Spent “like it burned a hole through their pocket”
This week saw the release of a variety of new data that surprised in a big way. One of these data series is Retail Sales. The January data clocked an increase of 5.3% month on month, admittedly being helped by a downward revision of December’s figure, and showed a 7.4% increase over January of last year. These numbers will be subject to revision, but the initial readings are leagues away from estimates of economists, whose median forecast was a paltry 1.1% MoM according to Bloomberg.
While it would be nice to view this data as a step toward a clean bill of health for the economic recovery, there are some caveats. As the WSJ points out, though the headline numbers look good, they hide the dispersion across income levels, with spending concentrated in the lower quartiles (more of those K-shaped dynamics…). While credit and debit card data show spending “by consumers who make less than $60,000 a year jumped by more than 20%” in January, spending by households making above $100,00, “was broadly flat” YoY. Additionally, the spending was thanks in part to the Treasury’s $600 stimulus checks, which 88% of recipient households spent “like it burned a hole through their pocket”.
“A level last reached in 2011”
A second data release that crushed estimates this week is the BLS’s Producer Price Index. On a seasonally adjusted basis, the index increased 1.3%, the largest advance “since the index began in December 2009”. However, the PPI data was just one of a number of data points showing rising price pressures. The Philadelphia Fed’s Manufacturing Survey saw “more widespread” price increases for inputs though prices received index dropped. Additionally, firms raised their outlook on the prices they would receive in the coming year, their expectations for consumer inflation, and their long-run inflation forecasts. The Empire Fed Manufacturing Survey saw similar dynamics, with its prices paid index rising to a “a level last reached in 2011, pointing to sharp input price increases”. Cass Transportation’s Freight Index data also showed increasing price pressures. Along with an increase in shipments, the Cass Expenditure Index grew 19.5% YoY in January, with freight rate increases accelerating “at the fastest pace since 2009-2011, with the exception of a few months in late 2018”. Cass also noted that the microchip shortage, which appears to have been exacerbated by the fallout from the recent cold snap in the US, is “limiting the industry’s ability to manufacture the equipment needed to relieve the capacity tightness”. Along with this data, bond yields have increased this week, but markets have been assured there is no problem. As Kansas City Fed President Esther George is quoted in a recent article on food price inflation, “In the near term I don’t see we are going to have an inflation problem.”
