Macro Monkey Says
(dis)Inflation Nation
It’s Monday morning. We’re in the midst of a debt ceiling crisis. Our top two Presidential candidates were both alive before the Korean and Cold Wars even started, everyone expects a recession, and Hasbulla is under house arrest. We could really use some good news.
Fortunately, we did get some kind of good news last week. Because macro is basically just the nerdy version of astrology, any data is rarely all good or all bad. But, if we’re talking inflation being brought down as our main goal, boy, do I have some good news for you.
On Friday, we learned that wholesale prices paid by producers grew slower than expected in April, gaining just 0.2% in April and 2.3% annually, the slowest annual growth posted since January 2021.
And, to be honest, most of that growth is all your fault. Portfolio management services, aka the sh*t most of you apes spend too much time doing, gained 4.1% for the month and drove nearly 1/3rd of the monthly increase all on its own. Them greedy financiers also took a >30% annual increase in brokerage services and investment advice, although that figure is not seasonally adjusted. With markets as boring as this, gotta put meat on the table somehow, I guess.
Loan services saw costs increase as well, likely directly related to the rate hikes and decline in credit availability JPow has bestowed. And rounding out the main contributors, alcohol wholesaling costs shot up as well as when your portfolio manager charges you 4.1% more and still loses money, you definitely deserve a drink (or 7).
Long-distance transportation and a massive 38% plunge in the cost of eggs did most of the heavy lifting to actually slow that growth you people reading this were desperately trying to jack up.
Just two days prior, we got the release of the Bank of America Consumer Checkpoint. Unlike official data primarily guiding our governing overlords, this is actual real-time, non-survey data that can actually give us a reliable clue about what’s going on.
Consumer spending, measured by household card spending, pulled back once again in April, growing at a nominal 0.3% monthly and actually falling by 1.2% annually for the first YoY decline since February 2021. Other highlights include:
- Growth in spending on services slowed to just 0.9%
- Workers earnings over $125k/yr saw wages decline 1.3% on a 3-month SMA
- Savings account balances remain at least >40% of that of 2019, on average
- Higher-income spending growth has slowed more than the middle and lower-income cohorts
It might not seem like it, but to the Fed, this is welcome news. A decline in consumer spending for the U.S. economy is like the Denver Nuggets paying without Nikola Jokic; we can keep moving, but it’s gonna be a lot less pretty.
But, the whole goal with beating the sh*t out of inflation is to do exactly that: slow the economy by slowing spending and demand for money, but hopefully not by so much that we enter a recession (fingers crossed). Moreover, declines in wages, especially at the top of the income scale, are kind of in a goldilocks position right now as lower-income earners tend to spend more of what they earn on goods and services, thus contributing more to the velocity of money that drives the C in the GDP equation (of which C makes up ~2/3rd in the U.S.)
Plus, that average uptick in savings, likely due to tax returns, is a massive buffer to the kind of crippling consumer profile that generally leads a recession.
So, while this definitely isn’t bad news, and JPow probably played his guitar a little extra this weekend on the data, it’s moving in a direction that markets see (for now) to be scary. Either the Fed nailed it, which is arguably more of a miracle than walking on water, or we could enter a recession in the not-so-far future.
As always, place your bets now, apes.
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