend. See the chart below by Jason Furman. I do not know if this trend will continue or plateau, but it certainly can, and that would probably mean the Fed should do nothing but monitor.

 

[Montecfo]

If anything, the sharply declining PCE, flattening yield curve and lower jobs numbers would be a recession sign. that is the risk here as i see it.

 

[Marc]

If anything, the sharply declining PCE, flattening yield curve and lower jobs numbers would be a recession sign. that is the risk here as i see it.

Why would a recession sign be a risk? I think a recession is necessary to get inflation under control and welcome the coming recession.

Marc

 

[GenXguy]

Why would a recession sign be a risk? I think a recession is necessary to get inflation under control and welcome the coming recession.

Marc

Probably so. Ongoing inflation running 200% of the target year over year is definitely not acceptable or sustainable. Something has to give. Wages are running too high also, and that feeds into inflation.

 

[Montecfo]

Why would a recession sign be a risk? I think a recession is necessary to get inflation under control and welcome the coming recession.



Marc

Because people lose jobs.

But it does help the interest rate picture. Unless you are hoping for on even higher rates.

Recession has been my base case from the start. No surprise.

 

[MichaelB]

If anything, the sharply declining PCE, flattening yield curve and lower jobs numbers would be a recession sign. that is the risk here as i see it.

It is a risk. In my opinion the most likely course is slowing but still positive growth. Consumer spending remains positive as higher interest rates works their way through the economy. Capital investment is still rising.

There still is a risk inflation jumps back up again, but it is no longer a base case. The 6 month trend line is quite strong. Ben Casselman (NYT economics) posted an interesting chart contrasting the JOLTS data with Indeed, suggesting the JOLTS job openings may be revised downward, or at least are not representative of the job market and thr Atlanta Fed wage tracker shows wage increases are slowing nicely, consistent with other inflation data.

 

[explanade]

Why would a recession sign be a risk? I think a recession is necessary to get inflation under control and welcome the coming recession.

Marc

Great for people who are financially independent, not reliant on jobs for income.

But a lot of people would be hurt, be forced to move out, maybe lose homes.

So that maybe the price of gas and some grocery items might be cheaper for those who don't need to work.

 

[harley]

Great for people who are financially independent, not reliant on jobs for income.

But a lot of people would be hurt, be forced to move out, maybe lose homes.

So that maybe the price of gas and some grocery items might be cheaper for those who don't need to work.

I remember the 2002 and 2008 recessions. I worked in the tech industry, and I saw so many people I knew losing their jobs, followed by their homes, and often, their marriages. It was incredibly painful to see. I was too young during the 70s and 80s recessions to feel the pain like that, but I wouldn't wish it on anybody. I also remember during the run-up to those recessions I spent a lot of time telling people they shouldn't buy a house that required two paychecks. But like Cassandra, nobody listened. Oh well, LBYM is not a popular lifestyle. But it is protection from bad times.

 

[Winemaker]

I wouldn't buy a used car from Jason Furman.

 

[Marc]

Great for people who are financially independent, not reliant on jobs for income.

But a lot of people would be hurt, be forced to move out, maybe lose homes.

So that maybe the price of gas and some grocery items might be cheaper for those who don't need to work.

So be it. I survived many recessions and many layoffs during my 37 year career. I had people that left my company for greener pastures only to ask to come back. In the rare instances where it was my decision I did not take them back. People lose jobs, lose houses, lose their lives for any number of reasons. All I was stating is that for ME in MY current circumstances I would like to see some number of people lose their jobs to lower overall demand such that prices did not continue to increase. Yes, a selfish response but I would expect everyone to act selfishly and, yes, there are a number of altruistic people out there that would prefer that unemployment not increase.

Marc

 

[CaptTom]

...All I was stating is that for ME in MY current circumstances I would like to see some number of people lose their jobs to lower overall demand such that prices did not continue to increase. Yes, a selfish response...

Don't be so hard on yourself. People suffer during times of inflation and a tight labor market, too.

I'd argue that the inflation spike was harmful to more people than a recession might be. And the ones who suffer most are the ones with the fewest options for overcoming it.

I've been through my share of recessions, runaway inflation and layoffs, too. It sucks. But that's life. You play the hand you're dealt.

 

[MichaelB]

I wouldn't buy a used car from Jason Furman.

Neither would I, but that’s ok because he’s not a used car salesman.

If you believe his data or analysis is flawed please suggest share your own or provide us with an alternate source. The data he presents is public and in this case he offers a simple chart.

It’s more productive for us to discuss the data or the analysis, not the person.

 

[JoeWras]

People suffer during times of inflation and a tight labor market, too.

You got that right. The small non-profit I serve on the board for is fighting for its life due to the labor shortage. Many, many employment challenges from different angles. I have stories.

 

[Koolau]

I wouldn't buy a used car from Jason Furman.

Maybe not, but I'm guessing it would be a really expensive one. He's pretty much at the top of his game. (Of course, maybe he's a LBYM kind of guy.)

 

[MichaelB]

Getting back on topic, the BLS released the employment report this morning. Job growth was strong, hours worked flat, wage growth positive. Key measures, such as employment population rate, labor force participation rate and total hours worked were flat. A positive employment picture but not one that points to a naturally slowing economy.

News release here https://www.bls.gov/news.release/empsit.nr0.htm

 

[ShokWaveRider]

How will these numbers affect the FOMC position, SS COLA and interest rates, if at all?

 

[11522914]

How will these numbers affect the FOMC position, SS COLA and interest rates, if at all?

IMHO, higher for longer. 10 year Treasury up 13 basis points to 4.839% according to CNBC, a 16 year high. CPI on Oct 12 will help determine SS Cola and potentially interest rates.

 

[Surewhitey]

How will these numbers affect the FOMC position, SS COLA and interest rates, if at all?

10yr is up substantially... I'd say 50/50 on rate hike in Nov...

 

[aja8888]

Getting back on topic, the BLS released the employment report this morning. Job growth was strong, hours worked flat, wage growth positive. Key measures, such as employment population rate, labor force participation rate and total hours worked were flat. A positive employment picture but not one that points to a naturally slowing economy.

News release here https://www.bls.gov/news.release/empsit.nr0.htm

Now where is that darn recession the FED is working on creating?

 

[Montecfo]

Getting back on topic, the BLS released the employment report this morning. Job growth was strong, hours worked flat, wage growth positive. Key measures, such as employment population rate, labor force participation rate and total hours worked were flat. A positive employment picture but not one that points to a naturally slowing economy.

News release here https://www.bls.gov/news.release/empsit.nr0.htm

If you expect a cooling economy the threads supporting that are flat labor hours (suggesting growth of 2nd and 3rd jobs) and wage growth less than expected.

Of course this is a trailing indicator and things can change quickly.

Bad news is rate narrative is now dominating markets. Will be hard for equities to rally in this environment yet bond yields (outside of long treasuries and lower quality issues) have not moved a lot recently.