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US Economy Hot As A Pistol, Retail Sales Beat Suggests
The neutral rate's higher! Shouted a very strong read on US retail sales to a deliberately deaf Fed.
Nominal spending nearly doubled estimates in this week's only top-tier release out of the world's largest economy. A critical underlying measure of consumption was even stronger.
The 0.7% headline blew away the 0.4% consensus. March's MoM gain was the second consecutive, and the prior month's increase was revised meaningfully higher to show a 0.9% increase.
Recall that as initially reported,
Another update from sunny Manhattan. Out on the town yesterday with friends from out of town — Chinatown, Little Italy, Upper West Side. Everywhere we went, restaurants and museums were full or overflowing and lines were long. I’ll leave it to others to decide whether that’s an indication of the health of the U.S. economy or another sign of its bifurcation.
Recent commentary from Mc Donald’s and one of the dollar stores suggests it is the latter.
But I wonder if going out to restaurants is an “affordable luxury” that can be maintained even as larger expenditures are delayed or put aside. Like the old market adage about lipstick sales in a recession.
Most of the readers of Dr H are reasonably comfortable, spending money wise.
Yet even if one can “afford it”, psychologically the $6 lattes, $16 burgers, and $10 organic non-GMO smoothies, plus 25% gratuity for sliding one’s purchase across a counter and busing one’s own dishes, take their toll, do they not?
Even if dropping $50 for two burgers and two rootbeers doesn’t trouble, at some point inflation affects behavior even of the insular insulated.
My personal indifference-to-difference phase change came last week when I saw my new auto insurance premiums. A day of pulling online quotes and entering them into a spreadsheet showed that $5,000/yr is there to be saved by switching the “fleet” from my long-time carrier to two different carriers. So I’m joining the fight against insurance inflation in CPI. Where’s my “Whip Inflation Now” button?!
(Naturally, the auto insurer charts are things of beauty.)
I switched back to an E-Class from a TLX over Easter weekend, and my premium more than doubled immediately. Part of that’s the car, obviously, but I imagine there’s some inflation going on there too.
Auto insurance CPI +22% YOY. Auto insurance is dominated by a few large players (State Farm [private mutual co], PGR, Geico [part of BRK.B], ALL). They have had ugly combined ratios in recent years, In 2022 CRs were ALL 111%, PGR 97%, Geico 105%, State Farm 118%; 2023 CR was much better for Geico 91% and better for PGR 95% but ALL and State Farm still had CR >>100% and need to get profitable. So rates are going up, which is driving churn, some players are reducing policies in force, others are increasing. States are still approving rate increases. The need for agents and adjusters makes it hard for higher premiums to draw excess capital (unlike, say, reinsurance).
John L — I wonder if the recent poor combined ratios have something to do with rate setting post-pandemic. During the pandemic, lower driving rates and lower claims and losses forced many insurers (State Farm in my case) to rebate premiums (mandated by law, not because they are fair). That might have flowed into near-term premium rates, which are now lagging the return of a more normal driving and loss/claim environment, and we may now be seeing the “catch up.” Also a factor, of course, has been the bloated cost of new and used cars, as well as parts, and likely repair services as well, although that should be (slowly) resolving in the other direction.
I am not sure about the rebating. State Farm, when profitable, pays “dividends” to policyholders because it is a mutual company; last was $401MM in 2021. But it has lost >$6BN/yr for the past two years.
Cars are so unnecessarily complicated- the average car built now has over 3,000 computer chips. In 2000, electronics were 18% of the cost of a new car compared to 40% in 2020. This percentage is expected to be 45% by 2030.
Who really needs/wants this?
I drove my last car (1998 Landcruiser) for about 20 years, before selling it to my son. Now I am driving an older FJ, and my car insurance still went up- but not as much as my real estate taxes! Ouch.
I haven’t bought a new car in 20 years. Too expensive for something interesting, too boring for something less expensive.
Fundamentals schmundamentals – let’s talk about CTA levels and gamma! (No, seriously.)
I concur, sir!
I agree John, that’s often the most useful info., and that’s where Mr H. is at his best.