PCE, Stocks and Economic News: Live Updates

Inflation picked up strongly and wage growth remained robust into late 2021. At the same time, consumer spending fell in December as a surge in the coronavirus outbreak kept many Americans at home and congestion of a persistent supply chain that has disrupted holiday shopping.

Those indicators, released on Friday, highlight that despite the sharp drop in the unemployment rate and strong recovery In terms of growth, the economy – as well as the country itself – has yet to come out of the grip of the pandemic. That is making for a confusing and contradictory moment in 2022.

Rising prices and the pandemic are slowing spending, denting consumer optimism and denting the ability to quickly pay wages and unusually rapid overall growth. People are predicting worse financial outcomes for themselves and higher inflation as the virus persists and uncertainty grows, bad news for policymakers, who are just beginning to try to contain the upside.

The Personal Consumption Spending Index, the Fed’s preferred inflation gauge, rose 5.8 percent in the year ended December, up from 5.7 percent the previous month. Prices are rising at their fastest rate since 1982.

Even if inflation is adjusted somewhat on a monthly basis, it is unusually fast and wages are rising rapidly. Strong wage growth can be good news for workers, but it also raises the risk of persistently high inflation: Companies may raise prices to try to cover rising labor costs.

The employment cost index, a pay and benefits metric that the Fed closely monitors, rose slightly in the final quarter of 2021 than economists had predicted but capped a year in which people workers get a big salary increase.

Overall compensation 4 percent increase In the fourth quarter from the previous year, the data showed that wages and salaries increased by 4.5%. Both are the fastest growth rates since the data series began two decades ago – although they are not keep up with inflation Medium.

Civilian wages and salaries, change from a year ago

“Wage growth overall, on a nominal basis, is still quite strong,” said Omair Sharif, founder of Inflation Insights, referring to money growth, said Omair Sharif, founder of Inflation Insights. Salary has not been adjusted for price increase. “The downside is that inflation is eating away at all of these nominal returns.”

As rising prices hit consumer incomes, they are also eroding voter sentiment, making inflation a political responsibility for the Biden administration and Democrats in the midterm election year. .

President Biden and his advisers have tried to emphasize the positives, arguing that, despite inflation, the economy as a whole has experienced a historically strong recovery over the past year. Unemployment has fallen and wages are rising, especially for the lowest-paid workers. On Thursday, the Commerce Department said the economy’s broadest measure, gross domestic product, will grow 5.7% in 2021, Biggest profit since 1984.

But data released on Friday complicated that story. Spending and consuming down 0.6 percent in December, the first drop since February. Forecasters expect further declines into early 2022 as the Omicron wave of the coronavirus forces workers to stay home and further disrupts supply chains.

And while wages are still growing rapidly for low-wage workers, those increases are no longer keeping up with inflation. Wages and salaries for leisure and hospitality workers rose 1.6 percent in the last three months of the year, well below the year-on-year price increase as measured by one of the two key inflation indicators.

Prices started rising last year as global supply lines struggled to keep up with demand for couches, cars and other goods. Officials had hoped those pressures would fade quickly, but instead inflation persisted and extended to groups of particular interest to consumers, such as food and rent.

The White House has Take steps intended to relieve pressure on tight supply chains to try to bring inflation down to ambient levels, but the job of slowing demand to bring prices down to a controlled level lies largely with the Fed.

Fed policymakers have signaled that they will likely start raising rates at their March meeting as they try to prevent the current rapid price hike from becoming a more permanent feature of the economic landscape. economic. Economists expect a few rate hikes this year, but aren’t sure how many – JP Morgan now expects five, while Krishna Guha at Evercore ISI wrote in a note. It was reasonable to say on Friday that the Fed could raise anywhere from three to seven times.

The market is anxiously watching the Fed’s next steps, trying to gauge how fast the Fed will move. Higher borrowing costs could slow economic growth and lower stock prices, taking away some of the momentum in the US expansion.

Economists expect inflation to taper this year, and Fed officials predict that it will fall below 3% by the end of 2022. But they are watching for signs that it may instead protracted, especially at a time when the world trading system is still in marked strain and it is unclear whether consumer spending is decelerating or hit by a pandemic that preceded the outbreak. come back.

Jerome H. Powell, Fed Chair, said: “We pay close attention to the risks that persistent real wage growth outpacing productivity could put upward pressure on inflation. said in a press conference on Wednesday. Friday’s data may provide officials with some mild regret.

In December, Mr. Powell specifically cited an earlier reading of the Employment Costs Index – which showed big wage growth in the third quarter – as one reason the Fed decided to move from stimulating growth to preparing for the fight. inflationary.

The fact that the measure did not spike as expected in the final quarter of the year may give investors confidence that the central bank’s policymaking team, the Federal Open Market Committee, will not accelerate the economic withdrawal plan. Help.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, writes: “Given the rising level of labor participation and measures of excess demand tapering off in recent months, it is reasonable to think that growth Wages are unlikely to re-accelerate significantly.” “In the meantime, this report eases immediate pressure on the FOMC to act aggressively.”

The data released on Friday contained some other encouraging signs. Consumer spending on services increased, including in categories like travel and movies hit hard by the pandemic, while spending on goods fell, suggesting a continued spending pattern. normalization after a two-year hiatus. That should ease the pressure on the supply chain over time.

And while Omicron’s impact is evident in the overall spending numbers, there is little evidence the latest wave of cases has caused more lasting damage to the economy, at least until now. Personal income rose 0.3% in December, led by income from wages and salaries up 0.7%.

Credit…Stella Kalinina for The New York Times

But households are not very positive. The University of Michigan Consumer Sentiment Survey stagnated for months as prices rose and the index fell in January to its lowest point since late 2011, when the economy was in recession again following the global financial crisis, according to data released on Friday.

Conference Board Index Confidence also fell this month.

“You have very high inflation, so people are seeing their purchasing power erode,” said Dana M. Peterson, chief economist at The Conference Board. The Conference Board, said the cause was the resurgence of the virus. “People will have more confidence as we move beyond Omicron.”

At the moment, economic uncertainty is dominating.

Ashley Fahr, owner of La Cuisine, a catering company and event space in Venice, California, says rising grocery costs are starting to fall at a tough time – right before Omicron raises prices. , causing people to withdraw from activities like cooking classes and dining events she offers.

In December, she noticed that her food bill was up about 15%, down at her profit margin, and she passed about 5% of it on to customers while absorbing the rest of her food bill. increase.

“I don’t want to quote a number where people would falter,” she said.

Ms. Fahr says she pays her workers – most of them independent contractors – competitive wages and it is difficult to keep up with rising prices and still make a profit. She’s watching to see what other local food service providers and cooking classes do with their prices and if they begin to pass the full increase on to customers.

“If other people do it, I will do it too,” Ms. Fahr said.

That kind of logic is what economic officials worry about. If businesses and consumers start to expect prices to rise steadily, they can begin to plan for those increases rather than fight them. Economists fear that when inflation hits expectations, it could pick up pace year after year.

The University of Michigan’s measure of inflation expectations shows that 5 year forecast climb up 3.1 percentthe highest since 2009. Fed officials have historically tracked that number along with market-based expectations, having been slowly push up higher.

“What we’re trying to do is raise inflation, keep inflation expectations at 2%,” said Powell, the Fed chair, at a press conference this week. “That’s always the end goal.”

https://www.nytimes.com/live/2022/01/28/business/inflation-stocks-economy-news PCE, Stocks and Economic News: Live Updates

Fry Electronics Team

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