Trend watch and what’s new this week
Good news for all those taking an international vacation this summer; The U.S. is relaxing the negative COVID-19 test requirement for travelers entering the U.S. beginning next week. That may be partly due to the trend of new COVID-19 cases (slide 6), which appears to have stalled. Similarly, the percentage of hospitalized COVID-19 patients has stalled (slide 8), while the rate of hospitalizations declined again in the past week.
The activity-based data (slides 5 and 7) remained solid this past week, there was some week-to-week hiccups. For instance, air passenger counts jumped above 15.6 million for the week, but restaurant bookings, hotel occupancy, and temporary staffing slipped WoW. The hiccups appear to related to the timing of the Memorial Day holiday.
Hot headline inflation readings continue, but the composition and core views showing a different picture
The bad news for summer vacation travelers – spiking gasoline prices are going to put a big dent in your budget, whether you’re taking a road trip or flying.
Inflation, as measured by the Consumer Price Index (CPI), continued to heat up in May, up 8.6% from a year ago (slide 9). Energy prices were the primary cause (slide 9), which was largely driven by higher gasoline prices (slide 10). Unfortunately, gasoline price will likely continue to climb for the foreseeable future due to the fallout from the Russia-Ukraine conflict. On slide 11, we show the key components of consumer inflation.
However, the pace of core CPI, which excludes food & energy, held steady in May and softened on a year-over-year basis (slide 12). Used car prices coming back down to earth (slide 13).
Consumer sentiment has crashed in June
With inflation is seemingly everywhere, consumer sentiment has continued to sour. The University of Michigan Consumer Sentiment Survey crashed to the lowest level since the survey began in 1978 (slide 14).
Finally, on slide 15, we show that moviegoers are returning to theaters in 2022, apparently enticed to see big-budget blockbusters such as “The Batman” and “Top Gun: Maverick,” which were released after a nearly two-year delay.
The hotter inflation readings are certainly disappointing and add to the cross currents within the economic data, whereby some data are strong and others are soft. These cross currents make it difficult to get a “clean” read on the health of the U.S. economy.
Even within the inflation data, both the composition of inflation (what’s driving it) and core CPI components are showing a different picture. For instance, the pace of goods prices (non-food & energy) slipped MoM in May, while services prices actually fell slightly in May (excluding energy). Similarly, as we showed on slide 13, used vehicles are moderating compared to last summer and earlier this year.
Another point that appears to be completely lost in the widely-held inflation and recession narrative: this inflation has surprised to the upside because nominal growth remains robust. Indeed, we acknowledge that inflation greatly impacts the behavior of consumers and businesses. However, if inflation was having the enormous impact some believe, then demand would be declining and prices would, too. But that simply has not happened.
Of course, continued robust nominal growth also feeds the “Fed is going to overtighten” narrative. On this point, we agree that the Federal Reserve (Fed) has a very challenging task – cool inflation by raising interest rates but don’t interrupt the strong recovery. And do it in real time with incomplete data.
At least one segment of the U.S. economy is seeing demand cool in response to higher interest rates – housing. Nearly every housing-related metric has rolled over in the past few months from construction and mortgage indicators to prospective buyer traffic. The exception has been home prices, which have largely continued to climb due to tight supply. Here, too, inventories have started to rise, and price should begin to soften in the coming months.
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