Jan. 14, 2022

The Economy In A Nutshell.

This week we've seen some of the critical reports on our economy. Today we put it all together. I call it: “The Economy In A Nutshell.”

If there were any remaining doubters out there, this week showed beyond any remaining doubt, that this economy is mired in the most virulent inflation that we've seen in a generation.

On Tuesday came word that the current inflation rate in the country hit 7% in December. This promptly sent analysts to the history books to find out just when inflation was ever this high.

The answer: 1982, 39 years ago, when Ronald Reagan was President and Paul Volcker ran the Federal Reserve. The very next year Volcker would take interest rates up to double-digit, and thereby slay the inflation dragon.

Only to see that dragon return again now.

But as shocking as that retail level of inflation was, it was not entirely unexpected on Wall Street. There were some of the more pessimistic on the Street, who anticipated that we might hit that level.

On Thursday, it was what hit the very next day, which began to shake the Street's confidence. It was announced that the Producer Price Index, that is prices at the “wholesale” level, if you will, which for the second month in a row, came in at 9.7%, nearly matching November's 9.8% record.

Now what made this especially shocking is the realization that businesses will have to continue raising their prices, to match their rising costs, reflected in this Producer Price Index.

In other words, we're a long, long way from being out of these woods.

Inflation is going to be with us for as long as it takes to work through these Producer Prices.

So that's that part of the Stagflation debate. How about the other part: the Stagnant Economy Part?

Well, by the end of today, we should have a pretty good idea of just how strong the core economy is. As we get three key readings: the first retail sales, then industrial and manufacturing production, and finally Consumer Confidence.

We lead off this morning with the final reading of Retail Sales for 2021. Now, you may remember that through November sales were up by more than 18%. By any standard a phenomenal year. But considered by most as a rebound from the dismal year before. When shops were closed and shoppers were quarantined.

But let's not quibble here. !8% gain through 11 months of the year, looks very good. So what to expect in today's report which will include the whole year. Especially that all-important December. Usually the very biggest month of the year, because of the Christmas Sales.

And I wish I could say that 2021 was a normal year, with the best sales coming at the very end of December. But I'm pretty sure that is not the case. And here I confess that I'm cheating. I think I've seen the answer sheet.

In a report that got frankly ignored, Redbook the chief retail tracking company reported that by their estimation sales dropped from an 18% annual rate to just over 14%. That's a huge drop. And an unprecedented drop for December.

I'm afraid this will also be the case when the Census Bureau makes their results known this morning.

I don't have to tell you that the consumer drives this economy. If consumers are starting to wobble it's very bad news for the economy.

And then, a couple of hours later the University of Michigan will report on the Consumer Sentiment for their first reading in 2022. Michigan has reported that Sentiment has been in a steady decline over the past 6 months. It is too remains in decline, that's 2 strikes against the consumer sector.

Finally, we come to Production, with the latest report on Industrial And Manufacturing Production. And here is the area I have the highest hopes for. Throughout 2021 this has been one of the stronger areas in the economy, with Industrial Production rising over 5% year to date, and Manufacturing over 4%.

I think that it's vital that these two sectors return to our shores, not only would it help our workers, it would help mitigate many of the current supply chain issues. There are issues where raw materials and components have to be shipped for thousands of miles across the ocean.

So, here's hoping the production part of the economy reports some good news.

And that's a look at this week. As noted by both Producer and Consumer Prices, Inflation looks to be with us for some time. The consumer looks shaky right now, with indications the retail sales may be soft in December, of all things!

And finally, the saving grace, if it comes, is most likely to show up in the Production half of the economy, with reports today on Industrial and Manufacturing Production.

That's the economy in a nutshell...