Inflation rate skyrockets as retail workers quit and President Powell deflects
Wow, talk about a double blow detail headache that got miserable! First the workers quit, then the PCE (personal consumption expenditure) index for May hit its biggest inflationary increase in 29 years!
The Commerce Department released its PCE figures on Friday morning and the index hit 3.4% (excluding food and energy) after rising 3.1% in April. Clearly, from the trend index, inflation is within reach – but is it “transient” as the government says? Federal Reserve Chairman Jerome Powell told a congressional oversight committee inflation was higher than expected, but it will prove temporary. President Powell said that “a fair amount (or perhaps all of the inflation overrun) comes from categories directly affected by the reopening of the economy.”
When the PCE increase was announced, the stock market was probably worried for about a minute – before reacting with a yawn. The lukewarm reaction of the market was largely due to the fact that the inflation figure was “anticipated” and the month-to-month increase was not that bad. However, among all the data provided, they seemed quietly unaware that consumer spending was flat in May – and that personal income also fell by 2%. These large numbers remain a concern for retailers, especially as they see spending slowing in a growing economy – with new incoming inventory arriving to catch up with anticipated sales.
The double headache started when consumers started entering through the retail front door, while workers began to aggressively exit from the back. The Ministry of Labor released its April turnover figures on June 8e and the actual number of “QUITS”In the retail trade has exceeded the“list of job losers”With a huge percentage increase. In total, around 4 million people quit in April and (of them) 649,000 were employed in the retail trade, which was the highest number for the industry in around 20 years.
Thinking back a few months, wasn’t the Paycheck Protection Program (P3) supposed to preserve retail jobs during COVID? Now, with a reasonable reduction at hand, the workers are leaving on their own. Some employees said they were challenged by dealing with customers, or just too stressed to continue; while others quit their jobs to seek new opportunities because they felt it was time to graduate from the retail environment. The troubling conclusion to this problem is that retail is seen as a “bell” industry and should be leading America’s recovery from the pandemic. However, data indicates that retailing still has 419,000 jobs behind (more normal) April 2019 levels, which is concerning. Some blame the additional unemployment benefits which are seen as too generous. But, perhaps in an awkward degree of confirmation, the NY Times commissioned an online research survey that actually showed 52% of those polled wanted the added benefits to end immediately.
In order to increase employment levels, retailers will have to pay their employees more (which many see as a good thing), and it’s safe to assume that once base wages increase, they won’t go down. Add to that higher inventory costs, and retailing in America could easily tip the scales toward more serious inflation. Remember, this is all happening in plain sight, as the government continues to tell everyone that the inflationary situation remains “transient”. Hopes to the contrary are based on data such as the (recently lowered) lumber commodity price – simply because falling lumber prices are said to be a symbol that “all commodity prices Will stabilize after a few very small bumps in the road.
The constant “inflation or transient” drumbeat (reinforced by the media) is somewhat reminiscent of the TV meteorologist who predicted the weather from a windowless office. When asked how he could predict without looking out the window, he replied, “I use radar and computer model simulations and that tells me all I need to know.
On my last visit to his meteorological office, it was a sunny day and the meteorologist predicted little chance of rain. However, on the way back I encountered a torrential thunderstorm and pulled off the road. Sitting in the pouring rain with thunder and lightning all around, I called the meteorologist (in his windowless office) and said, “Maybe it would be a good idea to stick my head through the window of time in time !”
The problem with reading all of these data points is that some government officials (and TV experts) are trying to predict economic weather without looking out a window or even walking down Main Street in the United States. All they have to do is see any retail stores that are still closed – or try to buy something that costs more than before. Instead, experts mix up the conversation by calling America the “ATIONnation. They predict everything from inflation to deflation to stagnation. As one ‘ATION’ gains popularity in the media (like inflation), other analysts predict that another might to rear his treacherous head – like trying to argue for deflation.
Deflation is interesting to discuss – because it seems so unlikely and could only happen if the value of inflation drops below zero. It’s really hard to imagine any possibility for this theory, when we know that our demand right now is outstripping supply – which is pushing up prices. But, what if demand has been increased by the many pandemic months of no spending, coupled with the extra money the Biden administration has pumped into the system; what if the offer was also limited by the same circumstances? Economists tend to look at this scenario and wonder if liquidity in the economy just has less intrinsic value, and then overall stock market valuations would be out of sync with the real economy – which might be obvious if demand stabilizes. and supply exceeds demand, lowering profits. In this case, the Fed’s ability to make adjustments becomes much more difficult and prices will suddenly drop dramatically, causing the stock markets to fall.
For example, it remains extremely difficult in this economy to bite the bullet and pay $ 1 million for a house that you know is only worth $ 600,000. With housing supply limited and mortgage rates artificially low, inflation allows the dollar to buy cheaper property for much more money. In the same scenario, if more homes become available and demand drops with the value of the dollar – then the million dollars you just paid – might only be worth $ 600,000 and that’s basically deflation – in a word.
Speaking with fashion retailers, they make it clear that costs are rising at a rapid rate, and they don’t expect prices to drop anytime soon. Last year the price of cotton was $ 0.63 per pound and today it is $ 0.86 per pound (which is 36% higher). The cost of coloring materials has also increased, as has the cost of knitting and weaving raw materials. The cost of labor is on the rise, the cost of packaging is on the rise, and the cost of shipping is also on the rise. In fashion retail, it’s also hard to get workers – for a multitude of reasons (plus they’re quitting now – as the data shows).
No matter how you look at it, the double-puzzle retail puzzle is at stake, and big box stores are watching their inventory-to-sales ratios with a keen eye. Allowing for inflation, large retailers need to increase their assortments more cheaply – just to keep their overall inventory in line with sales – and to fill their space. Small retailers are forced to do more with less. And while all of this is happening, consumer spending has just stabilized and it could easily recede – increasing inventories and reducing sales.
The problem also extends to the restaurant industry, where some reopening has stalled because managers cannot recruit enough workers. A neighborhood restaurant has delayed its reopening until September because it needs 45 people to run its midsize business and it cannot fill the niches. For restaurants already open, food prices are on the rise and drink sizes have shrunk, all in an ongoing effort to cover costs. Better restaurants are pushing the “steak for two” to help hide the price of a steak for one, and martini bars have been forced by savvy patrons to increase their martini prices to get the full-size glass. Back in the pre-COVID days, a good martini cost $ 15, then it went down to $ 18, and some in the tony Hamptons of New York have jacked the price up to $ 22. To top it off, Katz’s Deli’s incredible hot New York pastrami sandwich is now at $ 24.95 and you must be wondering: is it just a price hike, or is our dollar worth it. less?
The bottom line for inflation watchers is that prominent Democrat, Harvard economist and former Treasury Secretary Larry Summers is probably right, and federal officials who could better control rising inflation – might want to stop hide in the “transient” sand and – like the windowless meteorologist – start looking out! For an hourly employee with a fixed salary, who is not invested in the stock market, everything is just more expensive at the moment. Inflation, no matter how you translate it (or try to explain the word) – is a real risk to the U.S. economy and it’s hitting Main Street hard right now.
A recent quote from Mr. Summers is worth revisiting:
“We print money, we create government bonds, we borrow on unprecedented scales (and) these are things that surely create more risk of a sharp fall in the dollar – than we had before.
And – sharp declines in the dollar are much more likely to translate into inflation than they historically were.
Will Rogers, the American comedian, easily explained it all in two crystal clear quotes:
· “I am not a member of any organized political party, I am a democrat”
· “I don’t make jokes; I just watch the government and report the facts “