Member Briefing May 31, 2022
Inflation Slowed In April But Remains High
The Personal Consumption Expenditure (PCE) price index slowed sharply in April, increasing just 0.2% after several months of accelerating at more than twice that pace and 0.9% in March. Over the last 12 months, the key inflation measure slowed to 6.3% from 6.6% in the prior month, according to the data. Excluding volatile food and energy goods, the increase in the “core” PCE price index was a more modest 4.9%. PCE is the Federal Reserve’s preferred price gauge.
- The slowdown in headline inflation does not coincide with a similar decline in core inflation.
- Forward-looking measures give little reason to think the inflation tide has turned.
- The price level data from April shows no anticipatory effects of the policy.
Invasion of Ukraine Headlines
- Ukraine and Russia: the Latest News – Reuters
- WHO Condemns Russia’s Aggression in Ukraine in Rare Vote, Rejects Moscow’s Counter-Proposal – Reuters
- America Has an Opportunity to Lure Russia’s Tech Talent – The Economist
- Bombed Bridges, Closed Ports Keep Ukrainian Grain From a World That Needs It – WSJ
- Biden Rules Out Sending Weapons to Ukraine that Can Strike Inside Russia – Financial Times
- Russian, Ukrainian Troops Fight Block by Block in Key City – Politico
- European Union Pledges to Curb Oil Purchases From Russia – WSJ
- The Putinologist: CIA Chief’s Long History with Putin Gives Him Special Insight – Politico
- What is America’s End-Game for the War in Ukraine? – Financial Times
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
US Consumer Sentiment Dropped in Early May to Lowest Since 2011
Consumer sentiment dropped by 9.4% between April and May, according to preliminary survey data released by the University of Michigan on Friday. That reversed the short-lived gain seen in April when sentiment was helped by a moderation in gas prices, which had been rising in response to the war in Ukraine. At 59.1, the consumer sentiment index fell to its lowest level since 2011.
Other data points tracked by the same survey, including current economic conditions and consumer expectations, also fell. Americans consider conditions for buying durable goods, such as furniture or appliances, to be the least favorable since the question was first included on the survey in 1978.
Rising US Wages Support Spending in April
American wages continued to rise in April, supporting an ongoing increase in consumption in the face of an inflation wave that nonetheless shows signs of waning, according to government data released Friday. U.S. personal income rose 0.4% compared to March, while personal consumption expenditures (PCE) gained 0.9%, slowing from the gain in the prior month, according to the Commerce Department report.
Personal income increased $89.3 billion in April, while disposable personal income rose $48.3 billion and expenditures increased $152.3 billion, the report said. Outlays on services were the biggest element, led by food services, but also hotels, housing and utilities.
US COVID – Deaths Hover Near Lows, But Older Americans Still at Risk
Covid-19 deaths in the U.S. are hovering near the lowest levels since the pandemic hit, showing how a population with built-up immune protection is less at risk of severe outcomes even as another wave of infections flows through the country. The nearly 300 deaths reported daily are again more concentrated among older people, underscoring hazards for the more vulnerable while the overall population appears less at risk.
Particularly vulnerable people, such as those who are older and immunocompromised, will likely always have some risk of death from a Covid-19 infection, doctors and public-health experts said. Increasing booster rates and access to treatments, in addition to taking certain precautions, can help lower the threat presented by the virus, they said.
NYS Vaccine and COVID Update –
Vaccine Stats as of May 27:
One Vaccine Dose
- 90.6% of all New Yorkers – 16,606,813
- In the Hudson Valley 1,727,135
- 77.4% of all New Yorkers – 14,902,785
- In the Hudson Valley – 1,522,387
- All New Yorkers – 8,495,802
- In the Hudson Valley – 1,028,607
The Governor updated COVID data through May 27. There were 23 COVID related deaths for a total reported of 71,497
- Patients Currently in Hospital statewide: 2,483
- Patients Currently in ICU Statewide: 234
7 Day Average Positivity Rate – Cases per 100K population
- Statewide 7.37% – 41.41 positive cases per 100,00 population
- Mid-Hudson: 8.27% – 41.93 positive cases per 100,00 population
Hochul Orders Independent Review of State’s Pandemic Response
Governor Hochul announced her intent to launch a “fully objective” and wide-ranging investigation of the state’s response to the COVID-19 pandemic last week. The goal, she said, is to learn “the good, the bad, and the ugly,” including decisions that may have allowed the virus to run rampant through nursing homes and related facilities leading to thousands of deaths (Our own Bill Hammond, and others have been asking, nay, begging for something like this).
Critics are taking a “wait and see” approach, pointing to previous independent reports criticized for misleading the public.
Budget’s Historic Spending Hike Shown in Financial Plan Update
State operating funds spending is set to rise this year by $14 billion or 12 percent, after adjusting for accounting maneuvers. That’s a near-record increase in state-sourced spending, even discounting for inflation. That’s as per the Enacted Budget Financial Plan (Plan) that the Governor’s budget office quietly issued late last Friday afternoon
More broadly, total (all funds) spending flowing through the Albany budget is set to rise to $222.2 billion this year, an increase of $49.2 billion or 28 percent in the three years since the pre-pandemic 2019-20 budget cycle. And yet, the Plan optimistically forecasts that the increased tax take fueling most of the new spending —largely resulting from rate hikes on top earners enacted in April 2021 and scheduled to expire in 2027 — will keep the budget balanced while enabling annual multi-billion-dollar reserve deposits that create by 2025 a cushion of 15 percent of state operating funds ($19.4 billion) to guard against a revenue shock.
First-Quarter GDP Declined 1.5%, That is Worse Than Thought
First-quarter gross domestic product declined at a 1.5% annual pace, according to the second estimate from the Bureau of Economic Analysis. That was worse than the 1.3% Dow Jones estimate and a write-down from the initially reported 1.4%. The pullback in GDP represented the worst quarter since the pandemic-scarred Q2 of 2020 in which the U.S. fell into a recession spurred by a government-imposed economic shutdown to battle Covid-19. GDP plummeted 31.2% in that quarter.
Downward revisions for both private inventory and residential investment offset an upward change in consumer spending. A swelling trade deficit also subtracted from the GDP total. Economists largely expect the U.S. to rebound in the second quarter as some of the factors holding back growth early in the year subside.
Not Even Microsoft is Immune to the “Great Hunkering Down” In Tech
Microsoft is slowing hiring for its Windows, Office and Teams software groups, Bloomberg reported Thursday, joining a growing list of tech companies that have pumped the brakes in the light of the economic downturn.
All new hires must now be approved by Rajesh Jha, Microsoft’s executive vice president, and his leadership team, a company spokesperson told Bloomberg. The hiring slowdown is not companywide and is specific to those teams, as they’ve expanded recently. The spokesperson said that Microsoft will continue to grow its headcount overall this year and “will add additional focus to where those resources go.”
UK Introduces Windfall Tax on Energy Companies
The UK introduced a 25% windfall oil and gas tax. Prime Minister Boris Johnson’s Conservative government became the first to put into action an argument that the energy industry has profited too much from a surge in commodity prices that are stoking inflation. About 5 billion pounds is expected to be raised, which will finance a one-time payment of 650 pounds to about 8M of the poorest households.
Pro Statement: “The oil and gas sector is making extraordinary profits,” Chancellor of the Exchequer Rishi Sunak said in Parliament. “Not as the result of recent changes to risk taking or innovation or efficiency, but as the result of surging global commodity prices.”
Con Statement: The tax “sends the wrong signal to the whole sector, against a backdrop of rising business taxation elsewhere,” Rain Newton-Smith, chief economist at the Confederation of British Industry, told the BBC.
How Xi Jinping is Damaging China’s Economy
After nearly two months the lockdown of Shanghai is easing, but China is far from being covid-free, with fresh outbreaks in Beijing and Tianjin. More than 200m people have been living under restrictions and the economy is reeling. Retail sales in April were 11% lower than a year earlier. Although some workers are living on factory floors, industrial output and export volumes have dipped. For the full year China may struggle to grow much faster than America for the first time since 1990, in the aftermath of the massacre near Tiananmen Square.
It is Mr Xi who bears much responsibility for the twin blows to the economy. The first is his zero-covid policy, which has been enforced for 28 months. The party fears that opening up would lead to an exit wave that could kill millions. That may be true, but it has wasted precious time: 100m people over 60 are not triple-jabbed. It refuses to import more effective Western mRNA vaccines. The second shock, a series of economic initiatives that form what Mr Xi calls his “new development concept”. The goals are rational: to tackle inequality, monopolies and debt, and to ensure that China dominates new technologies and is fortified against Western sanctions. Yet in all cases Mr Xi believes the party must take the lead, and implementation has been punitive and erratic.
American Shoppers Boost Retailers With Spending on Work Clothes, Discount Staples
American shoppers boosted spending at department stores and discount chains, showing resilience amid inflationary pressures that have weighed on consumers and dented results at many big retail chains. Macy’s Inc. and Dollar Tree Inc. reported strong sales increases in their most recent quarters. Those results came as shoppers spent more on clothing for work and special occasions, while turning to discount chains for necessities to offset rising costs for food and fuel.
“Consumers are still spending, but headwinds are getting increasingly fierce,” Macy’s Chief Executive Jeff Gennette said in an interview. He added that its lower-income shoppers—those with household incomes of $75,000 or less—are trading down to less expensive items while middle- and higher-income shoppers have been less affected by inflation. Macy’s executives said they expect consumer spending to become more constrained as the year progresses, weighed down by inflation, rising interest rates and a falling stock market.
FDA Chief: Formula Shortage Won’t End Until July
The nation’s infant formula shortage likely won’t be fully resolved until late July. During a Senate Health Committee hearing, FDA Commissioner Robert Califf said it will take time to get to the point when store shelves are fully stocked but that eventually there will be a surplus.
The nation’s infant formula shortage likely won’t be fully resolved until late July, the head of the Food and Drug Administration (FDA) told senators Thursday.
During a Senate Health Committee hearing, FDA Commissioner Robert Califf said it will take time to get to the point when store shelves are fully stocked but that eventually there will be a surplus. Abbott is one of only four companies responsible for an estimated 90 percent of the U.S. formula market. The FDA and Abbott are operating under a legal agreement to reopen Abbott’s facility, but there have been conflicting statements about when that might happen. This week is a good bet.
Businesses Brace for Consumers to Rein In Spending
Many of the companies whose mission is to know the U.S. consumer are bracing for a shift in spending as inflation rises and stocks wobble. They are bringing back more bargains, cheaper store brands and rewards programs for shoppers who want to save where they can even as some continue to spend robustly on everything from apparel to pet food.
New product selections, prices and marketing from some of the country’s biggest consumer brands and retailers are the latest signs of how the pace of inflation and the Federal Reserve’s recent decision to raise interest rates are upending daily life for many Americans. Many shoppers, especially from wealthy households, still have plenty of spending power, according to data released Friday by the Commerce Department, and overall retail sales remain strong. But consumers’ sentiment has dropped to its lowest level in more than 10 years, according to data from a University of Michigan survey released Friday.
Labor Negotiations Underway for West Coast Port Workers
Ongoing labor negotiations have far-ranging implications for some of America’s busiest ports and the manufacturers that depend on them. The International Longshore and Warehouse Union represents marine clerks, foremen and longshore workers employed by 29 West Coast ports. The Pacific Maritime Association represents about 70 employers including some of the biggest container carriers and terminal operators on the West Coast.
The ILWU contracts are scheduled to expire on July 1, and in November, the port workers declined an offer to extend the current agreement for another year. The more than 22,000 workers represented by the ILWU are an integral part of the Los Angeles and Long Beach port system, which handles about 42% of all U.S. containerized trade with East Asia.
The talks are taking place amid high levels of port congestion throughout the U.S. If the two sides cannot come to an agreement, a worker’s strike could exacerbate preexisting logistical shipping challenges.