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How Much Has Inflation and Free Money Goosed Consumer Spending?

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41 comments on How Much Has Inflation and Free Money Goosed Consumer Spending?

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Retail Sales from Commerce Department, chart by Mish 

Earlier today I noted Retail Sales Easily Beat Expectations, US Treasury Yields Jump in Response

Here’s a key point that I mention every month: “Retail sales are adjusted for seasonal variation and holiday and trading-day differences, but not for price changes.“

This month the CPI rose by 0.3 percent but sales rose by 0.9%. So even taking inflation into consideration, sales were on the hot side. 

Real Advance Retail Sales 

Retail Sales from Commerce Department, chart by Mish 

That’s the chart that shows the true economic picture. It’s “real” (inflation adjusted) sales that will drive GDP estimates. 

Amazing Demand Recovery 

The demand recovery following the 2020 Covid recession is unprecedented.

 Consumer spending is well above the preceding trendline and that is fueling inflation. But what fueled spending?

Retail Sales from Commerce Department, chart by Mish 

Retail spending did not cool after those rounds of free money in either nominal or real terms. 

The above chart is nominal data, not inflation-adjusted but it explains big piece of inflation. 

Explaining Inflation

  • The three “free money” Covid stimulus jumps in April of 2020, January of 2021 and March of 2021 led to jumps in consumer spending.
  • Eviction moratoriums also padded consumer pockets
  • Huge leaps in the number of SNAP (food stamp participants) freed up money for other goods
  • Supply chain disruptions
  • The war in Ukraine 

CPI

CPI Data Courtesy of BLS

President Biden likes to blame Putin but the story does not wash. Putin invaded Ukraine in February of 2022.

Prices were already soaring. And the Fed ignored inflation every step of the way. It kept QE running all the way to March 2022!

QE goosed the stock market and that boosted demand for cars and second homes.

The Fed is Incompetent

Markets Brain Dead

Brain Dead Fed + QE + Unwarranted Stimulus + Supply Chain Disruption = Inflation

But no one could possibly have seen this coming (especially the Fed which kept QE running all the way to its first rate hike). 

Biden Doing Everything Possible to Drive Up the Price of Oil, Some of It’s Illegal

Meanwhile Biden Doing Everything Possible to Drive Up the Price of Oil, Some of It’s Illegal

Biden also has big push for unions which will add to inflation, a big push for clean energy which will add to inflation, and of big push for student debt cancellation which would hugely add to inflation.

Powell on De-Globalization

De-Globalization: New Supply Chains Are Inefficient and Will Drive Up Inflation

Finally, please recall my April 4, 2022 post  New Supply Chains Are Inefficient and Will Drive Up Inflation

De-globalization is underway. A key ramification is higher inflation.

Other than all of the above, things are very rosy. 

This post originated at MishTalk.Com.

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41 Comments
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Oldest Most Voted
oee
oee
4 years ago
I can answer it for you. Nominal sales were .90 % in April and the CPI was .30% . Thereferore, real sales were .9-.3= .60% .
Thus, REAL SALES were .60% of an increase.
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RonJ
RonJ
4 years ago
“Fed’s Powell: There is real possibility that globalization will go into reverse to some extent”
WW3 could put a big dent in globalism.
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FooFooFed
FooFooFed
4 years ago
Retail sales came in HOT ….. your missing the fACT that they bought less because stuff is more expensive. And the Service secttor gets another blow to boot.
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RonJ
RonJ
4 years ago
At 9:55 EDT, TGT was down around 25%. Inflation has not been good to Walmart or Target.
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LawrenceBird
LawrenceBird
4 years ago
Sorry, this is just math games. What about seasonality in prices? Are you adjusting for those too? Why are you using CPI? Is there a 1:1 constant mapping of CPI to individual retail sales components? Is that constant over time? How are you handling electronics such as TVs and computers that have seen sales ever increasing yet costs relatively stable over long periods?
Trying to use aggregate measures when individual compontents can greatly change in significance and price over time is not going to result in a useful result.
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KidHorn
KidHorn
4 years ago
If the FED stops QE, where is the $40b for Ukraine going to come from?
I assume treasury bonds. Which will push up the 10 year. So, fighting against Russia is bad for housing.
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Zardoz
Zardoz
4 years ago
Reply to  KidHorn
Good. Houses are stupidly expensive because people can borrow stupid amounts of money, making themselves slaves for a lifetime.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  Zardoz
I talked to a HVAC contractor years ago on housing bubble pre – 2008. Said it was weird walking into newish large homes … with no furniture.
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worleyeoe
worleyeoe
4 years ago
I would pay good money to watch a well-made documentary on the + / – of rent & mortgage forbearance. This was THE change in policy that goosed the economy. Forget PPP, stimulus checks, etc. Forbearance totally circumvented traditional rise & fall of economies. It is what created the housing bubble we have today. Now, the FED is completely behind the curve, and they’ve gotten into bed with Congress using a MMT-based approach to running the economy. This will not be out last brush with such arrogance and willful disregard for letting the market determine winners and losers. It’s only just begun and with such policies Volcker may look like a child when it comes to what’s needed to tame inflation over the next 10-20 years. The enormity of taxing fossil fuel consumption to portend the onset of renewable energy is just staggering and we’re just now coming to terms with what lies ahead.
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MPO45
MPO45
4 years ago
If it’s ok, I will start translating for prudent investors out there.
“The Fed is Incompetent” Translation: Buy BANK stocks!
“Brain Dead Fed + QE + Unwarranted Stimulus + Supply Chain Disruption = Inflation” Translation: Buy dividend value stocks!
“Biden Doing Everything Possible to Drive Up the Price of Oil, Some of It’s Illegal” Translation: Buy oil and gas stocks!
“De-Globalization: New Supply Chains Are Inefficient and Will Drive Up Inflation” Translation: Buy REITS that specialize in industrial!
Thanks for analysis!
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PapaDave
PapaDave
4 years ago
Reply to  MPO45
Already mostly there. Large position in oils. Small position in bank and utility dividend stocks. Pretty good day for oil stocks today, even with the price of oil “down” to a measly $112. Not much demand destruction yet. Maybe at $120 or $130 or more.
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MPO45
MPO45
4 years ago
Reply to  PapaDave
Then PapaDave, you are golden. Live long, rich and happy.
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PapaDave
PapaDave
4 years ago
Reply to  MPO45

Thank you very much. The same to you.

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worleyeoe
worleyeoe
4 years ago
Reply to  PapaDave
There won’t be meaningful demand destruction until we’re starting a recession in the face. And with all the excess monies still floating around, especially in state & federal budgets, it could take a good while longer to arrive.
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PapaDave
PapaDave
4 years ago
Reply to  worleyeoe
While I agree a recession can happen anytime, I don’t see one soon.
And most of my investments are not in areas of discretionary spending, so they won’t be as severely impacted by a drop in consumer spending.
In addition, oil companies now have fortress balance sheets as they have paid down most of their debts, and they are profitable even if oil drops to $40, which I doubt.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  PapaDave
“and they are profitable even if oil drops to $40, which I doubt.”
…
You might find out.
June 2008 ended with WTI at $139.96 barrel … all I heard was peak oil / demand won’t drop / blah blah blah … as bullz (more or less) still in charge.
January 2009 ended with WTI at $41.73 barrel.
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PapaDave
PapaDave
4 years ago
Reply to  Tony Bennett
That is because the companies back then were all focused on expanding production at all costs. So they borrowed heavily to do so. This resulted in the market being flooded with new production as the economy turned down. Prices collapsed and companies learned a tough lesson.
Today, the companies are focused on something completely different. They have no desire to expand production. Most capex spending is simply to maintain production.
As oil prices have increased, these companies now have enormous free cash flow. Instead of investing this FCF in new production, the companies have instead been paying down debt, a lesson they learned from earlier mistakes. Some are now debt free. So now, the FCF is going into share buybacks and dividends. Not into expanding production.
In fact, US politicians have literally been both begging and demanding that the companies expand production. But it is falling on deaf ears. The companies have no desire to make any long term commitments to new production.
So, the supply/demand balance will favor much higher prices this time. I doubt that we will see oil under $80 for the remainder of this decade.
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Zardoz
Zardoz
4 years ago
Reply to  PapaDave
It’ll have to hit 200 to make a dent in demand, I think. Karen McMommie WILL drive the family Ford Expenditure 100 miles a day. It’s her god given right.
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Christoball
Christoball
4 years ago
Reply to  MPO45
“The Fed is Incompetent” Translation: Buy BANK stocks!
“Brain Dead Fed + QE + Unwarranted Stimulus + Supply Chain Disruption = Inflation” Translation: Buy dividend value stocks!
“Biden Doing Everything Possible to Drive Up the Price of Oil, Some of It’s Illegal” Translation: Buy oil and gas stocks!
“De-Globalization:
New Supply Chains Are Inefficient and Will Drive Up Inflation”
Translation: Buy REITS that specialize in industrial!
Although these ideas seem Realistic to you, and PapaDave; there are too many monkey wrenches going forward for any or all of these to work out. Non monetary conditions were better in 2008 than now, monetary conditions are way worse now than in 2008. Why would it be different this time????
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PapaDave
PapaDave
4 years ago
Reply to  Christoball
Let me know when its time to sell all my oil stocks please. Because I have been accumulating these stocks and waiting patiently as the companies use their enormous cash flow to pay down their debt. After which, they begin to shower their shareholders with that FCF. Well, many of these companies have now reached their target debt levels and have begun the process of raising dividends and buying back shares. And virtually all of them will reach that point by the end of this year. Why should I sell when the gravy train is just getting going?
Lets compare the current situation to 2008. Back then, the companies were using all their cash flow and borrowing money to expand production, and ignoring shareholders. I would say that is different. Now, the companies are putting out press releases saying they are committed to shareholder returns.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  PapaDave
“Now, the companies are putting out press releases saying they are committed to shareholder returns.”
…
Absolutely. Cash flow + borrowed money going to buybacks + dividends. Asset holders (top 10%) love it. How about everyone else? Especially, those who saw their job offshored (to enrich bottom line for asset holders)?
If corporations go that route, they should expect no taxpayer support. EVER. Of course, taxpayer had to bail out TBTFs in 2008. How about airlines? Back in 2020 the taxpayer had to pony up $25 billion in assistance … for an industry that in prior 10 years had spent $50 billion in buybacks.
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  Tony Bennett
All goes to show that who you went to college with and who you play golf and tennis with and who you donate to the charities with is very, very important.
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PapaDave
PapaDave
4 years ago
Reply to  Tony Bennett
“Absolutely. Cash flow + borrowed money going to buybacks + dividends.”
Sorry. You have it wrong. Was that on purpose?
Over the last two years, cash flow has already gone to debt reduction FIRST. These companies are not borrowing money, they are doing the exact opposite and paying down their debt.
Some of the oils are now completely net debt free, and others have reached a target of net debt levels that are extremely low as they still want to maintain a small amount of leverage.
Now that debt is paid down, the FCF is being committed to shareholders in the way of increasing dividends, special dividends, and stock buybacks.
You can choose to participate in this shareholder return or not. I choose to participate.
And the party has just begun. Perhaps you will join the party eventually?
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TheWindowCleaner
TheWindowCleaner
4 years ago
Integrating Monetary Gifting intelligently and strategically into the debt based system with a 50% discout/rebate policy at retail sale along with the other policies of the new paradigm resolves inflation while doubling demand for everyone’s goods and services. We can limp along and let China eat our lunch in a decade or so or we can end the idiotically dominating current monopolistic paradigm of Debt Only with the new paradigm of Gifting. Open your mind to it libertarians…you’ll like it.
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  TheWindowCleaner
Only $19 a month…
Each.
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Fish1
Fish1
4 years ago
I love Mish’s place when we are in weird economic times. We are in weird economic times.
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Mish
Mish
4 years ago
Reply to  Fish1
Thanks
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dtj
dtj
4 years ago
Some of the higher than expected sales could be due to how buying behavior changes in inflationary environments. When people think prices are going to be higher in the future, they buy now rather than later. In other words, they stock up.
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  dtj
I’m still on the fence.
I can’t decide what to buy.
Pitchforks or torches?
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Casual_Observer2020
Casual_Observer2020
4 years ago

Why stop at student loans. Let’s cancel all federal debt.

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MPO45
MPO45
4 years ago
Reply to  Casual_Observer2020
While a few here don’t want to believe the D word could happen DEFAULT, I see it more likely every day. As I point out frequently, 60 million people will be over 65 in 2030. They may all go on social security or wait a few more years to squeeze out some extra nickels but it won’t matter.
60 million or so people won’t be paying into the health care (i.e. private health insurance system), they will enroll in medicare or medicaid.
60 million won’t be paying W-2 taxes anymore (bye bye FICA).
60 million won’t be putting money into their 401k or IRAs anymore, they will be taking it out.
60 million won’t be fully productive but will be demanding goods and services at hotels, restaurants, shops, medical facilities, etc.
Add them all up and you get MEGA DEMAND > SUPPLY and it’s deja vu all over again. Remember during covid when DEMAND > SUPPLY and we had something called inflation. We’ll today’s inflation is a joke compared to what will hit in 2030. But don’t believe me, just keep doing what you’re doing now and hope it will all work itself out, nothing bad can possibly happen with that strategy. Don’t worry, the government will save you just like they did with covid.
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  MPO45
Thanks MPO45 for letting us know that you’re under 65. Please get back to us when you start paying Medicare Part B supplemental insurance premiums. They’re the premiums that ratchet up in cost every year. As for continuing productivity, I’m as productive as I want to be – and it varies from time to time.
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Jojo
Jojo
4 years ago
Reply to  Casual_Observer2020
WAIT! Let me accumulate some first.
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Doug78
Doug78
4 years ago
Reply to  Casual_Observer2020
No need to cancel student loans and federal debt. Just inflate them away.
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Tony Bennett
Tony Bennett
4 years ago
Census Bureau out with business inventories (March) this morning.
Another month of bigger than expected build.
Another month of prior month revised higher.
Re retail portion adjusted
February revised
sales $587.808 billion —> $581.768 billion
inventories $666.877 billion —> $671.252 billion
March initial
sales $589.550 billion
inventories $686.364 billion
Inventories piling up —-> inventory correction recession
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MPO45
MPO45
4 years ago
Reply to  Tony Bennett
But then there will be a massive sale and you’ll blame the uptick in sales and GDP because of the “fire” sale on inventories. When will it end tony?
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Tony Bennett
Tony Bennett
4 years ago
Reply to  MPO45
Historically, most recessions occur due to business inventory corrections.
The difference THIS time will be that a recession will lead (or concurrent) with a financial crisis.
No way Yellen escapes “not in our lifetime”.
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LawrenceBird
LawrenceBird
4 years ago
Reply to  Tony Bennett
Unfortunately the wild card is how much of the inventory build is a preference change by corporations who wish a larger buffer and no longer view overseas (or even domestic) supply chains as reliable for ‘just in time’?
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Tony Bennett
Tony Bennett
4 years ago
Reply to  LawrenceBird
Spot on comment.
And why I don’t think we have had (acknowledged) recession … yet. With J-I-T delivery out the window, business willing to take on extra inventory. My business at same mercy as everyone else’s. Forced to take on inventory for 2 reasons … 1) to beat (substantial) price increases and 2) availability. Still a big issue. Might be available now. But in a month? 6 months?
When you order for reasons other than final use demand … playing with fire.
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Karlmarx
Karlmarx
4 years ago
This is what we get for putting a lawyer in charge of the “economy.”
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Tony Bennett
Tony Bennett
4 years ago
Reply to  Karlmarx
When you are allowed to front run your personal portfolio with impunity … someone has to take a back seat … the bottom 80%.
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