ADVANCE MONTHLY SALES FOR RETAIL AND FOOD SERVICES, MAY 2021
Advance estimates of U.S. retail and food services sales for May 2021, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $620.2 billion, a decrease of 1.3% (±0.5 percent) from the previous month, but 28.1 percent (±0.7 percent) above May 2020. Total sales for the March 2021 through May 2021 period were up 36.2 percent (±0.5 percent) from the same period a year ago. The March 2021 to April 2021 percent change was revised from virtually unchanged (±0.5 percent)* to up 0.9 percent (±0.2 percent).
Retail trade sales were down 1.7 percent (± 0.5 percent) from April 2021, but up 24.4 percent (± 0.7 percent) above last year. Clothing and clothing accessories stores were up 200.3 percent (±2.8 percent) from May 2020, while food services and drinking places were up 70.6 percent (±3.0 percent) from last year.
FIBER: Industrial Commodity Prices Take a Breather
The Industrial Materials Price Index, from the Foundation for International Business and Economic Research (FIBER), fell 3.1% during the four weeks ended June 11. On a weekly basis, prices fell 1.0%, down for the fourth straight week. Despite the declines, prices were up 43.2% y/y as manufacturing sector activity remained firm.
Prices in the miscellaneous group led the decline and fell 5.7% during the last four weeks. Framing lumber prices weakened by 26.7%, but they remained 234.2% higher y/y as home building remained strong. Plywood prices were unchanged. Natural rubber prices weakened 6.3% in the last four weeks. (…)
Metals prices also backed away from recent highs, falling 2.1% during the last four weeks. The cost of copper scrap fell 6.0% and aluminum prices were off 2.6%. Lead prices fell 1.8%, but they remained up by one-quarter y/y. Steel scrap prices eased 0.7% but zinc prices were little changed (48.2% y/y).
- Lumber Prices Are Falling Fast, Turning Hoarders Into Sellers Prices have dropped from record highs spurred by the economic reopening, potentially pointing to an eventual return to normalcy.
Futures for July delivery ended Monday at $996.20 per thousand board feet, down 42% from the record of $1,711.20 reached in early May. Futures have declined 14 of the past 15 trading days, the last two by the most allowed by exchange rules.
Cash lumber prices are also crashing. Pricing service Random Lengths said Friday that its framing composite index, which tracks on-the-spot sales, dropped $122 to $1,324, its biggest ever weekly decline. The pullback came just six weeks after the index rose $124 during the first week of May, its most on record. (…)
Even after tumbling, lumber futures remain nearly three times what is typical for this time of year. (…)
Mortgage-finance firm Freddie Mac estimated in April that the U.S. is about 3.8 million houses shy of meeting demand, thanks largely to the lack of construction following the 2008 housing crash.
(…) executives from lumber producer PotlatchDeltic Corp. PCH -2.71% said they expect lumber to trade in a range of $700 to $800 through next year. That is still more than the pre-pandemic record of $639 and is based on their estimation of the price that mills in British Columbia need to break even sawing North America’s most-expensive logs. (…)
Americans Are Keeping Their Cars Longer, as Vehicle Age Hits 12 Years Cars remain in service longer as quality improves, prices rise
(…) the trend accelerated during the coronavirus pandemic partly because of a drop in new-car sales, IHS said. (…) The total number of vehicles in operation in the U.S. has risen about 10% since 2013, to around 279 million, according to IHS. (…)
The Rising Stakes for the Fed The risks to its credibility and independence are growing.
From the WSJ Editorial Board.
Chairman Jerome Powell and colleagues need to decide soon whether to defend the Federal Reserve’s credibility and independence. Otherwise they may find they’ve missed their opportunity.
(…) there are still risks to a sanguine approach to current price movements. Inflation may prove less transitory than hoped if the Biden Administration’s spending plans goose demand while its tax and regulatory policies constrict supply. The Fed’s unspoken weak-dollar policy will exacerbate import-price inflation. Even transitory inflation will leave Americans permanently worse off than they otherwise would be. (…)
Inflation-adjusted wages fell slightly in May for the second month. The Fed seems to believe the solution is to keep Mr. Powell’s foot on the gas to boost employment further. But job vacancies are at an unprecedented high as employers compete for workers. If this isn’t spurring wage growth faster than inflation, the Fed should ask why not?
One explanation is a rampant misallocation of capital to uses that don’t boost overall productivity. (…)
The budget then tries to force the Fed’s hand with so much new borrowing that no Fed Chairman would risk raising rates and plunging the government into a crisis with exploding debt-service costs.
This combines a challenge to Fed credibility with a new dig at the central bank’s independence. The Fed will encourage more of this the longer it resists responding to emerging economic and financial risks. (…)
A good start would be to at least discuss these matters. (…) A first step would be to end purchases of mortgage-backed securities under the Fed’s QE program. (…)
The economy also almost certainly can absorb an increase of 0.25 percentage point in the target Fed funds rate much sooner than the Fed seems to believe.
The main constraint for now (other than the Biden Treasury) appears to be the Fed’s fear of the markets. (…)
With rates still near historic lows, Mr. Powell has ample room to inject some reality into markets without risking broader economic health.
Investors might even welcome signals that the Fed is awake at the switch. Big-spending politicians certainly need a reminder, and the economy would benefit from a modest dose of monetary normality. The U.S. economy is recovering rapidly from the pandemic. This week the Fed can start taking “yes” for an answer.
Richard Fisher, former Dallas Fed president, said last week that the taper tantrum of 2013 “still is a deep scar infecting the methodologies of the existing open market committee because it was very painful.”
Reuters adds its own warning:
(…) If the Fed has misread the post-pandemic economic situation, it will be that much further behind in preparing for faster rises in prices, Donald Kohn, a former Fed vice chair, said last week at an American Enterprise Institute event.
The Fed’s current focus on using loose monetary policy to try to generate ever more employment makes sense with so many people still out of work, Kohn said, but “is not designed to deal with the upside risk on inflation.” (…)
In December, the Fed said it would make no moves on any front until the United States had made “substantial further progress” in bouncing back from the pandemic.
Fed Chief Jerome Powell in particular has emphasized the central bank’s new view of maximum employment as a “broad-based and inclusive” concept attentive to whether racial minorities and women, for example, are reaping the benefits of economic growth.
The progress since December has been mixed, and slower than the Fed had hoped. (…)
ISI Evercore Vice Chairman Krishna Guha wrote this week: “The challenge for the Fed is to show it is implementing” its new, job-focused framework, “not changing it … To the extent there is any information at all in (recent economic) data, it has gone in the direction of a near-term conflict between the Fed’s employment and inflation goals.”
- NY Fed May Consumer Survey Finds Public Bracing for Large Inflation Gains Americans are bracing for a wave of higher inflation over the next year.
Americans are bracing for a wave of higher inflation over the next year, amid projections of big increases in home prices, rent, food, gasoline and medical costs, the May New York Fed Survey of Consumer Expectations reported Monday.
One year from now, the public expects inflation to hit 4%, a series high for the New York Fed report, from the projected 3.4% increase reported in April. Three years from now, survey respondents said they expected to see inflation at 3.6%, the second highest reading for the survey, up from April’s 3.1%.
The jump in inflation expectations came as respondents to the survey project major increases in home prices and for other things critical to daily life. One year from now, food and rent prices are expected to rise by 8% and 9.7%, respectively, both carving out series highs. Meanwhile, the expected rise in gasoline and medical care costs also increased, with both readings just short of 10%.
Home prices are expected to rise by 6.2% a year from now, a series high, and up from April’s 5.5% reading, the survey said. (…)
Fed officials believe inflation expectations are critical because they believe that where inflation is expected to go exerts a powerful influence on where it is today. (…)
The U. of Michigan survey of Consumers revealed that the median one-year inflation declined from 4.6% in May to 4.0% in June and the longer-term view eased from 3.0% to 2.8%. But that is up from 2.2% pre-pandemic.
- Oil Hits Pandemic High as Investors Bet on Green Energy Some investors are wagering that Wall Street’s preference for green energy will depress spending on oil extraction, setting the stage for supply shortages and higher fuel prices.
GOOD WATCH
One of the best: KKR’s Henry McVey: KKR’S McVey on Fed, Inflation Strategy, Small Caps
World’s Bubbliest Housing Markets Flash 2008 Style Warnings
(…) Bloomberg Economics’ dashboard compiles five indicators to estimate a country’s ‘bubble rank,’ with a higher reading indicating greater risk of a correction. Among the indicators, price-to-rent and price-to-income ratios help assess the sustainability of price gains. House price growth measures current momentum.
For many countries in the OECD, the price ratios are higher than they were ahead of the 2008 financial crisis, according to the Bloomberg Economics analysis.
(…) Shah said the period ahead will more likely be characterized by cooling rather than collapsing. (…)
Housing affordability gauge surpasses 2008 level
- Renting Is Cheaper Than Buying, Almost Everywhere According to a new study, renting costs less per month in the 50 largest metropolitan areas in the United States.
(…) A recent study by LendingTree found that median housing costs were lower for renters than for homeowners with a mortgage in all 50 of the largest U.S. metro areas. The greatest difference between the median rent and the median cost of owning a home with a mortgage was in New York City, at $1,363 a month. San Francisco and San Jose, Calif., were next, with the gap between renting and owning exceeding $1,000. (…)
Latin America Leads Revolt Against Free-Market Growth Model Voters in Peru could elect Pedro Castillo, leader of a Marxist party, as president as region deals with economic and Covid-19 crises
Latin America, which led developing nations in adopting a market-friendly model of economic development, may now be leading them away from it. On Sunday, voters in Peru could elect as president Pedro Castillo, leader of a Marxist party that seeks to nationalize foreign-owned mines, invokes Lenin and Fidel Castro, and questions democratic institutions such as a free press.
On the same day, Mexicans will decide how much control over Congress to give their leftist president, Andrés Manuel López Obrador. Since taking office in 2018, he has expanded state control of oil, gas and electricity while undercutting the independence of the judiciary. And just weeks ago, Chileans elected a far-left slate of delegates to rewrite their constitution. A leftist already governs Argentina and polls suggest one could win Brazil’s presidential election next year.
(…) in the past decade Latin America failed to achieve what mattered most: durable economic growth. (…) Per capita gross domestic product, adjusted for inflation and currency purchasing power, was the same in 2019 as in 2011. In that time China’s grew 66%, India’s 52%. Covid-19 knocked Latin American per capita incomes back another 8%, the International Monetary Fund estimates. (…)
Mr. Velasco calls the current political movement not so much left wing as antiestablishment, mimicking populist movements that put Donald Trump in office in the U.S. and Narendra Modi in India. Brazilians elected Jair Bolsonaro as the right-wing populist alternative to leftist governments tainted by corruption before souring on him as well. Even in relatively prosperous and well-functioning Chile, demonstrators have called for giving priority to inequality and social services over growth. (…)