The Weekly Update 7/14/2023
Below I have listed Sign #7 of July 2023’s Seven Signs of a Changing Economy™ for your review. It is very important to “see” inflation leaving while the economy continues to grow. Very positive.
Where to find it:
www.bls.gov/ppi/ or www.bls.gov/cpi/
What to look for:
An interruption to the consistent but modest increase in the cost we all pay for goods and services
(Neutral) [Turned negative in May 2022 and moved up to neutral June 2023]
Like the combined profits (earnings) growth of Corporate America above in Sign #6, please observe the Gross Domestic Product (GDP) numbers below. Remember this is data flow from the Bureau of Labor Statistics (BLS), i.e., highly likely to be true and accurate, and again show me where the Armageddon hit!
2019 = +2.08%
2020 = +4.10%
2021 = +2.30%
2022 = +2.60%
1Q2023 Third Estimate 6/29/2023 = +2.00%
2Q2023 “Live” Estimate +1.80% [Source: Atlanta Fed GDPNOW estimate for 2Q2023 as of 6/27/2023]
Yes, I do see the 2022 GDP at +2.60% versus the Atlanta Fed estimate for full-year 2023 as of 6/27/2023 of +1.80%. A reduction in growth, for sure.
To this I will add that +1.80% growth on a $26.529 trillion economy is stunningly good! For comparison purposes, Russia’s entire economy as of 3/2023 is $2.133 trillion, i.e., we are 12.43 times bigger economically! We are 6.6 times Germany’s $4 trillion and 44% bigger than China’s $18.3 trillion. And, we are growing, those three are in contraction. Hmmm!
It is very likely to get even better as inflation is melting away faster than an ice cube on Flamingo Road in Las Vegas in August! Check it out.
The Producer Price Index (PPI) measures inflation at the factory “input” level. This month’s data continues to support the fact that we have seen the peak of inflation increases with input costs continuing to drop again this month. More importantly, let’s look at the trend:
March 11.70% -------- likely peaked
May 1.50% (observe that as May 2023 entered at +1.50% May 2022 rolls away from 11.10%. An 86.50% reduction in input costs!)
As June and July of 2022 roll off the YoY comparisons, expect the next monster reported on your news source to be “deflation”! As I write this update, the June 2023 PPI will not release until July 14, 2023. So, knowing chemical cost inputs are down nearly -5%, my guess is PPI will report at +1% for June 2023 while June 2022’s +11.20% rolls off. Inflation is over for now.
Like the PPI above, the Consumer Price Index (CPI) appears to have peaked. In the data flow below notice the peak in the CPI appears to be in June of 2022 versus March of 2022 above on the PPI. Historically, there is about a 3-month lag between when the input costs for PPI go up, or down, and when the causal effect hits the CPI.
The Consumer Price Index (CPI) is meant to measure inflation at the household level. This month’s CPI came in at 6.40% (still high), but again, let’s look at the trend:
June 9.10% -------- likely peaked
(if “real time” housing costs were used, like those from www.apartmentlist.com, May CPI would be +2.09%, not +4.20%)
Again, a timing issue on the CPI data release date, so knowing “real time” housing costs are down, my estimate of June 2023 CPI is +3.40, and dropping to 1% by fall. Notice that peak CPI in June 2022 rolls off! Sign #7 remains Neutral, but if I were more aggressive it would move up to Positive. Maybe next month.
I’m interested in your thoughts, comments, and observations. Feel welcome to call, email, or stop by the office and say Hi.
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.