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‘All That Matters’
A raft of data and a dash of Fedspeak should help traders refine the macro narrative in the week ahead.
Rates caught between increasingly shrill recession calls and scorching-hot inflation will pivot around Thursday's critical personal income and spending report for May, and the accompanying PCE price data. It might not be pretty. May's CPI report was very disconcerting and retail sales fell last month for the first time since December.
A downward revision to longer-term inflation expectations
U of M survey may bee a good indicator of general sentiment, but if Friday was geared toward that, then that was a chasing after the wind in my opinion.
When retail sales fall in spite of inflation there is an extra implication economists generally fail to mention. Sales equals the price of goods times the volume of goods sold. A price increase of 8% should result in a rise in sales of at least 8% at constant volume. If sales increases less than prices then the implication is that the volume of goods sold has fallen more than the prices have increased, not unexpected when prices are rising. It is volume that puts people to work and keeps them there. If the volume of activity is falling that means layoffs and less consumption (as in TSLA laying off 10% of its labor force). Throughput volume is the “real” in real sales. Volume drives hiring, CAPEX, capacity expansion, etc. INTEL no more than announced its $20 bil monster capacity build in Ohio than it turned around and postponed the project indefinitely. Here in KC, Nordstrom’s began a huge project to build a large new store in the iconic retail complex known as Country Club Plaza. Ground was cleared, existing stores moved and everyone was anticipating a rejuvenation of the whole complex. Then with no warning Nordstrom’s said, “Never mind.” They signed a new lease in the old place and dumped the project. It’s about volume as much as price.
H-Man, hope and wishful thinking are always blind to reality.
I’ve been out of touch in the mountains since Friday afternoon. Glad to see things economic are all better by now (not).