Tuesday, June 14, 2011
NFIB And The Rest
Consumer spending is weak, especially for “services,” a sector dominated by small businesses. the index makes clear that optimism is moving in the wrong direction: a recession-level reading for an economy fighting its way through a recovery. Also, inflation is a growing concern now with 1 in 10 citing this as their most serious business problem meaning cost side pressures coming in the “back door,” not rising food prices at home.Hiring intentions in this report forecast continuing rises in unemployment stats over the summer.
Any time you see falling sales and continuing price increases, you know that the consumer will continue to experience pressure. NFIB thinks that core prices are doomed to continue to rise, with a diffusion from base price increases into services and end-user products that are not commodity-based.
So we have rising price trends, poor profit trends (somewhat mitigated by higher prices out of necessity), poor sales trends, and remarkably poor employment trends. Some may call this stagflation; that is the most positive possible way to describe the situation.
Small business owners are being forced to raise compensation (because many had had to cut, and higher costs for employees are really cutting into the real wages of employees). This is the famous wage/price spiral the talking heads tell us isn't going to happen:
For those reporting lower earnings compared to the previous three months, 50 percent cited weaker sales, 2 percent blamed rising labor costs, 13 percent higher materials costs, 2 percent higher insurance costs, and 7 percent blamed lower selling prices. Seven percent blamed higher taxes and regulatory costs. As for employee compensation, 6 percent reported reduced worker compensation and 16 percent reported gains yielding a seasonally adjusted net 9 percent reporting higher worker compensation, unchanged from April and the second strongest reading since the fourth quarter of 2008. A seasonally adjusted net 7 percent plan to raise compensation, also unchanged from April.I track plans versus actual, and this is a notable diversion. As for inflation:
The “feedstock” for inflation continued to grow, with the number of owners actually raising average selling prices reaching a net 15 percent, seasonally adjusted. Thirty-one (31) percent reported raising average selling prices, double the percent cutting prices which suggests that average price levels will be rising, and that is “inflation.” The Federal Reserve protests the notion that QE2 liquidity is driving commodity prices as liquidity scours the world to find a higher return than that offered by banks, but there is a strong correlation between Federal Reserve purchases and commodity prices.I also expect renewed cost pressures from consumer product imports over the summer. This report should be read in conjunction with NACM's May survey:
The bottom seemed to drop out of the economic recovery in May. The first signs of trouble started to manifest in the April, but by the end of May these threats had become very real and the economy took some steps backwards.Mark, your hour has come!
The index of favorable factors had been as high as 64.1 just three months ago in February. Now that index has fallen to levels not seen since October of last year. The index shows that there is still some growth in terms of credit applications and that bodes well for the future assuming that conditions improve and the rate of approvals starts to grow again. Right now there is still a sense that conditions will improve as the threat of inflation fades, but if the threat continues to advance there is likely to be another wave of negative responses.
I am certain that services to consumers are the most pressured part of the economy currently, with very significant sales drops as many consumers find themselves short every month. Eventually, income must balance outgo. For those consumers who haven't yet grasped this concept and are trying to run up their credit cards, the big credit card issuers have redoubled their risk checks and are once again cutting credit limits if the pattern of charging looks like it is induced by fiscal stress. So don't expect help from that quarter.
For what it is worth, SuperDoc's appointments have shown a 35% falloff over about six weeks. I had warned him in the beginning of April that we were heading into another contraction, but I didn't expect this steep an effect and when I put out feelers to check, indeed I found very similar reports from service businesses around the country. It was so depressing that I terminated the effort and just sullenly waited for NFIB, but now I am glad I did, because it showed me where the primary weakness was.
NACM suggested that retail sales in June would not be very good. May's already dropped, but it was centered in motor vehicles. Note that this is a nominal drop which will get worse when deflated. April's gain was revised down. They are trying to put the happy face on this one, but I don't think retailers are going to be smiling. It is important to remember that retail sales are one chunk of consumer spending, and services are another.
Given the combination of dropping nominal retail sales in May and the bad service indicators, May's net real consumer spending appears to have been negative, which is why I found the happy talk Bloomberg article linked above somewhat mystifying. Look at the string of negatives in the first table at this link, and tell me how that's a sign of further growth? Either I have gone crazy or the people espousing this point of view have; somebody's barking mad. Supermarkets are cutting food prices where they can, which is why sales dropped at the supermarket. But - listen up, folks - when food prices drop and people don't buy more, the average consumer is under severe financial stress.
Producer Prices - The 12 month finished rate is +7.3, up from +6.8 in April. Intermediate 12 month is +10.3, up from +9.4 in April. Raw is +22.8 down from +23.7 in April. Clearly businesses have some catching up to do, or perhaps crude prices have some considerable collapsing to do. This pricing system is not even close to balance, and you can expect price increases across the economy or, if that cannot happen, the economic trends to continue to worsen. Staring at grocery spending makes me think it's going to show up in economic trends.
Business inventories are due at 10:00. I will now go off and see if anyone comments that I am frothing at the mouth. If not, then I think the people seeing positive trends in the economic reports are probably the ones with economic rabies syndrome.
The situation of many lower income workers gets somewhat dire when you have the types of cost increases we have had. They are having trouble buying bread and gas.
I should have thrown in the towel on this one about three weeks ago when I noticed a supermarket in a pretty decent area (high levels of homeownership, median wage well above national average, pretty good employment stats) advertising cheap BREAD. They had it on a board in the parking lot and on big signs posted in the windows.
The bread was really cheap. $1.50 a loaf and below, but they had cut the sizes of the loaves somewhat.
So this explains why so many people think we are going into a depression.
actually. My guess is that employees that are getting
raises are being asked to do more. Will the productivity
increase be passed through to the employee ? Probably
not. They will however, pay more for less health insurance
and other reduced benefits. If wage inflation doesn't keep
up with the cost of living we are just falling behind more
Small businesses are looking to cut costs any way they can. When your customers are very tight on cash, your options are limited.
On the other hand, when your employees can't afford to drive to work....
Are they actual wage increases or higher insurance costs
and payroll taxes that are increasing labor costs ?
My Hour Has Come (Musical Tribute)
Sub headline - pundits predict that China will have a soft landing from the recent monetary tightening. Extrapolation is that the inflationary pressures from China are over.
Whee, happy days are just around the corner! Yes, and I have some view swampland for sale - very cheap!
my word verfication...calksonu...sure seems that way sometimes :)
thank you for all the information and insight you share... anon
That and fruit trees. Nothing else has enough calories besides rice and beans.
Potato is guud ja?
Venn zee fuud maney runs low, potato ist king.
If you look at JOLTS, and look at the table for layoffs and discharges here, you'll see that in April ex Fed numbers were lower than a year ago. So while separations are increasing, they appear mostly to be from retirements. The same was true in the previous release.
I think the cost of paying retirement benefits is squeezing non-federal governments, so I think they are less likely to replace retirees. Job openings for state and local governments are still slightly higher than those of a year ago, so some of these workers will be replaced.
And you are right about the compensation.
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