Consumer Prices have just been released by the Labor Department. Here’s the summary of data to be mindful of:
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in
May on a seasonally adjusted basis after rising 0.2 percent in April, the U.S.
Bureau of Labor Statistics reported today. Over the last 12 months, the all items
index rose 2.8 percent before seasonal adjustment.
The indexes for gasoline and shelter were the largest factors in the seasonally
adjusted increase in the all items index, as they were in April. The gasoline
index increased 1.7 percent, more than offsetting declines in some of the other
energy component indexes and led to a 0.9-percent rise in the energy index.
The medical care index rose 0.2 percent. The food index was unchanged over the month.
The index for all items less food and energy rose 0.2 percent in May. The shelter
index rose 0.3 percent in May. The indexes for new vehicles, education and
communication, and tobacco increased in May, while the indexes for household
furnishing and operations, and used cars and trucks fell. The indexes for apparel,
recreation, and personal care were unchanged.
With the June Federal Reserve meeting gaveling in this morning, it’s a given that these latest numbers will be considered. But, the Fed looks at the numbers differently than you and me. While the real cost of “operating a family” is reflected (generally) in the All Urban Workers segment, the Fed only considers the CPI less food and energy.
A couple of legit points: When a singular component, such as gasoline prices, goes up, it takes a long time for that one price change to fully ripple through the economy. In fact, for gasoline, the ripple effect of a price shock can be measured out 60-months.
Makes sense when you think about it: Everything in economics is layered. So, for example, the retail price of gasoline goes up – like it did in this morning’s report.
At the first level (direct) it will impact people going to work. At the second level, it will impact people who use their vehicles to deliver work product. Say you’re a contractor: Not only will fuel prices impact all of your products over time, but by the time you follow the fuel price increase back from the lumber yard, you’ve into the third (tertiary) level. Eventually, you can follow the higher prices back to forest workers wherever the wood is being cut. That rippling, however could take 60-months.
The secondary level is the one to watch, however. That’s our contractor. Today’s inflation will cause grousing on the job site, but in time the contractor may have to adjust prices to silence the grumbling crew, and to keep using that 7-layer Baltic birch plywood that we all like to tinker with. It might take six months – or longer – for the plywood to go up in price.
Then, as that goes up, the cabinet shop will raise its prices…but that’s a year down the road, but when they do, it could impact the price of a spec house in….two years.
Welcome to Ripplenomics,
Back on point, the Fed – leaving out food and energy – is using a lower velocity of change measurement. Sort of like tossing out the first layer and seeing what inflation is actually sloshing around after the headlines.
Almost no doubt that the Fed will raise tomorrow. If they don’t, markets will collapse in a heap. But, if they talk about further hikes to come, well, that’d be bad, too. It’s axiomatic that markets like stability in outlooks. Conversely, wild-eyed traders (like moi) love volatility because that makes for good trading.
For the open this morning, futures were pointing down a bit. Whether inflation will be dubbed the cause du jour, or whether it’s the Korea talks…doesn’t much matter. Implied volatility may head up and the world asks – again – where’s future growth coming from?
Can We Afford NK Peace?
News out of the NK talks in Singapore overnight seems to be pretty good. The historic handshake and all aside, we note the Washington Post’s slap mentioning how “Trump, elected without a majority….” WTF?
Obviously, the Washington Post reporters don’t understand how the Electoral College works. It’s the mechanism that prevents the whole country from being duped into the left-wing agendas underway in any number of “liberal states.” We assume, lacking any sense of how the process works, the Post reporters don’t understand that 304 Electoral votes compared with Brand X getting 227 in the official Federal Elections Commission tally, is far-beyond their reportorial skill set.
Makes as much sense as a cop trying to write you a speeding ticket because you had hash browns for breakfast. Such is the abysmal reporting level in politics. It’s more about cheer-leading for the left, not facts. Bias in plain sight.
More to our liking is that the NY Times co9verage. Not only did they publish the text of the statement, but they also did a solid with Dennis Rodman who has turned out to be the real behind-the-scenes star in all this.
Trump, for his part tweeted:
“The fact that I am having a meeting is a major loss for the U.S., say the haters & losers. We have our hostages, testing, research and all missile launches have stopped, and these pundits, who have called me wrong from the beginning, have nothing else they can say! We will be fine!”
But don’t tell the Trump=haters in the NE press. They will be reminding us until the Second Coming that Hillary carried liberal states. Pah-leeze! Enough of this BS. We’re two years in and time to GTFU, for heavens sake.
But, they won’t.
They’re hard at work weaving the wool to pull over people’s eyes in 2018.
There is one potential downside to a kind of détente with the NorKs. Specifically, there is a list of 173 companies in the US Defense industry (list here) that might experience some changes. Not right away, of course, but in the longer-term. With any lessening of tensions will likely come a lessening of revenue to these defense outfits And that’s a tough one.
What this leads us to anticipate is a fresh round of terrorism -or a global pandemic – in the coming year – maybe two.
Sure, sure, sounds paranoid, but follow the logic.
After the Wall came down (Berlin 1989) we were led, as a nation, to expect there would be a Peace Dividend. There was…and supporters of Bill Clinton who point to his success with the federal budget gloss over the Peace Dividend point.
The problem, structurally, for the US, is that it was clear even as the Internet bubble was bursting in 2000-2001 – and $7 or $8-trillion of investor money was burned in the Tech Wreck collapse, – that we needed an analog to War.
Terrorism’s arrival in such an historically necessary inflection point is likely not a coincidence. It provided not only a massive expansion in “security” spending, but it has spawned a whole next industry which spans from “monetizing fear” to “synthetic growth/war substitute.” And we’re still at it, 16-1/2 years later.
Terrorism fits the “missing growth” bill just great. It’s not aimed as a specific country, but rather at belief sets or what I call Reality Stacks in my next book. It’s a globalist growth model.
The fact is emerging that the world is running out of “new things to make” and so, growth is anything but assured. Leaving us with the problem: “What will kill people and break things such that we can get back to “growing” again?” Sounds like Report from Iron Mountain, 101, doesn’t it?
Peace with North Korea – ultimately leading to the end of the Peninsula war which has been in a half-century armistice – would reduce the US presence in Asia on China’s doorstep. That will leave China more able to flex its muscles and steal any minerals and build more “islands” in International, Taiwanese, or Philippine waters. There is fall-out to NK peace…for China’s benefit.
Anticipating: With All Eyes on Singapore, the U.S. Quietly Opened a De Facto Embassy in Taiwan. But, China will take Taiwan through absorption…slower but less radioactivity at the end of it. No scorched earth.
As you ponder the ripples from all this, ask yourself one simple question.
“What will provide the next global episodic burst “Synthetic Growth?”
More on this point in Peoplenomics tomorrow.
This and That’s
People are paying down personal debt. Latest evidence? CoreLogic March Loan Performance Insights Finds Lowest Delinquency Rates in 11 Years.
As I’ve been saying, with no big, gotta-have-its, people are reduced to spending less on banking costs. A good thing…
Not Climate Change: Swiss city inundated in sudden storm as shops flooded is still interesting, though.
In sports: British police: LGBT fans at World Cup should obey local law. But wait! Aren’t they special? Why, such warnings make it seem like the intent is to have the World Cup be a sporting event, not turning it into a political platform to sell a viewpoint. Unconscionable! See the PC memos or get of the distro list, fer cryin out loud.
Bandwidth Throttling: AT&T, Justice Department await decision that could determine future of media. While some of our colleagues in the opinion world have gone with streaming and such, like Morse Code, the printed word still gets through. (Not that anyone reads, anymore. That’s a separate point…)
More here Thursday…Peoplenomics for the grown-ups tomorrow.