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Spiking prices for new and used vehicles under the microscope.

The “Purchasing Power of the Consumer Dollar” – part of the Bureau of Labor Statistics’ Consumer Price Index data released today – is the politically incorrect mirror image of inflation in consumer prices, as measured by the Consumer Price Index (CPI). By wanting to increase consumer price inflation, the Fed in effect wants to decrease the purchasing power of the consumer dollar, to where consumers have to pay more for the same thing. Thereby it wants to decrease the purchasing power of labor paid in those dollars.

And that purchasing power of the dollar in January dropped by 1.5% year-over-year to another record low:

Note how the purchasing power of the dollar recovered for a few months during the Financial Crisis, when consumers could actually buy a little more with the fruits of their labor. The Fed considered this condition a horror show.

Inflation in durable goods, non-durable goods, and services.

The overall CPI for urban consumers, the politically correct way of expressing the decline in the purchasing power of the dollar, rose 1.4% in January, compared to a year earlier.

Each product that is in the basket of consumer goods tracked by the CPI has its own specific CPI. And all these products fall into three categories: durable goods (black line), nondurable goods (green line), and services (red line), with services accounting for 60% of the overall CPI. Here they are, with discussions below:

The CPI for services (red line) – everything from rent to airfares – increased mostly between 2% and 3% year-over-year for the last decade, but dropped during the Pandemic as demand for services such as hotels, flights, and cruises collapsed. For example, in January, year-over-year, the CPI for:

Airline tickets: -21.3%
Hotels: -13.3%
Admission to sporting events: -21.4%.

…click on the above link to read the rest of the article…

“The Fed’s Monetary Punchbowl Is Fueling Rampant Home Price Appreciation”: AEI

February 3, 2021

“The Fed’s Monetary Punchbowl Is Fueling Rampant Home Price Appreciation”: AEI

“There is no justification” for continuing the purchases of mortgage-backed securities. The Fed is “misdiagnosing its impact on the housing market.” Pressure rises on the Fed to back off, in face of market craziness.

During the press conference following the FOMC meeting last week, Fed Chair Jerome Powell was asked by different reporters about the craziness going on in the stock market, the chaotic thingy with GameStop, corporate debt, and the housing market.

The fact that he was asked several times about the exuberant nuttiness in asset prices shows that by now everyone has picked up on it. And people are increasingly incredulous that the Fed would continue with its monetary policies in face of these markets.

Powell brushed off the GameStop thingy and gave his usual it’s-not-our-fault and it’s-never-ever-our-fault justifications for the exuberant nuttiness in the markets. The near-0% interest rates and $3 trillion in QE in just a few months had nothing to do with anything, but the drivers of the nuttiness have been the “expectations about vaccines” and “fiscal policy,” he said (transcript). “Those are the news items that have been driving asset values in recent months.”

Upon hearing this, people globally were just rolling up their eyes. And a reporter challenged him softly about the housing market – the 9% surge in prices from already lofty levels. “Are you concerned about a bubble forming there yet? And is there a price increase that you’re looking at where it might change the level of mortgage-backed securities the Fed is buying?”

…click on the above link to read the rest of the article…

Inflation Galore at Manufactures, amid Massive Shifts in Demand, Supply-Chain Snags, Shortages, Lack of Shipping Capacity. And They’re Passing it On

February 2, 2021

Inflation Galore at Manufactures, amid Massive Shifts in Demand, Supply-Chain Snags, Shortages, Lack of Shipping Capacity. And They’re Passing it On

For now, the story is that it’s just temporary.

For now, the story is that the sudden and massive shifts in the economy in 2020 have caused shortages and distortions in the goods-producing sectors and in shipping and trucking, as consumer spending has shifted from services – such as flying somewhere for vacation and spending oodles of money on lodging and restaurants and theme parks – to goods, particularly durable goods.

The story is that prices are rising because components and commodities are in short supply, and supply chains are dogged by production issues, and are facing transportation constraints, as demand for those goods has suddenly surged. And that all this is temporary.

And the Fed has said it will ignore inflation for a while, that it will allow it to overshoot, and only when it overshoots persistently for some unknown amount of time and becomes “unwelcome” inflation – “unwelcome” for the Fed – that it will try to tamp down on it.

Meanwhile, inflation pressures are building up. Two reports out today show a large-scale surge in price pressures for manufacturers – and they’re able to pass them on to their customers.

The Prices Index “surged dramatically in January” to a level of 82.1%, after an eight-month upward trajectory, the highest since April 2011, “indicating continued supplier pricing power,” said the Manufacturing ISM Report On Business.

In the ISM data, a value above 50 means expansion, and a value below 50 means contraction. The higher the value is above 50, the faster the expansion. January saw the fastest expansion of the Prices Index since April 2011 (data via YCharts):

…click on the above link to read the rest of the article…

THE WOLF STREET REPORT: The Stock Market Is Broken, Now for All to See

February 2, 2021

THE WOLF STREET REPORT: The Stock Market Is Broken, Now for All to See

The historic short squeeze, engineered by millions of deeply cynical small traders, exposed just how rigged the market has been. (You can also download THE WOLF STREET REPORT wherever you get your podcasts).

Update on Fed’s QE: The Crybabies on Wall Street, which Clamored for More, Are Disappointed

January 31, 2021

Update on Fed’s QE: The Crybabies on Wall Street, which Clamored for More, Are Disappointed

And five SPVs expired, including the one that bought corporate bonds and bond ETFs.

The Fed has now put on ice five of its SPVs (Special Purpose Vehicles) which had been designed back in March to bail out the bond market. It unwound its repo positions last June. Its foreign central bank liquidity swaps are now down to near-nothing except with the Swiss National Bank, which seems to have a need for dollars. The Fed has been adding to its pile of Treasury securities at the rate spelled out in its FOMC statements, thereby monetizing part of the US government debt. And it has been adding to its pile of Mortgage Backed Securities (MBS).

The result is that total assets on its weekly balance sheet through Wednesday, at $7.4 trillion, are roughly flat with the level in mid-December and are up by $200 billion from early June, with an average growth rate over the six-plus months of $30 billion a month.

And the crybabies on Wall Street that have for months been clamoring for more QE have been disappointed. It’s still a huge amount of QE, but for the crybabies on Wall Street, it’s never enough:

But the long-term chart shows just how hog-wild the Fed had gone, furiously trying to bail out and enrich the asset holders, which are concentrated at the very top, thereby creating in the shortest amount of time the largest wealth disparity the US has ever seen. From crisis to crisis, from bailout to bailout, and even when there is no crisis:

Repurchase Agreements (Repos) remained at near-zero:

…click on the above link to read the rest of the article…

The Year of the Plague in Charts: Weirdest Economy Ever

January 30, 2021

The Year of the Plague in Charts: Weirdest Economy Ever

GDP fell by 3.5% in the year 2020, the worst annual decline since 1946. Trade deficit in Q4 hit new all-time worst.

The size of the US economy, as measured by GDP in “current dollars” (not adjusted for inflation), fell to $20.9 trillion in the year 2020, according to the Bureau of Economic Analysis this morning.

In the discussion below, you will see inflation-adjusted figures, with adjustments being made based on “2012 dollars.” In these 2012 dollars, GDP fell by 3.5% in the year 2020, the worst annual decline since 1946 (when it plunged by 11.6%).

In the fourth quarter, GDP grew by 1.0% from the third quarter, adjusted for inflation (but not “annualized”), which left Q4 GDP still down 2.5% from a year ago.

The plunge in Q2 and the jump in Q3 were the sharpest moves ever in the quarterly GDP data, which began in 1947. Before then, there were only annual data. Q4 growth, at 1% (green column), is back in the normal quarterly growth range over the past two decades:

In the headlines this morning, you saw “4%” GDP growth for Q4, which was an “annualized” figure, meaning Q4 growth (1.0%) multiplied by four to project what the growth would be if it continues for an entire year at the same rate, which is kind of silly, but that’s what “annualized” growth rates do. And they sure make things look bigger.

Adjusted for inflation via these infamous “2012 dollars,” GDP in Q4 amounted to a “seasonally adjusted” “annual rate” of $18.8 trillion, same where it had been in Q4 2018:

Consumer spending (69.5% of GDP) edged up just 0.6% in Q4 from Q3 to an annual rate of $13.0 trillion in 2012 dollars. And it was still down 2.6% from Q4 last year:

Spending on goods eased a smidgen from Q3, to $5.1 trillion (annual rate).
Spending on services rose 1.0% from Q3 to $8.0 trillion (annual rate).

…click on the above link to read the rest of the article…

Inflation Is Spreading Broadly into the Economy. Amid Surging Costs, Companies Raise Prices, and Customers Pay them, Despite Weak Economy, 10 Million Missing Jobs

January 23, 2021

Inflation Is Spreading Broadly into the Economy. Amid Surging Costs, Companies Raise Prices, and Customers Pay them, Despite Weak Economy, 10 Million Missing Jobs

“Not only have the last two months seen supply shortages develop at a pace not previously seen in the survey’s history, but prices have also risen due to the imbalance of supply and demand.”

The signs of inflation building up in the economy are now everywhere. IHS Markit, in its release of the Flash PMI with data from companies in the services and manufacturing sectors, added to that pile of evidence.

For companies, inflation happens on two sides: what they are having to pay their suppliers, and what they can get away with charging their own customers, which may be consumers, governments, or other companies.

And increasingly, companies are able to pass higher input prices on to their customers – meaning, their customers are not totally balking at paying higher prices and they’re not switching to other sources to dodge those price increases. That’s a mindset that nurtures inflation.

This PMI data is based on what executives said about their own companies (names are not disclosed) and the conditions they face in the current month. No quantitative measures or dollar amounts are involved.

And this is what they said about their two aspects of inflation, according to Markit:

On surging input prices:

“Inflationary pressures intensified as supplier delays and shortages pushed input prices higher.”
“The rate of input cost inflation [in January] was the fastest on record (since data collection began in October 2009), as soaring transportation and PPE costs were also noted.”
Amid stronger expansions in output and new orders, manufacturers experienced “significant supply chain delays, raw material shortages, and evidence of stockpiling at goods producers” that “pushed input prices up.”

…click on the above link to read the rest of the article…

Massive Inflation in Shipping Costs. And the Reasons

January 18, 2021

Massive Inflation in Shipping Costs. And the Reasons

Rates for trucking, ocean containers, airfreight, parcels, you name it, the costs for shipping consumer & industrial goods are surging.

The dollar-amount spent by shippers, such as manufacturers or retailers, on shipping their goods jumped by 13% in December from a year earlier, driving the Cass Freight Index of Expenditures to a new record (red line). The amount spent on freight is a function of shipment volume and freight rates:

The Cass Freight Index covers shipments by all modes of transportation, but is heavily concentrated on shipments by truck, with truckload accounting for over half of the expenditures, followed by less-than-truckload (LTL), rail, parcel services, etc. It does not cover commodities.

The freight rates embedded in the index jumped by 6.0% in December compared to a year earlier. “Based in part on spot trends, the acceleration in freight rates is likely to persist in the coming months,” Cass said in the report.

Shipment volume surged 6.7% year-over-year, given the Pandemic shift in consumer spending to goods that need to be shipped, from services that are not shipped. But shipment volume in December (red line in the chart below) remained below the levels of 2018 (black) and 2017 (brown) at this time of the year:

While Americans have cut back buying services, and spending on services remains sharply lower year-over year, they have been buying all kinds of goods, and many categories in record quantities, to where periodic supply shortages have cropped up here and there since March, ranging from hot-tubs to low-end laptops.

Retail sales (goods) in December rose by 4.8% from a year earlier to a record $620 billion (“not seasonally adjusted,” red line in the chart below). Everyone got sidetracked by the dip in “seasonally adjusted” retail sales. That dip was likely due to seasonal adjustments that had gone awry, particularly for ecommerce, due to the massive distortions in spending during the Pandemic:

…click on the above link to read the rest of the article…

Electricity Has Been in a Slump for 14 Years, But All Heck Has Broken Loose in How it’s Generated

January 14, 2021

Electricity Has Been in a Slump for 14 Years, But All Heck Has Broken Loose in How it’s Generated

Electricity generating capacity additions & retirements in 2021, and the long-term change in the power mix.

In 2021, developers and power plant owners plan to bring 39.7 gigawatts (GW) of new electricity generating capacity on line, and retire 9.1 GW in generating capacity, for a net increase in capacity of 30.6 GW, according to the EIA today. 70% of the capacity additions will be from wind and solar, 16% will be from natural gas, and 3% will be from a nuclear reactor. These are utility-scale power generators and exclude rooftop solar. Of the retirements, 86% will be coal and nuclear.

Electricity generation in the US has been a no-growth business since 2006, as efficiencies in electrical equipment (LED lights, appliances, air conditioning, etc.) and further offshoring of manufacturing have kept consumption roughly stable despite growth in the economy and population. But where all heck has broken loose is in how this power is being generated (data via the EIA).

Coal-fired power generation has collapsed by over 60% in 12 years, from around 169 GW hours per month on average in 2008 to 65 GW hours per month on average over the past 12 months, according to data from the EIA. It went from “King Coal” by a wide margin in 2008 (black line in the chart below) to #3, after surging natural gas-fired power generation (green line) blew by it in 2015 as the US has become the largest NG producer in world. And toward the end of 2020, coal fell even below nuclear power (brown line).

In a few years, wind and solar combined (red line) will blow by coal as well. With wind and solar, the big enticement for power generators is that the “fuel” is free and that there won’t be any “fuel” price increases in the future, no matter what inflation will do:

…click on the above link to read the rest of the article…

wolfstreet, wolf richter, electricity generation, fossil fuels, renewable power, electricity

Update on the WTF Collapse of Gasoline & Jet Fuel Consumption: The Holiday Period

January 9, 2021

Update on the WTF Collapse of Gasoline & Jet Fuel Consumption: The Holiday Period

Long-term structural issues have long dogged these fuels. Then came the Pandemic.

During the holiday shopping and travel period in December and early January, ten months into the Pandemic, gasoline consumption in the US was down about 12% from a year ago, jet fuel consumption was down 38% from a year ago, but distillate consumption – diesel, heating oil, fuel oil – was about flat with a year ago. Consumption of all three combined, under the impact of long-term structural issues and then the Pandemic, were down to levels first seen in the mid-1990s.

As of the latest four-week period through January 1, gasoline consumption fell to 7.89 million barrels per day (mb/d), according to EIA data. This was below where it had been over the same period at the end of 1994 (8.04 mb/d). The chart also shows the long-term structural demand issues, where in the 12 years before the Pandemic, gasoline consumption, after a big drop during the Great Recession and then a recovery, had gone nowhere. This dynamic then got whacked by the changes in driving patterns during the Pandemic:

The EIA tracks consumption of fuel in terms of product supplied by refineries, blenders, etc., and not by retail sales at gas stations.

In March, demand for gasoline had collapsed as millions of people lost their jobs, and therefore didn’t commute, and as others switched to work-from-home and therefore didn’t commute either. In the four-week period ended April 24, average gasoline consumption plunged by 44% year-over-year, to 5.3 million mb/d, by far the lowest in the EIA’s data going back to 1991.

Consumption in the latest four-week period through January 1 was still down 12% from a year ago. Since July, consumption has been down between 8% and 13% year-over-year:

…click on the above link to read the rest of the article…

How Will This Unwind? Amid Stimulus, Forbearance, Eviction Bans, Consumer Bankruptcies Dropped to Lowest in Decades. Commercial Chapter 11 Bankruptcies Highest in Years

January 7, 2021

How Will This Unwind? Amid Stimulus, Forbearance, Eviction Bans, Consumer Bankruptcies Dropped to Lowest in Decades. Commercial Chapter 11 Bankruptcies Highest in Years

Weirdest Economy Ever, as 20 million people still claim unemployment benefits.

Total bankruptcy filings by consumers and businesses in the US in 2020, across all chapters of bankruptcies, plunged by 30% from 2019, to just 529,000 filings, according to legal-services provider Epiq Systems. This was the lowest number of total bankruptcy filings since 1986.

The plunge in filings was largely driven by consumers, who account for 94% of total bankruptcy filings, and who were awash with stimulus money and extra unemployment benefits (historic Epiq data via American Bankruptcy Institute):

Bankruptcy filings by consumers alone plunged by 31% from a year ago to just 496,000 filings, the lowest since 1987. Following the Financial Crisis in 2011, consumer filings had surged to 1.38 million as consumers were unwinding their credit card debt, mortgages, and HELOCs. But not during this crisis. Though 20 million people are still claiming state or federal unemployment benefits, the opposite happened in the Weirdest Economy Ever.

Under a flood of stimulus money, consumers triggered a historic drop in credit card debt and a sharp drop in credit card delinquencies. Auto loan delinquencies also declined. But 5.5% of all mortgages are still in forbearance where borrowers don’t have to make mortgage payments – 2.7 million mortgages! And eviction bans allow renters to skip rent payments. And even consumers that were in arrears didn’t have to fend off creditors and landlords with a bankruptcy filing (historic Epiq data via American Bankruptcy Institute):

Total commercial filings under all chapters fell 15% to 33,000 filings, powered by a 40% drop in commercial Chapter 13 filings and a 14% drop in commercial Chapter 7 filings.

But commercial Chapter 11 filings – when a business attempts to restructure its debts while operating rather than liquidating – surged 29% to 7,128 filings, the highest since 2012 when the effects of the Financial Crisis were winding down.

…click on the above link to read the rest of the article…

Paper Dollars in Circulation Globally Spike amid Hot Demand. But a Mexican Bank, after Run-ins with the US, Can No Longer Unload its Hoard of Paper Dollars

January 4, 2021

Paper Dollars in Circulation Globally Spike amid Hot Demand. But a Mexican Bank, after Run-ins with the US, Can No Longer Unload its Hoard of Paper Dollars

Triggering a showdown — Government of Mexico v. Central Bank — over paper dollars, with ramifications in the US and globally.

The amount of “currency in circulation” – the paper dollars wadded up in people’s pockets and purses, stuffed under mattresses, or packed into suitcases and safes overseas – jumped again in the week ended December 30 to a new record of $2.09 trillion, according to the Federal Reserve’s balance sheet, where currency in circulation is a liability, not an asset. This was up by 16%, or by $293 billion, from February before the Pandemic. The amount has doubled since 2011:

This amount of currency in circulation is a function of demand – and that demand has been red hot: US Banks have to have enough paper dollars on hand to satisfy demand at ATMs and bank branches. Foreign banks will also request paper dollars from their correspondent banks in the US, or return unneeded cash to them.

When there is demand for paper dollars, banks buy more of them from the Fed. They pay for them usually with Treasury securities they hold or with excess reserves they have on deposit at the Fed.

The surge of paper dollars is a sign of hoarding, not of increased payments. In the US, the share of paper dollars for payments has been declining for years, replaced by electronic payment methods, such as credit and debit cards, PayPal, Zelle and similar systems, all kinds of smartphone-based payment systems, the automated clearinghouse (ACH) system, and checks every now and then.

During periods of uncertainty, people load up on cash, as they have done leading up to Y2K, during the Financial Crisis, and now during the Pandemic.

…click on the above link to read the rest of the article…

US Dollar as “Global Reserve Currency” amid Fed’s QE and US Government Deficits: Dollar Hegemony in Decline

January 2, 2021

US Dollar as “Global Reserve Currency” amid Fed’s QE and US Government Deficits: Dollar Hegemony in Decline

Other options also shaky. Central banks leery of Chinese RMB, its share still irrelevant. Euro’s share is stuck. But the yen’s share has been rising.

The US dollar’s position as the dominant global reserve currency is an immensely important factor in supporting the ballooning US government debt, the Fed’s drunken money-printing, and Corporate America’s ambition to offshore production to cheap countries, thereby creating huge and ever-growing trade deficits. They all have become dependent on the willingness of other central banks to hold large amounts of dollar-denominated paper. But from the looks of things, those central banks might be getting a little nervous.

The global share of US-dollar-denominated exchange reserves – US Treasury securities, US corporate bonds, US mortgage-backed securities, etc. held by foreign central banks – fell to 60.5% in the third quarter, according to the IMF’s COFER data release. This is the lowest since 1995. Over the past six years, the dollar’s share has been dropping at a rate of about 1 percentage point per year:

The dollar’s 20-year decline.

Dollar-denominated global foreign exchange reserves do not include the Fed’s own holdings of dollar-denominated assets that it bought as part of its QE, such as its $4.6 trillion in US Treasury securities and $2.1 trillion in US mortgage-backed securities.

The decline in the dollar’s share began 20 years ago when the euro assumed the place of the predecessor currencies, including the Deutsche mark, that used to be in the basket of foreign exchange reserves. But that 20-year 10-percentage-point decline pales compared to the near 40-point plunge in the dollar’s share from 1977 (85%) to 1991 (46%), which was followed by the 25-point surge till 2000.

For now, the motto among these central banks, jointly, seems to be: easy does it. No one wants to trigger a sudden crisis (2020 = Q3):

…click on the above link to read the rest of the article…

THE WOLF STREET REPORT: American Debt Slaves in the Weirdest Economy Ever

December 29, 2020

THE WOLF STREET REPORT: American Debt Slaves in the Weirdest Economy Ever

During the Financial Crisis, consumers deleveraged by walking away from their debts. And now, with 20 million people still claiming unemployment insurance? (You can also download THE WOLF STREET REPORT wherever you get your podcasts).

Railroads Slashed Jobs Again in Nov, to Lowest in Many Decades, Traffic Down 17% since 2006, Stocks Soared to Record High

December 25, 2020

Railroads Slashed Jobs Again in Nov, to Lowest in Many Decades, Traffic Down 17% since 2006, Stocks Soared to Record High

Railroads responded to structural challenges by slashing jobs. Did nothing for volume but did everything for their stocks.

The North American Class 1 freight railroads – BNSF, Union Pacific, Norfolk Southern, CSX, Canadian National, Kansas City Southern, and Canadian Pacific – have been shedding employees since 2015, and in November they shed another 1.6% of their employees, from October, bringing the total down to 114,960 employees, according to data released by the Surface Transportation Board (STB), an independent federal agency. It was the lowest headcount in many, many decades.

November headcount was down by 13.7% from a year ago, down by 22% from the Great Recession low at the end of 2009 (147,000), and down by 33.5% from the recent high in April 2015 (174,000):

Railroads submit employment data – along with a slew of other operating data – to the STB on a monthly basis. I have excluded Amtrak (the National Railroad Passenger Corporation) because it is not a freight railroad (it too cut headcount).

Back in 1997, which is as far back as the publicly released data by the STB goes, railroads employed 178,000 people. In 1998, railroads employed 180,000. Employment in November was down by 36% from 1998. The chart below shows Class 1 railroad employment in each year in December, except for 2020, when I used November (in recent years, headcounts dropped further from November to December):

Compared to November last year, each of the Class 1 railroads shed employees, in order of the number of remaining employees:

BNSF: -15.6% (35,081)
Union Pacific: -13.4% (32,046)
Norfolk Southern: -15.9% (19,199)
CSX: -9.0% (17,093)
Canadian National: -13.2% (6,183)
Kansas City Southern: -10.1% (2,718)
Canadian Pacific: -9.4% (2,640)

Since September 2016, which is as far as the STB’s monthly data by individual railroad goes back, some railroads have been busier than others shedding employees. All combined have shed 24.6% of their people. Each railroad, in order of the biggest shedders in percentage terms:

…click on the above link to read the rest of the article…

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