The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.1 percent in June on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the index increased 1.1 percent before seasonal adjustment.
Similarly to April and May, a decline in the energy index caused the seasonally adjusted all items decrease in June. The index for energy decreased 2.9 percent in June, the same decline as in May, with a decline in the gasoline index accounting for most of the decrease. This more than offset an increase in the index for all items less food and energy, while the food index was unchanged for the second month in a row.
The index for all items less food and energy rose 0.2 percent in June after increasing 0.1 percent in May. A broad array of indexes posted increases, including shelter, apparel, used cars, medical care, tobacco, and recreation. These increases more than offset declines in the indexes for household furnishings and operations and for airline fares. The 12-month change in the index for all items less food and energy remained at 0.9 percent for the third month in a row.
One Month Change in CPI-U
12-Month CPI-U Change vs. Year Ago
Oil and the CPI
For, now the CPI (less food and energy) has been hovering near +1% for about a year. However, it is not really valid to exclude food or energy but the Fed does it to justify their inflationary policies (policies that clearly are not working now).
The jump in "all items" in the second chart reflects the rebound in oil prices in Spring-Summer of 2009 when crude soared from $35 a barrel to close to $80 a barrel.
Of course hyperinflationists were screaming every step of the way, conveniently ignoring the plunge from $140 to $35.
When it comes to prices, people have selective memories. They remember every penny uptick in gasoline prices, but forget the times they drop. The same applies to most everything else, but energy is very noticeable because people are constantly filling up their tanks.
May CPI and Core CPI were out this morning. As we all know, nothing is worth anything anymore. Until further notice and some change in trend, the discussion simply cannot be about inflation.
Sorry, Inflationistas. Nothing to see here just yet. Now if only the drop in cost of living expenditures could become a favorable topic of conversation to counterbalance all the moroseness and hand-wringing…
On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4 percent in November, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months the index increased 1.8 percent before seasonal adjustment, the first positive 12-month change since February 2009.
Most of the change was due to energy; gasoline was up sharply (as we saw yesterday in the PPI.)
Core was a literal zero.
Food was up a bit, but I continued to be puzzled by the difference between gasoline and "fuel oil."
Why? Because "fuel oil" (that is, heating oil) is exactly the same thing as #2 diesel – that is, road diesel fuel. The only difference is the tax (and the presence of dye in the heating oil to denote that the tax has not been paid.) But for the legal (tax) issues you can run "heating oil" in your diesel car or truck, and vice-versa – they are identical products.
Used vehicles were also up materially – a reflection of the distortion from "cash for clunkers" still present in the data (it hit its maximum in October at +3.4%) Prices for new vehicles were also up (again, the maximum was in October) – again denoting the "back-door" bailout of the automakers from cash-for-clunkers. Unlike the new vehicle deal however, which you got a tax credit for, the buyer of a used car just got plain old-fashioned screwed through price-jacking caused by constraints in supply. (Just wait though – in the new year when people can’t make the payments on those CFC deals, you’ll see what happens to used car prices…. supply and demand you know.. )
Medical care was up as usual (gee, how come it keeps rising faster than overall inflation?) and shelter costs were down (remember, this is not "housing", as that would expose reality – it is "owners equivalent rent")
All in all a blah report – but given the PPI that’s expected – the fun and games in the CPI report resulting from yesterday’s PPI should show up in a month or two.
Here is an excerpt from today’s Bureau of Labor Statistics Non-farm Payrolls report.
"The unemployment rate rose from 9.8 to 10.2 percent in October, and nonfarm payroll employment continued to decline (-190,000), the U.S. Bureau of Labor Statistics reported today. The largest job losses over the month were in construction, manufacturing, and retail trade.
Household Survey Data
In October, the number of unemployed persons increased by 558,000 to 15.7 million. The unemployment rate rose by 0.4 percentage point to 10.2 percent, the highest rate since April 1983. Since the start of the recession in December 2007, the number of unemployed persons has risen by 8.2 million, and the unemployment rate has grown by 5.3 percentage points…
The civilian labor force participation rate was little changed over the month at 65.1 percent. The employment-population ratio continued to decline in October, falling to 58.5 percent."
An astute reader noticed that the BLS press release says that 190,000 jobs were lost from payroll employment, but the number of unemployed persons increased by 558,000. What’s up with that?
The BLS report consists of two independent data samples. BLS has two monthly surveys that measure employment levels and trends: the Current Population Survey (CPS), also known as the household survey, and the Current Employment Statistics (CES) survey, also known as the payroll or establishment survey.
There is the "Establishment Survey" which is based on responses from a sample of about 400,000 business establishments, about one-third of total nonfarm payroll employment. The headline payroll number, the job loss of 190,000, is based on this data.
Then there is the "Household Survey" which is a statistical survey of more than 50,000 households with regard to the employment circumstances of their members, which is then applied to the estimates of the US population to obtain the unemployment number. This survey was started in the 1950′s and is conducted by the Census Bureau with the data being provided to BLS. It is from the household survey that more detailed information is obtained about employment statistics within population groups like gender and age, wages, and hours worked. It is this study that is responsible for the unemployment rate of 10.2%.
So which survey is correct? Neither. The truth is somewhere
Fantastic dish served up at Jesse’s Cafe. Highly recommended – especially if you’re a normally intelligent person who can’t understand economics. It has nothing to do with you! Imagine being an inquisitive medical student at the time when blood-letting was used to treat all ills… I loved this:
"The ugly truth is that economics is a science in the way that medicine was a profession while it still used leeches to balance a person’s vapours. Yes, some are always better than others, and certainly more entertaining, but they all tended to kill their patients."
Why the Austrian, Keynesian, Marxist, Monetarist, and Neo-Liberal Economists Are All Wrong
US Personal Income has taken its worst annual decline since 1950.
This is why it is an improbable fantasy to think that the consumer will be able to pull this economy out of recession using the normal ‘print and trickle down’ approach. In the 1950′s the solution was huge public works projects like the Interstate Highway System and of course the Korean War.
Until the median wage improves relative to the cost of living, there will be no recovery. And by cost of living we do not mean the chimerical US Consumer Price Index.
The classic Austrian prescription is to allow prices to decline until the median wage becomes adequate. Given the risk of a deflationary wage-price spiral, which is desired by no one except for the cash rich, the political risks of such an approach are enormous.
On paper it is obvious that a market can ‘clear’ at a variety of levels, if wages and prices are allowed to move freely. After all, if profits are diminished, income can obviously be diminished by a proportional amount, and nothing has really changed in terms of viable consumption.
The Supply side idealists (cash rich bosses, Austrians, Marxist, monetarist, and deflationist theorists) would like to see this happen at a lower level through a deflationary spiral. The Keynesians and neo-liberals wish to see it driven through the Demand side, with higher wages rising to meet the demands of profit in an inflationary expansion. Both believe that market forces alone can achieve this equilibrium. Across both groups runs a sub-category of statism vs. individualism.
Unfortunately both groups are wrong.
Both approaches require an ideal, almost frictionless, objectively rational, and honest economy in…
Another mixed bag of data this morning. Most alarming is the continuing trend in negative consumer data. As we all know by now, yesterday’s retail sales data was weak at best – something we’ve been reporting on here at TPC weekly thru our ICSC and Redbook data reports.
Consumer sentiment readings continue to trend in-line with broader spending habits. This morning’s reading came in at 63.2 – almost 5 points below consensus. This continues to represent the broader economic themes we are seeing; deflation in the things we own and inflation in the things we need.
CPI came in flat which is reflective of the sluggish economy. This morning’s data was in-line with estimates at 0%. The lack of pricing power across the broad economy is in-line with the lack of expansion in corporate revenues. There is little demand for goods and even less pricing power. I’d love to spin this into a positive, but it simply displays the death grip that deflation continues to maintain on the broad economy.
On the bright side, capacity utilization and industrial production posted slight improvements. This is a clear sign that the recession is likely to end in the upcoming quarter. Unfortunately, the rebound in both indicators show clear signs of the sluggish and below trend recovery we are likely to see. It won’t be a technical recession, but it will probably continue to feel like one.
All in all, this morning’s data nicely summarizes the themes we continue to focus on here at TPC. The consumer is weak, deflation remains the bigger concern and the recovery (if we can call it that) is likely to be far from v-shaped. As for the markets, complacency remains the name of the game. Own equities at your own risk – which I believe are highly elevated currently….
So, I got lucky and somehow predicted Q2 GDP the night before the release (as a friend of mine told me, "even the blind chicken gets the kernel of corn"), BUT I’ll try again. Economists (smarter than me) are predicting a month over month CPI print of 0.0%. I’ll go on record here that it will come in lower. To understand my reasoning, lets take a look at details from today’s July import price levels release. Marketwatch reported:
Prices of imported goods fell 0.7% in July, the first decrease since January as petroleum prices declined, the Labor Department estimated Thursday.
Analysts polled by MarketWatch had expected the import price index to fall 0.1%.
Import prices were down 19.3% in the past year, the largest annual decline since the data were first published in 1982. In June, the import price index rose a revised 2.6%, compared with a prior estimate of a 3.2% gain.
In July, imported petroleum prices fell 2.8%, the first decrease since January. The petroleum imports price index is down 49.9% over 12 months. Non-petroleum import prices fell 0.2% in July, and are down 7.3% for the year, the largest 12-month decline since the data began publication in 1985.
We can see below that the change in the import price level was largely driven by the change in fuel (i.e. petroleum) prices.
Now the significance. There has been a very strong relationship between the price level of imports and broad CPI, as changes in the price of petroleum has been the main driver of CPI. Thus, the fact that July’s import prices declined makes me think we may be in for a surprise regarding July’s CPI print. The below chart shows the longer term relationship.
Regardless of the month over month figure, expect a sizable drop in the year over year number. As we can see below, prices spiked last July as the bubble in oil was in full gear. Thus, if prices are flat month over month (as expected), the year over year CPI will move down to -1.9%.
The important question… how do you position for this? I personally own TLT (a long positon in the long bond). My view is if CPI comes in lower than…
Inquiring minds are asking "What is the Real CPI?" It’s a good question, too. However, you can find many widely differing opinions. For example, you will get one answer from the government, a different answer from sites like Shadowstats, and a third opinion from me.
That’s an interesting chart, especially given the hyperinflationary bent of John Williams. He pegs the CPI at 2% as of May 2009 and had it at 9% mid-2008 and right around 5% in 2007. In contrast, the official CPI was 5.5% in mid-2008 and 2+% in 2007.
The problem with all of those numbers is they fail to properly take housing into consideration. And housing has been falling like a rock.
Should housing be in the CPI? How?
Bear in mind the government considers housing a capital good not a consumption item. Based on the idea that one would be renting a house if one did not own it, the government uses Owners Equivalent Rent (OER) and not housing prices in the CPI. OER is the largest component in the CPI.
By the same measure one might argue that lawn mowers and automobiles are capital goods. Lawn mowers are durable, not immediately consumed, and if one owns buildings and uses lawn mowers to maintain their properties (or if one hired someone to cut their lawns for them), the mowers would indeed be depreciated over time as a capital expense. The same logic also applies to auto leases.
Let’s explore this from a practical standpoint starting with theory.
Page 47: The treatment of owner occupied housing is difficult and somewhat controversial. There may be no consensus on what is the best practice. The distinctive feature is that it requires the use of an extremely large fixed asset in the form of the dwelling itself.
Page 147: The treatment of owner-occupied housing is arguably the most difficult issue faced by CPI-compilers. Equally important it may be difficult to identify a single principal purpose for the CPI.
In particular, the dual use of CPIs as both macroeconomic indicators and also for indexation purposes can lead to
Echoing statements I have made many times, PIMCO says the single currency area must become a "United States of Europe" in order to secure its future.
Please consider Eurozone can't survive in current form, says PIMCO. The eurozone is "untenable" in its current form and cannot survive unless countries are prepared to cede sovereignty and become a "United States of Europe", the manager of the world's biggest bond fund has warned.
The Pacific Investment Management Company (PIMCO) said that while the bloc was likely to stay together in the medium term, with Greece remaining in the eurozone, the single currency could not survive if countries did not move closer together.
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
Well, it didn’t take long for the bulls to jump on their buying opportunity, with a little help from the bulls’ friend in the Fed. In fact, despite huge daily swings in the market averages driven by daily news regarding timing of interest rate hikes, the strength in the dollar, and oil prices, trading actually has been quite rational, honoring technical formations and support levels and dutifully selling overbought conditions and buying when oversold. Yes, the tried and true investing clichés continue to work -- “Don’t fight the Fed,” and “The trend is your friend.”
In this weekly update, I give my view of the cur...
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While I'm not going to argue the point about the possibility that Bitcoin drops to $1, or less, (that could happen yet, but not for the reasons you propose) I felt it necessary to point out something you seem to have overlooked.
While it's likely that the US government watching Bitco...
Bullish trades abound in Cypress Semiconductor options today, most notably a massive bull call spread initiated in the July expiry contracts. One strategist appears to have purchased 30,000 of the Jul 16.0 strike calls at a premium of $0.89 each and sold the same number of Jul 19.0 strike calls at a premium of $0.22 apiece. Net premium paid to put on the spread amounts to $0.67 per contract, thus establishing a breakeven share price of $16.67 on the trade. Cypress shares reached a 52-week high of $16.25 back on Friday, March 13th, and would need to rally 4.6% over the current level to exceed the breakeven point of $16.25. The spread generates maximum potential profits of $2.33 per contract in the event that CY shares surge more than 20% in the next four months to reach $19.00 by July expiration. Shar...
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PSW Members - well, what a year for biotechs! The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down! The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months. What could go wrong?
Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.
Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies. A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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