Inflation Rising While Wages Are Falling

Inflation Rising While Wages Are Falling

 

Holy hump day – markets look to be rockin’ and rollin’ again today after this morning’s data releases from the Bureau of Labor Statistics.

 

First on the dance floor is the U.S. Consumer Price Index (CPI), which rose more than expected.  Headline figure increased 0.5% seasonally adjusted, over the prior month versus expectations for 0.3% increase and 2.1% over the last 12 months, not seasonally adjusted, versus expectations for an increase of 1.9%. Excluding food and energy, rose 1.8% nsa, versus expectations for 1.7%. The recent market fears that the Federal Reserve is going to get more aggressive in how quickly it takes away its loose policy punchbowl are only going to get worse after this report. Hello volatility, we didn’t think you were done with us!

 

Most areas saw price increases over the past year, with the exception of commodities less food and energy, declining -0.7%, new vehicles -1.2%, used cars and trucks, -0.6%, and apparel -0.7%. These declines reveal the lack of retail pricing power, even on the auto lot, reinforcing our Cash-Strapped Consumer investing theme as well as the deflationary power of our Connected Society theme whereby consumers are able to quickly compare prices without incurring any meaningful costs.

 

Next up is the Real Earnings Summary, also from the Bureau of Labor Statistics, which found that real average hourly earnings for all employees actually declined -0.2% from December to January, seasonally adjusted. Nominal earnings rose 0.3%, but the 0.5% increase in CPI wiped out that gain. What is even more disconcerting is that the over 80% of the population in the Production and Nonsupervisory Employees category saw their real average weekly earnings declined by 0.8% over the month thanks to both a decrease in real average hourly earnings and a 0.3% decline in average weekly hours. Year-over-year this group saw real average weekly earnings rise a meager 0.2% – again reinforcing our Cash-Strapped Consumer investing theme. Who can possibly feel better off when their weekly take home is basically the same as it was last year?

 

For all the talk of an accelerating economy, the over 80% of workers in the production and nonsupervisory category have now seen their real average hourly earnings decline in 5 of the past 6 months! Remember this when you read about how high Consumer Confidence has reached.

 

Roughly 70% of the economy is dependent on Consumer Spending. Over 80% have seen their earnings decline in 5 of the past 6 months while Consumer Credit has been rising. How much more can they spend?

Wage Gains? Once again mainstream gets it wrong

Wage Gains? Once again mainstream gets it wrong

This morning as I made myself my first of what is likely to be many cups of coffee given a rather poor night’s sleep, I found myself once again facepalming at the financial news media. First let’s look at the Earnings Report issued this morning from the Bureau of Labor Statistics. Yes, that was the first thing I read this morning at 5:30am PST – there is a reason friends have suggested therapy. According to the report, for all employees,

Real average hourly earnings were unchanged, seasonally adjusted, from February 2016 to February 2017. The unchanged real average hourly earnings combined with a 0.3-percent decrease in the average workweek resulted in a 0.3-percent decrease in real average weekly earnings over this period.

Yes, you read that right. Over the past year, all employees actually made less on a weekly basis. But it is even worse if you are part of the 80 percent that are non-supervisory. For that group,

From February 2016 to February 2017, real average hourly earnings decreased 0.3 percent, seasonally adjusted. The decrease in real average hourly earnings combined with no change in the average workweek resulted in a 0.4-percent decrease in real average weekly earnings over this period.

So why am I all huffy about the mainstream financial media before even having my second cup of joe? As I waited by my Nespresso machine for that desperately needed first cup, I clicked on a link on my iPhone’s home screen to a CNBC article on retail sales. I direct your attention to the third paragraph below, for the full article click here.

Seriously? Decent pay gains? Really? What would be indecent? This is why investing can be so darn hard for those that actually have jobs other than scouring the data for themselves. Once again we get evidence of just how false the prevailing narrative can be.

If we look at today’s Retail Sales report from the U.S. Census Bureau we see that,

Retail trade sales were up 0.1 percent (±0.5 percent)* from January 2017, and up 5.9 percent (±0.7 percent) from last year. Gasoline Stations sales were up 19.6 percent (±1.4 percent) from February 2016, while Nonstore Retailers were up 13.0 percent (±1.8 percent) from last year.

So let me get this straight. People are making less this year than last, but sales are up pretty substantially. Oh yes, and home prices are also up. Not to be a Debbie-downer, but this divergence doesn’t sound all that sustainable to me. If anything it sounds like more cofirming data for Tematica’s Cash-strapped Consumer investing theme.