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Thursday, April 12, 2012

Well, It's Mixed

The most interesting release today is PPI. The reason we should all pay attention to it is that we are in the diffusion stage, in which previous price changes are seeping quietly through the economy. The much maligned "core" price index was up 0.3; the headline was 0.0. The "core" price index is finished goods excluding food and energy. In March, finished energy prices dropped 1%, and finished foods rose 0.2. This means that other pricing is being squeezed a bit to compensate (by the final consumer's price sensitivity).

But that does leave us in a situation in which future inflationary pulses hit an economy that's kind of primed to see the spread. If the consumer is really as price-sensitive as I believe, then the response will be to pull back on purchasing a bit more.

For intermediate goods, the ex-food-and-energy number was 0.6 after 1% in February. Food was 0.6 and energy was 1.3.

Initial claims - the 380K headline looks high, but spring break claims probably produced it. There's no need to get all excited about this. The prior week's number was revised up substantially, probably from the same cause. Easter/Passover was early this year, and seasonal adjustments are a bit problematic. The four-week moving average is in the same range as a month ago.

February international trade numbers are out; the decrease shown probably has a lot to do with the timing of the Chinese New Year holiday. The average unit price of an imported barrel of oil was $103.63, just about $16 above the previous year's pricing. The average price of oil hit its high in December at $104.13. then dropped to the 103s where it has stuck. Total volume of imported crude was 10% less than the previous February (on a barrels per day basis).

In Europe, hopes that the ECB is preparing to buy some bonds are going to get us through the week without too much turmoil, but the Spanish 10 year shows that this issue will be with us. Italy is much more subdued, but the pricing level is significantly above the first half of 2011. If the earth would just stop quaking we could wander through to the weekend in relative peace, if a bit sobered.

From what I see in the supermarkets, most US consumers are at the breaking point.There is something eerie about walking through a parking lot and counting cars that indicate a very high socio-economic customer mix, and then walking through the store and seeing that everything in the store on sale is selling like hotcakes. Including the bottled water. A price drop from 99 cents to 79 cents for gallon jugs of store brand bottled water shouldn't produce bare shelves and no stock when you've got a bunch of Lexis/Prius/new mini-vans in the parking lot, but it does. Under these circumstances, it is almost impossible to be optimistic about the economy. Soda price drops, etc. It looks 70s-like. Austerity has clearly moved well into the middle class, which, in my experience, always means a consumer-led recession.

I've now been reduced to the Starbucks survey, which isn't going well either. By the time your 65-70% percentile shoppers are going to be influenced by the price of bottled water, you've lost all your economic margin.

Some good news - tax receipts in March were nicely up. If I can find the time I'll post the breakdown, but it was good on a YoY and MoM basis. February was down, so I expected the MoM to be good, but YoY was really good. So if we get price drops fast enough we could theoretically kind of bounce along the bottom, but what I SEE is the initial stage of a contraction in the final diffusion stage.

Nor is consumer credit going to save us:



All the consumer credit growth appears to be sitting in the federal government bucket, which means student loans. This is hardly mystifying under the circumstances, and it does explain why above-the-median shoppers are more price-conscious.

The US economy is still 70% consumer-driven; by the time you've tipped that this far it is difficult to turn in much of the way of growth there. A 2% cutback on the consumer side has to be compensated for with a 5% increase on the production side just to stay flat. That's difficult to achieve.

The US economy does have to move forward with a structural adjustment to shift from consumption to production. We are moving toward a more functional economy, if that's any comfort.


Comments:
I have a Prius. The market for that car is silly. Prices are low November-February, and are insanely high during the other months. It is even more exaggerated in the used market.
 
So, now we've got evidence that student loan payments are siphoning potential economic growth right into the pockets of the academic establishment? I didn't expect to see this so soon, but it makes some sense.
 
I think so, Neil. People need an education, of course - at least some sort of training.

But my guess is that when you count up all the degrees four years from now we'll find that a lot of them aren't the type of things that provide training.

Right now we can probably use more carpenters, plumbers, all sorts of skilled industrial workers, mechanics, engineers, techs. And nursing will eventually open up again - right now it looks there is a bit of an oversupply.

But the bills for those sociology and psychology BAs are likely to be around in a decade.
 
Theoretically, I believe in a good liberal arts education, too. But my experience with recent liberal arts grads lately has not been good. I'm ready to believe the accusations that they're being taught to parrot the professor instead of being taught to think. And, if the goal is to prepare them to understand the world, why the heck can't they take at least one calculus course and one statistics course? I can understand skipping that 50 years ago, but we live in a data-driven world now.
 
Neil, there is a whole range of the human population that is not going to do calculus and statistics because their minds just don't work that way.

At least algebra would be nice, but our higher education system has shifted gears into credentialism rather than education.
 
Charles - I think gas prices are pushing the Prius, but yes, the costs are pretty high.

Still, the prices of good quality lower-MPG used cars are epically high, so you would expect the Prius to stay up there.
 
M_O_M,

Anyone who goes to college these days supposedly has already succeeded at high school algebra. Getting the concepts behind calculus and stats isn't such a stretch.

I've seen plenty of perfectly intelligent people from top-tier universities who didn't take college math just because "it's hard". It was hard for me, too, but that's the price we pay for understanding our world. It's the attitude that bugs me--the idea that one can have a supposedly well-rounded education and be ready for leadership, but "math is hard".
 
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