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Stagflation Spotted In Crucial US Comp, Spending Data
Compensation costs for US workers rose less than expected in Q4, closely-watched data out Friday showed.
Markets were on edge for the latest read on the employment cost index amid acute fears of a wage-price spiral or, perhaps more aptly, acute fears that the Fed might see early signs of such a spiral and respond accordingly.
The 1% headline ECI print was well below the 1.2% consensus (figure below) and near the low-end of the range. Economists were looking for anything from a 0.9% increase to
People just havent been going out there and spending. When I talk to everyday people the trend seems to be holding off major purchases for spring not cancellation. There is just too much going on to organize a vacation or appliance upgrade right now. I think rage spending will take off soon. People are pissed about covid and inflation. When omicron passes and people see prices continuing to rise they will rush to lock in costs and engage in the usual retail therapy. Businesses are just front running this with the inventories. I think it’s a good decision on their part. We are going to have a busy next few months with lots of buying, I think.
I would have to disagree with Acer above. The trendline is decelerating. Is it a recession? No but the heat is coming out of the economy and it is in the process of rebalancing- higher supply and moderating demand. This is a good trend as long as it does not go too far. As for street forecasts- Bank of America is now trying to outcompete the rest of the street by forecasting 7 hikes in 2022 and a 1.75% funds rate by year end. Really? The Fed will be lucky if the economy is strong enough to do 4 hikes. My own best “forecast” is 2 maybe 3 (bridge anyone?). Two hikes and a taper will likely tighten financial conditions enough. A great way to invert the yield curve, blow out credit spreads and crash the stock market is to hike 7 times. That would almost surely put the US into a recession and reverse some of the employment gains made since the crisis started. Want to see a Democratic party wipeout- go ahead make my day and hike 7 times.
I agree. It seems to me that if the Fed really intends to run off its balance sheet by 2-4 Tril, that plus two hikes should at least justify a mid-year pause to check for casualties and whether inflation is slowing.
H-Man, Acer and RIA summed it up pretty well…… so just pick one.
H-Man, I rarely post twice but saw a piece by Bianco that pushes me towards the RIA camp. It really gets down to JP choosing between Wall Street and Main Street and Main Street will be the winner. Bianco referred to a survey where 67% don’t believe the fed is doing enough to combat inflation. Meanwhile 40% of the people in this country don’t have $1,000 in the bank — those people are getting hammered by inflation. The same people who will vote in the mid-terms. I think JP is going to raise rates until the market cries uncle and reprices. Bianco suggests inflation will peak in April or May but if inflation doesn’t fall rapidly to 3%, JP will keep the petal to the metal until it does, no matter how much Wall Street wails. The bottom line is the market will be repriced lower. Due to the tight labor market, the R that may follow may not have a lot of staying power if inflation is dissipating.