With this kind of demand, it’s hard to imagine that inflation will just vanish.
By Wolf Richter for WOLF STREET.
Americans are still flush with all kinds of pandemic cash and are still getting gushed by it from states that send out “inflation checks” and similar stuff. And they’re getting big pay increases, and much bigger pay increases when job hopping as there’s still huge demand for labor. And they’re still sitting on all kinds of capital gains, real or imagined. And they’re spending, and they’re easily outspending inflation.
Consumer spending on goods and services, adjusted for inflation – so “real” consumer spending – rose by 0.5% in October from September, seasonally adjusted, the biggest month-to-month increase in a year, according to the Bureau of Economic Analysis today. Year-over-year, inflation-adjusted spending overcame some earlier weak-spots and rose by 1.8%.
Spending rose not only on services, but also on durable goods, where spending was supposed drop as spending was supposed to shift to services, and it rose on nondurable goods. The slowdown in demand just hasn’t happened yet.
Spending on services, adjusted for inflation, rose 0.2% for the month, and by 2.8% from a year ago. It remains below pre-pandemic trend.
Services accounted for about 62% of total consumer spending; it includes healthcare, housing, education, travel bookings in the US, sports events, communication services, haircuts, auto repairs, subscriptions, streaming services, etc.
Spending on durable goods, adjusted for inflation, is the most amazing thing. Americans just don’t give up on buying stuff. There have long been predictions that spending on durable goods – vehicles, appliances, electronics, furniture, etc. – would revert from the levels of the most-overstimulated-economy-ever back to pre-pandemic trends. But that hasn’t happened yet. And in October, spending leaped.
Spending on durable goods, adjusted for inflation, leaped by 2.7% in October from November, seasonally adjusted. Year-over-year, spending rose 2.0%, thereby overcoming weakness earlier in the year.
In terms of inflation-adjusted “chained 2012 dollars,” spending jumped to a seasonally adjusted annual rate of $2.32 trillion, the highest since the crazy stimulus splurge in March, April, and May 2021.
Compared to October 2019, before the pandemic, spending on durable goods was up by 29% adjusted for inflation, as the consumer binge just keeps on binging.
Spending on non-durable goods, adjusted for inflation, rose by 0.3% in October from September, but was down by 1.4% from the stimulus binge that persisted through October last year. This was the third month in a row of increases, after some declines.
This category is dominated by food, gasoline, and household supplies. The spike in gasoline prices earlier in 2022 caused a significant decline in gasoline purchases, as consumers cut back on driving. But all is well now?
This goes to show that Americans are in no mood for a soft landing, or any landing, they’re in no mood for voluntarily cutting back and reducing demand which would be needed to remove some of the fuel from the inflationary fire. Americans are spending with gusto, and they’re outspending inflation, and they’re even spending on durable goods with surprising élan after the huge binge last year, and they’re just not wanting to slow down.
This may be another surprise waiting for us on the inflation front: that consumers haven’t gotten the message yet that the Fed is tightening and cracking down on inflation and that it needs the consumers to play along by buying less. With demand this strong, it’s hard to see how consumer price inflation will just vanish. So all eyes on next year: maybe next year, consumers will back off a little and remove some inflationary fuel.
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Fed needs to increase the QT to 100 billion each month
And start selling from their MBS portfolio, too.
I expect this will come to the forefront Q2 23 and discussions to be had Q1
They can’t because No one will buy this shit at Fed’s auction reserve price.
Mostly off topic.
So you can now secure a government backed mortgage in high prices areas for $1M with only 3% ($30K).
Oh, NO! No worries here! This is definitely, absolutely, for sure nothing like the subprime mortgages of the 2000’s.
There’s NO WAY this can go sideways or cause issues. Totally legit.
Need to, but absolutely will not.
If the National housing market takes a 25% dive from peak, to correct back to “normal prices”, won’t there be a lot of mortgages underwater that go to default and drag on these MBS like the junk they were selling in 2008?
this is funny
in Tucson, no one seems to have gotten memo
prices down maybe 5%
friend sold house on same street as mother in laws
her house I thought was $250 at ‘top’
he got $350k for bit nicer house in not so great neighborhood
multiple offers – sold in 6 days
I love these anecdotal stories of how the housing market is still booming in “my neighborhood” because my so-and-so put their house on the market and….
The 30YFRM just dropped 34-basis points. Everyone knows this but the Fed, I guess.
JayW,
Back in the summer of 2020, the bond market believed that the federal funds rate would go negative, and the 10-year yield dropped below 0.5%. Nothing is dumber than a bunch of idiots in the markets relying on their beliefs.
Second that motion. They really need to ramp up the MBS roll off.
Well it’s down like $93 billion the last 4 weeks so pretty close, right? Or did you mean increase it BY $100bb and not TO?
They need to remove money at the same rate they printed it, and I’m not sure why this is unclear to some folks… In the short term, rate hikes only affect really large purchases that often require multi-year financing like houses and cars or big business loans. However, the effect they have on a comsumer’s decision to go out to a restaurant or buy a new laptop only becomes clear much later in the tightening cycle when the consumer has lost their job!
Rate hikes are getting all the attention, but they’re not the right tool to fight over-printing. Our problem is that there is too much cash out there. If the Fed really wanted a soft landing, they’d be focused primarily on removing excess cash rather than choking off borrowing.
The Fed is using the wrong primary tool. They will fail. Something will blow up causing credit markets to freeze, and then we’ll be back to a worst case scenario chasing another financial crisis down the QE and ZIRP rabbit hole.
QT on that scale will probably benefit wage earners as the money they get paid then get more worth.
The thing is that both wages and prices are sticky, both with high inflation, with low and even with (monetary) deflation.
(Monetary)inflation is nice for assets owners when asset rise in value, but wages and other goods lag. The other way around, with deflation asset price fall and wages and goods lag. Not that nice for asset owners.
Wait. QT is already $95B. What?
Not one mention of QT w/ Powell yesterday that I saw (I missed a bit of it). People only talk rates.
It’s holiday season, kinda expected
January and February I expect things to be dry
All data here is seasonally adjusted. Holidays happen every year, and seasonal adjustments remove the effects.
Wolf,
Wondering if the seasonal adjustments are a little whacked due to the last couple of years being weird. Not sure how they work in reality, but could 2-3 years of pandemic weirdness ‘infect’ the seasonal adjustment to make it less indicative of longer term???
i.e. is it some form of averaging the last 3 or 5 years?
Also wondering if the strength is a function of the job market structure. Don’t the lower and more blue collar jobs that are relatively stronger have a higher propensity to spend, which not where the current layoffs are, which are more tilted towards the white collar/tech/higher end? This is intuition, but not sure it can be seen in actually data (yet).
It seems obvious from the charts that it’s an overshoot from the bottom that fell out in 2020. People are making up for lost time by cramming their closets full of the same not-so-durable goods you’ll see sitting on their front curb for bulk trash day 5 years from now. Because the Amazon logo is our second American flag; Because there’s a gland that goes wubwubwub whenever we put that hex wrench to work on a flat pack piece of future-garbage; because we’re a buncha newness-obsessed size queens; because “maybe these pants will win her back…”
That would happen in Nov, Dec, and Jan, which get the huge seasonal adjustments. But we’re out of the period where seasonal adjustments went haywire. That was the case big time in 2020, and to a lesser extent in early 2021. Things are largely back to the seasonal norms now.
I looked at the retail sales a few days ago, which are available seasonally adjusted and not seasonally adjusted, and everything seemed back to normal. But 2020 was wild, and I wrote about it at the time.
wolf – were is all central bank fiat $dollars going ??
japan, china, etc.
they are selling TRILLIONS of treasuries
who’s sopping that up??
1. Foreign investors didn’t sell “Trillions of Treasuries.” In September, their holdings were down by $274 billion from a year earlier. They still hold $7.3 trillion. So it was a small move, they reduced their holdings by just 3.6%.
2. Foreign investors hold only 23% ($7.3 trillion) of the $31.4 trillion in total Treasury securities.
3. Who’s buying: US investors, insurers, banks, pension funds, leveraged hedge funds, individual investors…. Look at the 10-year yield, 3.6%. This means there is HUGE demand for this stuff, or else the yield would be 10%, where it should be, well above the rate of inflation. Investors are delusional about rates and inflation, they drank the Fed-pivot Kool-Aid and they’re buying long-term Treasuries hand over fist.
So 50 point hike in December or 75?
Probably 50 bps.
Spending on durables perhaps motivated by fear of future higher prices?
the mindset in full force… 𝘴𝘵𝘪𝘭𝘭
jeff h, you are quite right.
A high-end made in the USA turntable, the ‘VPI Prime Signature 21′ was $7k one year ago. Today it is $9k.
Similarly, high-end made in the USA powered home subwoofers, of which I bought two a year and a half ago, were $2k per unit. Today they are $2.5k. (I really enjoy them & am glad to have bought them before the price went up.)
Wolf has accurately described this as an inflationary mindset that has taken hold of buyers’ decision-making.
Same thing happened the last time. Buy it now because it will cost more next week, month, year.
And then there are the things that just happen. Our kitchen flooded, large pipe break inside the exterior wall. Insane costs and we won’t get the cabinets until the end of January, at the earliest.
…fear of future higher prices?
That and, perhaps, the fear of shortages.
Spot on comment. People are going out and buying durable goods especially because they know the prices are going to keep going up so they’re buying now before the cash is worthless.
“fear of future higher prices”
Or maybe rational concern over future higher prices…
Could be. That would be a sign that the inflationary mindset is deeply ingrained already. That would be very bad news.
I have been extremely disappointed that I didn’t cave to the FOMO and actually buy a new vehicle two years ago, even if I had to pay MSRP. It proved to be a horrible mistake.
Now I am shopping massively overpriced used, low mileage vehicles because I don’t believe that Jerome Powell is sincere and expect inflation and prices to rage out of control. I’m not alone.
It ‘s going to be a long dragged out affair with the unemployment perking up. and the spending fire dying down; like the death of a thousand cuts but slower.
“It proved to be a horrible mistake.”
My 2000 model year with 225k miles died this summer and it took me three months to find a replacement…a 2010 with 93k. I could not believe what it cost, and as someone in my mid 50s I’m finding I could afford a reasonable new car when I was younger, but not anymore. You didn’t make a mistake, DC, you were responsible and accountable which has been punished beyond belief in this country.
For crying out loud DC it’s just a status symbol. Tiniest violin.. Just throw a new engine or tranny in your old vehicle or do you really need something overpriced and shiny?
DC I should taken that back, and I would if there was a delete button. Sorry. It was just too easy..
But wait… if you had bought a new vehicle two years ago, you would now have a banged-up 2-year old vehicle that is worth a lot less than it was. It always saves a lot of money to drive what you already have.
I’m glad I waited on lumber prices to fall, and they have considerably. Not so much other building materials, they are still way overpriced.
Vehicles are overpriced, everyone knows. But with the demand for electric rides trending, this transitioning market is going to be screwed up for years.
Brant,
>>I’m glad I waited on lumber prices to fall, and they have considerably. Not so much other building materials, they are still way overpriced.
I am still patiently waiting for hardwood floors and some other normally-expensive materials to go down in price. I made a conscious bet almost two years ago when I signed up for a new build with “all-default” materials almost everywhere hoping that the craze would be over and I would be able to pick nice hardwood floors and other improvement materials for cheap at some kind of a warehouse leftovers / excess sales. Nope, nothing even close I’ve seen so far. If anything, a lot of stuff actually went UP in price over the last 6 months and some stuff went up 50-70% or more.
I guess I made a wrong bet.
Your vehicle will last longer than you think, if you take care of it. My main vehicle (a Yukon Denali) I purchased a few weeks after 9/11 (at a steep discount!) and it is still in fine shape after 21 years and 310,000 miles. Preventive maintenance is cheaper than depreciation or a car payment. Of course, the 6 liter V-8 does eat a lot of gas…
Wholesale auction prices are now down to 2019 levels. Wait till Carvana goes belly up. You are going to get a much better bargain than two years ago if you just have patience.
Resale hording for after bankruptcy sales.
Might be something to that hoarding. I noticed a lot of resellers last year at this time hawking everything from cardboard puzzles to cars at 3X the original prices.
actually, the longer consumers keep spending the better. if the Fed has any guts they will increase the pace of QT. the sooner they get this under control the better.
Yes! And who is buying the crappy long term treasuries? Hmmm.
Long treasuries seem to be flying off the shelf. And it hasn’t been the Fed buying them for a long time. There’s no problem selling treasuries….,
“if the Fed has any guts they will increase the pace of QT.”
It doesn’t, and it won’t.
So the Fed, and everybody else, in light of ever seeing 2% inflation, are kind of — still partying. Who is steering this thing?
The engineer and the conductor and the fireman are in the dining car having cocktails.
I continue to say that the majority of people don’t keep a close enough eye on their finances to realize how much they are impacted by inflation. They get used to making purchases at a certain level and will continue to purchase at that level until something breaks.
Wouldn’t another factor here be the government student loan moratorium? I’m not sure if the scale is enough to make a large impact, but sure seems like it could be.
@Enlightened Libertarian
Come on, baby boomer.
We can all the way back to the Drysdale Affair and the S&L Scandal, if you like. Your generation “casino-ized” Wall Street and created this fiasco. Your generation is responsible for THREE asset bubbles (dot com, great recession and everything bubble)
I find it comical that boomers can be so sociopathic about college debt although your generation could only keep the economy afloat via fiscal deficits.
No, the same idiotic federal government policies created those asset bubbles – just different “smartest people in the room.” We’re reliving the Carter administration. I was fresh out of high school when inflation was double digits. It affected my ability to save but, through much sacrifice and long hours I’ve been able to save enough for my sons’ education, buy a home and retire, even though I save just barely enough to retire. Oh, and I paid my way through university. So, stick your baby boomer BS where the sun don’t shine.
Good tunes, though. Films, too.
Yep. I agree with you. My generation is the worst in history. I personally worked my butt off in the free market but I sure don’t blame the generations after me from being really pissed off. That’s why I believe in very high inheritance taxes, as long as those taxes go to pay off the deficit and there are restrictions on more borrowing.
But how many wrongs does it take to make something right? I don’t think borrowing money and then not paying it back is anything to be proud off. At least someone loaned you the money so you could get that degree. If you had picked the right degree you could have done very well.
I think it’s safe to say that each successive generation is dumber than the previous one. I’ve read a few that we’re living off the fumes of the Victorian age.
Plenty of my college students whine for special treatment, even for doing the absolute minimum required, if that. A few of the best do what I did: everything simply on time, and as required, with no complaints or special pleading. They miss more days in a semester than I have in 38 years of teaching.
I can scarcely imagine how this could produce a high-functioning, wealthy economy.
Maybe as tuition goes up the motivation of the student population goes down.
No, Lynn, it has nothing to do with tuition damaging motivation. As any responsible parent knows: don’t reinforce whining.
“Like a barefoot Frenchman stomping on grapes in an oak bucket.” Definition of whining by Bucky Katt in the comic strip ‘Get Fuzzy.’
Again, I am with you phleep.
In episode 3 of ‘Tulsa King,’ there is an explanation of college given to Tyler by Dwight (Sly Stallone’s character). I thought of phleep’s recent comment right away regarding the lack of punctuality in his current crop of students.
Of course, the original ‘Tulsa King’ is Mr. Wolf Richter.
We are the lucky ones that are not really affected by this inflation because of our lifestyle. One example, I just checked my recent grocery receipts and noticed a lot of items are the same price as they were a few years ago. Other items have gone way up, like red meat and I just stopped purchasing it altogether. Some items that have gone way up that I need, so I still buy. I just consume less. My grocery bill is around $250/week and includes non-food items. It will probably go to $300/week in the next year or so. SO WHAT.
It’s not the current $2600/year that concerns me. It’s the potential $26,000/year or $260,000/year that’s a worry. My income would not keep up with that.
1) AAPL monthly : NDX had Bar Mitzva, AAPL didn’t. In Nov 2022 AAPl
was red.
2) After Jan peak, in Apr 2022, AAPL plunged to Sept 2020 high, hugging it
for eight months. AAPL Anti BB : May 12/17 is slightly above.
3) The horizontal road to the top is about equal to the horizontal decline.
4) We don’t know if AAPL is a waterfall chart, or in large accumulation.
5) What we know is that most retailers and wholesalers have excess inventory, but AAPL have shortages. For fun and entertainment only.
The Fed has already been pushed into a 50 bp rate hike by the liquid crack addicted markets signaling a soft approach. No way do they accelerate QT
The Market spike is the money that saw this bait and switch coming.
No sense selling MBS at a loss to spite the face.
more observations and anecdotal evidence – visited a friend’s student daughter attending Tulane- student parking lot jammed with range rover’s – porsches- toyota 4 runnner’s- tesla’s – high end bmw mercedes – and they are new not used – our friend’s daughter is living is a gorgeous 3 bedroom – 3 bath luxury student housing with on site 24/7 exercise club – 24 hour concierge service – and when I kidded her about it she told she is living poor compared to most of the students ! ( she is excited about her upcoming month long trip to costa rica in feb!) she is in pre-law
Wolf,
With all the spending on goods and the likely rise in energy prices again next year do you think we could replay 2022 in 2023 and inflation shifts back into goods?
Curious what history tells us on this?
Thanks!
Very wealthy parents or lots of loans?
529 plans do not have any maximum for student housing costs. Obviously the sky is the limit. Where I live college students who parents have benefitted from sky rocketing 529 plan returns over the last decade are doing more than well. When my kids were in school in my state 529 plans were not available for housing, food, computer, books and fees. Never mind graduate school with no limit on deposits by grandparents. These are the same people who bitch about 10k in student loan forgiveness.
It’s been a few years since I checked, but $ value of luxury cars is off limits on the FASFA and CS Profile forms. Money in the bank accounts of the parents and students is fair game.
I will never bicycle down Broadway again. Those student drivers are the worst. So many over sized SUVs.
And she will have her student loans forgiven under this corrupt administration, in order to buy her vote.
We are all fabulously well-to-do now. Except for the poor.
Consumers still have a lot of excess cash sloshing around according to the US Department of Commerce and Wells Fargo Economics. The peak of household savings above Pre-Covid levels was about $2.1 Trillion in May of 2021, as of October of 2022 that has decreased to $1.3 Trillion .
The personal savings rate, according to the Bureau of Economic Analysis as of the October 2022 data is at 2.3%, which is with 20 basis points of the all time low in July of 2005 which was 2.1%.
Once the Post Covid stimulus runs out, consumers will be very vulnerable to any shocks to the economy.
I can only imagine that that personal savings rate is skewed: the top 1% accumulating the most savings and the lower 50% going negative. Just my guess.
“Compared to October 2019, before the pandemic, spending on durable goods was up by 29% adjusted for inflation, as the consumer binge just keeps on binging.”
Jerome Powell has concocted – unleashed – a speculative mania so monumental, so massive in size and scope, that it almost defies description. The idea that it’s going to quickly subside with a paltry 8 months of rate hikes to a fed funds rate which is 4% below CPI is laughable. No, it’s delusional.
Inclined to agree.
“,,,, a fed funds rate which is 4% below CPI is laughable.”
And about 11% below a true CPI – The one Volcker was forced to contend with.
“Americans are spending with gusto”
I suspect the rich – who are richer today than recent history – are spending at 3 x the rate of gusto.
I suspect the poor – who are poorer today than recent history – are spending at minus 1 x gusto.
Herein lies the tyranny of averages.
Herein lies the challenge of good management of both monetary and fiscal policies.
Maybe, but the middle and poor tend to spend what they earn and have less savings. The rich have an excess of income compared to what they can spend so they invest and save.
The poor in CA who made minimum wage in 2020 ($12/hr), now have a wage of $15/hour. That is a 25% increase in pay! All other wages are floating up. ie the former fast food manager who made $15/hour in 2020 is now making $20/hr.
To top that, every poor or middle person received $3200 in free stimulus payments. That is $6400 for a married couple. or over $10K for a family of 4. Are they saving it or spending it? That is $931B dollars pumped into to the economy.
The poor and middle have a 25% increase in pay plus $931B in cash. What are they doing with this windfall? Spending or saving?
My guess is spending (and driving up inflation).
The people who are having the most loss are the upper middle.
Their stock market investments are down 10-20% which they may have been living on or using as a down payment on a car or overpriced house.
They weren’t eligible for stimulus checks (maybe PPP “loans”).
They certainly aren’t starving but they likely did not get much of a raise during the last 2 years.
The psychology of losing up to 20% of your net worth while having a declining income with rising prices forces this group to spend less.
The rich barely notice inflation since food is not a major part of their budget, and if their paid-for mansion declines in price 10%, they don’t care.
The real money during the pandamoneum pandemic went to mid and large size corporations with good bank relationships
I apologize.
Even with a 25% increase in pay, I didn’t intend to make it seem that $15/hour was a living wage.
It is hard to live on $31K/year.
It is better than $12/hour which is 25K/year that they survived on in 2020.
I keep seeing terms like “windfall” when we talk about “post-covid stimulus”, but I am still not 100% sure what everyone is talking about.
Even in the calculation example you provided we are talking about a one-off payment of roughly $3000 per person. While $3000 is certainly better than $0, realistically it is:
– 1-2 months of rent or 1-2 months of mortgage payments OR
– a set of new tires + a few relatively major car repairs
– a year or less of car insurance
– PlayStation 5 and a gaming computer
– A deductible after an unexpected ER visit
– Several trips to Costco or Sam’s Club for a family of 4
– Less than a week of hotel stay during a high season
… any other unexpected or suprisingly large one-off expense.
So my bottom line is that I am still a little surprised anyone is still “discussing” those stimulus payments, unless I miss something. Of course, technically we can argue that once money is “injected” into the economy, it is there, but at an individual household level this money is very long gone, spent on some impulse buys or necessary expenses and/or eaten alive by massive inflation even in necessities.
Do these payments still really impact the economy by themselves? Or do we generally mean something different by a “windfall”?
I have had the very same thoughts. The Covid money got spent as fast as it came in. There IS a lot of money floating around but you can’t blame the covid money. It’s the money “produced” by the asset bubbles – people who sold a house or crypto suddenly had more money than they knew what to do with. Instead let’s the poor schmucks who were laid off during covid and got a measly $3000 to tide them over. Sure, it’s all their fault. NOT!!!!
Plus $800 billion in forgivable PPP “loans.” Plus other emergency pandemic loans. Plus the extra unemployment benefits. Plus all the corporate giveaways that included $50 billion in grants just for the airlines that then gave this money to their employees as buyouts to get rid of them. Plus all the money to the states and municipalities that is STILL being handed out, and on and on. Plus all the money that wasn’t spent on debt services because of government funded forbearance of student loans and mortgages; and the money that handed to landlords in compensation for eviction bans. All these people could use this money to buy stuff or pay down their credit cards, etc.
The government threw $5 trillion in borrowed money out there in a two-year time period, enabled by the Fed’s money printing. Over the first three months of the pandemic (March-June 2020), the government borrowed $3 trillion and the Fed printed $3 trillion. That’s how that worked.
You don’t see it because you don’t want to see it, as they say.
3K-10K per family is not much for them. However, when multi-millions of families are spending 3K-10K more than they did before, it adds up to a trillion to the economy.
Add in Wolf’s comment of another near trillion to the economy in PPP, it is real money.
Someone must eventually pay for this. Well, it is raising the GDP.
Thanks, Wolf, I never even thought about PPP loans and other giveaways in this context. And not really because of “You don’t see it because you don’t want to see it, as they say”, but rather because *unfortunately* I somehow “missed” all those handouts and apart from those 2 or 3 stimulus payments my son and I got (+ a ~6% increase in my pay over the last 18 months), I have not seen any extra “inbound” money. I have not missed a single rent and – later – mortgage payment. Yet I’m seeing A LOT of extra “outbound”, almost every time I hit ANY store or pay almost any bill, with some very few exceptions.
That said, I am still puzzled how so many people seemingly have so much extra cash on hand (aka “what I did so wrong to not become one of those people lol”)
Wolf’s rebuttal here is right on! All in two paragraphs!
Instead of all the pandemic boondoggles, they could have handed every American family $25K.
THAT explains why everyone targets those Range Rovers, BMW’s and Mercedes’s!
That is a different psychological effect. What are the neighbor Jones’s spending their windfall on?
That will likely have a bad end if most of it includes high priced loans.
With the $2B Powerball last month, I did some research. Most multi-million dollar lottery winners end up broke before 10 years.
Is this human nature or just poor education? I’m sure the 10K Pandemic windfall is being spent much quicker.
Good thing I didn’t win. :-)
But, but, but …. what a way to go!
Jerome Powell was asked by somebody from JP Morgan why he prefers an approach of “somewhat restrictive and staying there a long time” versus a “shock and awe approach which is very restrictive but for a shorter period of time.” The reporter followed up with “I ask that because there’s some evidence that the sacrificial ratios are lower in a more aggressive regime.”
Jerome Powell got bitter beer face and demonstrably defensive, scoffing, “I think we’ve been pretty aggressive, I’d say. No, I don’t ummm, I don’t agree. We wouldn’t (pause) just raise rates and try to crash the economy then clean up afterwards.”
The problem is JP is fighting the Fed and State government as well. They are still sending out cash. Have a student loan forget it. Live in CA or MA and the state is sending you a check, even when they have debt on the books that should be paid down first.
Spoke to a realtor friend last night and asked him about the slow down and he laughed in my face and said it’s busier than ever due to the limited inventory. Those with cash still have cash and are buying.
2022 slowdown nope. 2023?
The problem with JP is that he is JP and part of the FED arson squad that set the fire.
And everyone scoffs when Biden talks about how amazing the economy is doing. He’s not wrong!
Have to wonder if the collapse in housing demand is being redirected into some of these spending metrics. Can’t afford a down payment on a house anymore? Just spend all that money on durable goods!
I do think the student loan pause is playing a role here as well as thousands of people have hundreds of extra dollars/month floating around. This along with the massive windfall of cash many people walked away with while selling their homes over the past few years. Probably a dozen other factors could be mentioned that are bullish for consumer spending as well.
Until employment numbers shit the bed, I doubt we see a meaningful decline in consumer spending.
The inflationary mindset is ingrained.
Who wants to hang on to continuously worth-less dollars?
The only reason for hanging on to any dollars is the hope that income producing assets will fall faster than the dollars inflation adjusted purchasing power.
That’s what happens when larcenous bastards create dollars to bail out favored insiders. You become worth-less, or worthless.
The fact is that we are in an environment where income producing assets are losing value, and do to several factors, will continue to do so for the foreseeable future. This in turn changes the dynamic for bond investors, and as this trend continues puts upward pressure on Treasury rate interest.
The vast majority of the National Debt (more than 75%) is financed by short term bills and notes, which is where you see the highest interest rates. As asset values continue to fall, it provides options for short term Treasury investors to consider, and thus provides upward pressure on interest rates.
Anyone who believes that the FED can step in and stop this dynamic really does not understand the size of this market, and the mechanics involved.
It seems to me if that if we do get that soft landing—moderating inflation without a severe recession, no real estate crash, etc— everyone will be celebrating EXCEPT the woeful readers here on Wolfstreet who are hoping for some sort of economic and societal collapse.
Neil,
Lots of people here will be celebrating when/if inflation ends.
Neil is a reckless gambler, blinded by greed and his own selfish interests, taking pot shots at the people hurt by inflation.
NA, A lot of people will NOT be celebrating. For example, the Real Estate industry, and the lending industry is not one of them that wants to see this inflation end. They love this inflation. They are making a killing on the high price of homes. Higher commissions for realtors and loan officers is one of them. Tricking new buyers into overextending themselves to buy a home they cannot afford and making all the upfront fees associated with the home purchase. Promoting legislation to re-distribute income to potential home buyers from people who are so broke that they can barely afford rent. How about home flippers and other speculators who are milking this inflation for their own personal gain. I could go on and on.
Neil
A more accurate depiction of a WS reader is someone who decried obscene money printing, low interest rates and the engineered and interventionist fantasy of a risk-free economy, out of concern it would all come crashing down.
This is the opposite of your contention. This site is read by people who have sought to avert economic and social collapse.
Next time, you might want to demonstrate your position, critical thinking and evidence. I’m all for the counter-argument but you have left the impression that if we all smile in unison, the world will turn out just fine.
A soft landing is not remotely possible. I have outlined my reasons on other occasions.
@ Neil –
Why do you describe readers who think inflation and high prices are bad, as woeful?
What would lead you to believe that a soft landing is a possibility? This is something I fail to understand.
Economics and mathematics are two sides of the same coin, and the laws of mathematics, like physics, dictate that for every action there must be an equal and opposite reaction.
When assets are temporarily overvalued, based on irrational emotions, there must be a correction in their valuation at some point. This requires not only a revision to the mean, but usually beyond the mean.
When more money is loaned on those assets, than the intrinsic value of those assets, then those loans are in danger of default. Those defaults are by definition money destruction.
Boom cycles are at their heart, pyramid schemes, where those who get in early and get out prior to the collapse do well, and those who stay too long get monkeyhammered.
Boom cycles end in crashes, not in soft landings. The size of the crash is correlated to the size of the boom, and the degree of moral hazard that it has caused.
This is not the hope of doom and gloomers, it is the simple fact of how things work. It is an endless cycle.
The problem with all this is the “inflation numbers” are a fantasy. Adjust the numbers for the real inflation rate, and the consumer is sucking wind just trying to keep his head above water.
Friends of our sold their rental at the top of the market. While they looked around for their move up home, prices kept going up.
They decided to redo the house they are in – everything. They do have some saved, but see that they can’t have what they want by moving.
As it always is, it’s a case of wanting more and more and more. There is no contentment in their lives.
yep, most folks live in huge footage dwellings way beyond what they need.
Post-divorce I lived for five years in a glorified dojo; two metal cups, two metal plates, two place settings…hi-fi gear, books, and a set of weights in the garage. Oh — and a mattress. Done. Basically camping indoors. Some of the most spartan and very best years of my life.
In my brother’s bachelor days he described his lifestyle as that of “a bear with furniture.”
Good times!
bulfinch, sounds good. I’m just wondering why you had two plates, cups, settings. You must have been expecting company. Great idea. Monastic life for retirees? No floor wax, just polishing with a rag until the wood shines… one robe… a cushion (or two, if you’re entertaining), one bowl for begging. Windows? Not really necessary. How about the lot that it sits on? No taxes if it’s a house of worship.
I have a friend in orange county ca
They own 3 homes here and their current home is 2k sq ft and they are empty nester
They are buying another home 3k sq ft as current home is too small for 2 old people
The greed never ends
Correct: it never ends.
I always wanted a home with enough spare space at one end of the living room for an indoor badminton doubles court. Never did get one.
“Americans are still flush with all kinds of pandemic cash and are still getting gushed by it from states that send out “inflation checks” and similar stuff. ”
I live in Idaho and the state, by law, operates on a fixed budget. When tax receipts are down, they cut spending. When the coffers take in too much, they return it to taxpayers,
I just got a $600 check, because things must be rosy at the state level.
I look at it like they took out too much taxes, more than they should have, and then send reimbursements back to tax payers for overpaying if they meet their budgets.
However, a tax payer could have invested that money for 6 months in a bond and got 3-4% over that time. They send checks out because they over taxed people, but appears like a gift.
It is a nice rebate on taxes.
However, it is kind of socialist.
Colorado sent everyone the same amount. It wasn’t based on how much you paid in taxes. If you filed and paid no taxes, you received the same amount as someone who paid 100K in taxes.
Ditto, but I’m sure it beats Illinois.
And that pays for what? A couple of baskets of groceries? Not exactly a windfall for anyone…..
Exactly right. Whoa, Marge, I got $600 here. I am set for the rest of my life, swimming in this excess cash!
But 4M people received $750 in Colorado.
That is $3B dollars being pumped into the local economy driving up demand and prices for everything.
Then there are California’s inflation checks, which can go up to $1,050… the average is $544. So far, the state has sent out $6.2 billion, to 21 million people. And they’re still going out. They’re all going to get spent. This is paid out of the huge pile of pandemic money that California sits on.
You have to ponder the sheer amount of corruption on all levels that it takes to have that amount of money basically stolen and spent on things other than the the so called emergency it was approved for. Of course none of this is political………
Today i received 2000% more interest income from my savings. I subscribed for foreclosures in my area, I was getting one a month, last weeks I am getting 10 a day. Is this something?
Worker, as they say all real estate is local. Just being curious, where is your locale?
Is it just the upper 50% spending or all of us? This could increase divisiveness.
Workers at the lower end of the wage scales got the biggest pay increases.
They also got hit hardest by increased cost of living…..
Yes, but Jramsey’s question — “Is it just the upper 50% spending or all of us?” — was on SPENDING, who was SPENDING. That’s what I replied to.
No one said anything about them being better off.
I agree. Minimum wage folks got a 25% increase in wages over the last 2 years. You’d think with inflation at 6-10% that they’d be doing well.
They are doing well with some extra cash but at the current CA minimum wage of $31K/year, they aren’t doing that well. They can buy more bread and a few extra luxuries but not more houses.
One other comment.
If you give an extra $1,000 to the each of 50% of the poor and middle class, that will drive purchases, demand, GDP, and inflation more than giving $1M to the 1% wealthy class.
The wealthy will yawn and put it into their stock account. The middle and poor will spend to improve their lives. Spending will drive GDP and inflation.
The majority of what minimum wage folks spend their money on is rent, food, and gasoline. Rent and food is up 25% in two years, and gas has doubled. It is pretty hard to see how they could be doing well. Their spending is up because they have to spend everything they earn regardless..
From what I can tell, most of the wage inflation is happening at the low end. Also, the richest people (those with significant investments) have lost a ton of money in the last year whereas poor people have gotten higher pay and “relief” cheques, and they didn’t have stocks – so the market going down doesn’t impact them.
The only thing more insane than housing prices or NFTs is the fact that
PEOPLE KEEP SPENDING
JFC, have none of them heard of saving for a rainy day? Because even though I’m not the smartest, or the most experienced person here — not by a long shot! — even I can tell there’s a storm coming.
It puts me in mind of some of the lyrics from that song by Jessica, in “Who Framed Roger Rabbit?”
If you had prepared twenty years ago
You wouldn’t be a-wanderin’ from door to door
Why don’t you do right, like some other men do?
Get out of here and get me some money too
Sounds silly, yes? But I fear that many, MANY people won’t be laughing inside of a year
How about “The big, bad wolf and the three little pigs”? (generic wolf…)
US is a society composed mostly of grasshoppers expecting the ants to support them in good times and bad, forever.
With the laxest credit standards ever in the last 30 years, it’s been possible to live above your means, default on your debts and file bankruptcy, and then in short order, do it all again.
Recently, paying people more not to work than having a job.
Yes, it’s insane and that’s what makes it a mania.
That’s why I agree with the 25% increase in minimum wage during the last 2 years.
If you are going to be an ant, at least you should eat well while you are working hard.
The rich grasshoppers will do OK but not as well as they used to while living on unearned stock income and low employee wages.
The “safety net” seems to be a bit wide at this point. It is narrowing with unemployment benefit applications very low. Why should anyone collect long term unemployment when jobs are plentiful?
The buoyant markets and consumer spending suggest a dream world to me. Why would I want to be edging further out on a limb of financial risk at a time like this? Evidently most folks don’t think like that. They take the candy that is in front of them.
I put my money on tightening my belt a few notches further than ever, and increased my savings 20%, despite higher outlays. Which I guess is 10% increase in real terms, even with the higher interest income.
Delayed gratification – that’s why you’re a professor rather than a brick layer. The society needs both of yous guys.
“The buoyant markets and consumer spending suggest a dream world to me. Why would I want to be edging further out on a limb of financial risk at a time like this? ”
Maybe because they have been conditioned to believe they are entitled to minimum living standards at someone else’s expense no matter how irresponsible and financially incompetent they are?
It’s going to take an extended period of “meaningfully” declining living standards to kill off the manic psychology of the last 25+ years.
Virtually no one believes this will ever happen. It’s like, no matter how terrible the fundamentals actually are (since this economy is only sustained by artificially cheap money and the loosest credit standards ever), “it’s different this time”.
I have felt that we are on the edge of a serious reckoning for at least five years. Getting tired of being wrong, and glad I didn’t make any big financial bets on that inkling. In hindsight, my best financial moves have been those I made against my pessimistic instincts.
People just keep finding a way to avoid/delay what seems so obviously inevitable.
well I have a bunch of this symbol and will be printing huge returns as the holy grail in CNS help is here…I’m going to cause some inflation..
Tomorrow is going to be insane
I just read this piece and EVERY comment…. Wolf wrote a piece yesterday w/ a headline of.. “These Crazy Rallies on Hawkish Fed Plans Are Good Because….” where the idea seems to be that this gives the Fed room ro do it’s thing…
Only 1 person mentioned the markets and the Wealth effect…I would offer the opinion that people were beginning to realize that the markets were in a tailspin. 401K’s and personal wealth were falling with projections they’d be falling a bunch more and not necessarily snap back like in the pandemic rally. The this 20% move in a short time, going into the holidays, gave many folks the green light to spend again. Most have been conditioned since the GFC that the markets just bounce back and everything will be back to normal, no matter what the economists say. Recession? Most people don’t see it. Inflation High? Well.. gas has come down and food SEEMS to be stabilized…
So… it (for most folks) seems to be business back to normal. Housing and the markets are (my guess), the 2 biggest assets most people have. Even with the crashing housing markets, anyone who bought a house at least 3 years ago have increased equity.
Most everyone in the markets after the HUGE run over the last 8 years, especially thru 2021, their portfolios have still seen out-sized gains and any fear of a crash has dissipated with this HUGE rally..
I was hoping someone in that Brookings Institute room had the balls to ask JP, if you’re trying to tighten financial conditions thru interest rates and QT, don’t these “irrational exuberance” moments these last 7 weeks loosen conditions and send a message at odds with what you’re trying to accomplish here?
While I understand Wolf’s POV in that piece, I would prefer to see a more choppy up and down market. It doesn’t have to crash (yet?), but it doesn’t have to Fight The Fed with these HUGE rallies.
It is my fear that MORE people will get sucked into the habit BTFD no matter what now and will find a ton of folks with bloody hands and fingers from catching (at some point) the falling knives…
Disclaimer: YMMV, I could be wrong lol
“I was hoping someone in that Brookings Institute room had the balls to ask JP, if you’re trying to tighten financial conditions thru interest rates and QT, don’t these “irrational exuberance” moments these last 7 weeks loosen conditions and send a message at odds with what you’re trying to accomplish here?”
Yep, that’s why I’m keeping my eye on the NFCI/ANFCI… it shows exactly what you bring up above. Now when THAT shows some real tightening around ‘Leverage’, I think we may be making some progress.
What is NFCI/ANFCI ?
Thanks Wolfgoat, I wasn’t aware of this index until you mentioned it… it measures weekly the amount and change of tightening/loosening financial conditions in money markets, debt and equity markets and the traditional and “shadow” banking systems…. VERY interesting…
https://www.chicagofed.org/publications/nfci/index
FOMO to YOLO….Tons of millions $ made off markets prior to QE. Some folks cashed out their casino chips at or near the top and reinvested earning before bottom. I don’t think some truly realize how much wealth was created from IPO’s and stocks at record prices. If you add in PPP loans given away without recourse, Student loans payments moratorium. U got a never ending shopping spree. COLA increases due In January,
“Some folks cashed out their casino chips at or near the top and reinvested earning before bottom. ”
Sure, “some”. Where is the evidence it’s meaningful?
Most “investors” are terrible market timers.
Spending on durable goods..
Is there a chance some of that is foreign buyers ordering from American companies, some stuff online? Particularly high value stuff like vehicles, and hmm… IDK, washing machines? IDK, seems like a weird outlier.
“Is there a chance some of that is foreign buyers ordering from American companies,”
No, that would count as exports.
Consumer spending data is obtained by massive surveys of consumers who live in the US at US addresses.
Well, I have a roof over my head.
With Amazon, as my true overlord/employer…
Who knows what is ahead.
ibid
“And they’re still sitting on all kinds of capital gains, real or imagined.” So ReFi’s are down, but is HELOC usage up? Where are people getting access to the cash to spend? Most people aren’t sophisticated enough or are too lazy to have any passive income, so the cash is coming from someplace easy, correct? I have tons of anecdotal evidence of people WAY outspending their income for home renovations or upgrades to larger homes.
You underestimate the huge amount of money and income Americans have — not all Americans, not the homeless, and not the poor, but lots of Americans, and they sit on huge gains in home equity, stocks, and other stuff, still despite the sell-off. This idea that the US is somehow populated by only poor people is just nuts.
HELOC balances:
https://wolfstreet.com/2022/11/25/consumer-bankruptcies-foreclosures-delinquencies-and-collections-free-money-still-doing-the-job/
Point taken, thanks for the reply. I’m from the upper Midwest, where people would whisper about you in church if you had enough money to have your barn painted. Still, it blows my mind when a pair of $80k a year first-time homebuyer associate professors buy a new $960k McMansion. I could write a check for their house, but it makes me throw up a little bit thinking about paying that much for 2500SF on a postage stamp lot.
DD – yes, I can remember barber shop discussions of someone that could afford to HAVE the barn painted as opposed to the family painting the barn themselves.
It depends on your perspective. The median wealth in the US is about 95K meaning roughly half the population has a net worth below that number.
IMO a net worth of 95K puts you about a hop, skip, and jump from a homeless shelter in a serious economic downturn and a couple of bad breaks….
Exactly right. I never suffered during my working career and in my retirement I am comfortable and want for nothing. My seven children all make way more money than I ever did and buy houses and Teslas like there’s no tomorrow. Lots of people out there like them.
I don’t see comments on one factor I’ve noted, that is playing into the “overbuying”: we are emerging from a traumatic pandemic, with the virus still threatening. The future is a LOT more uncertain, not just financially, than it was in 2019. People, having escaped the Covid bullet so far, want to buy enjoyable goods and services now, because Life Is Short. Why deny yourself today, when 10 years from now Covid may still be circulating, supply chains could be even more snarled, investments may have lost value rather than gained. We’ve lost confidence in the future.
Not sure I trust the BEA to make the inflation adjustment correctly. Are the consumer spending reports reliable? Maybe not, in my opinion.
In my little world I have not had a single friend, acquaintence, co-worker, neighbor or family member say that they made that big purchase now because they feared it would cost more next year or the year after etc. In fact alot of them have said they could probably have waited and gotten a better deal in a few years (friend who bought the rv, neighbor who bought the tricked out truck just for camping only, etc) but they had the $$ now so why not now.
People want what they want and they want it now and they will just pay what it takes.
We are a spoiled society, used to prosperity purchased mostly with borrowed money. We can always afford what we want, but struggle to afford what we really need. If the bottom falls out of the economy, you are going to see a whole lot of people you thought were well off, going broke in a hurry.
I always say, people love to complain about when the cost of their needs goes up (food, gas), but love to brag about how much they spent on a want – like a luxury car, house remodel or vacation. To me it’s the hallmark of a childish mentality but we are regressing as a society back to a collective childlike mentality.
” Buy NOW and Pay later’ is in full swing, along with YOLO.
No surprise here.
I think we have enough data points that during normal economic times, the average American consumer will spend what he or she makes, and go into at least a bit of debt.
The only way to curb spending seems to be either terror (they or folks they know are getting laid off) or semi-mandatory house arrest. These are usually “transitory”.
Not sure if it means domestic inflation is highly linked to domestic consumer consumption. Since a good component of price is impacted by the global economy, dollar is strong, and some major economies are doing worse, I think some info on global inflation and global consumption would be helpful,
savings rate crashed, more plastic debt, stocks and real estate both down, no refinancing real estate, crypto blow ups, used car values down, high interest rates, QT, etc etc etc…………….all say, spending drops…………
The “savings rate” is one of the most mis-quoted data points. It has nothing to do with “savings.” It’s the difference between “income from all sources” and “personal consumption” for consumers overall. How many trillions they made, minus how many trillions they spent on consumption items, divided by how many trillions they made.
During the stimulus phase, lots of consumers got lots of money from stimulus checks and PPP loans down to extra unemployment benefits. This was a HUGE spike in income. Even in late 2021, consumers still received a lot of that money. Now that spike is gone, and income is from normal sources. That’s why the “savings rate” fell because income plunged from the sky-high stimulus levels.
I’m an elder millennial who lives in Silicon Valley, and I have accepted that I will NEVER be able to buy a house here. So why shouldn’t I spend like there’s no tomorrow? There isn’t! There’s no 30-year job security anymore anyway, even if a house were say $500K instead of 3X that.
All we have is today. So yea fuck it, Apple Watch Ultra and iPhone 14 Pro Max and Audis and $40 takeout every night. Whee!
So why don’t you move to a less expensive part of the country? Americans have a right to make stupid purchase decisions and many do, regularly.
Being poor when you are young is tolerable, being poor when you are old really sucks……. You will probably be old a lot longer than you think.
You forgot the hookers and blow.
Yeah it’s all the consumer’s fault …… Workers just refuse to play along anymore because the power has shifted towards Workers and they know it
Want to really lower inflation? Have Corporate volunteer to cut their record Profit Margins ….. But of course that’s never going to happen so why expect Workers/Consumers to bear the brunt?
There are two types of inflation, demand – pull and cost – push. The US experienced the latter when the supply chain was disrupted by the pandemic and greed by the S&P 500 companies (note 2021 profits precipitously rose faster than inflation). Powell in November ’21 changed his mind on transitory inflation after the S & P had got theirs. Coincidence?
This leaves us with the other cause, namely demand – pull. This inflation is a mindset of the customer that I had better buy it now before it goes it up. This maybe the reason why consumer expenditures are rising as fast they are.