Inside this Issue:
- Price Skating: Prices Popping, but Fed Storms Ahead
- An Inflation Situation? The Debate Intensifies
- Retail Fail: Sales Data Adds to Recovery Concerns
- Shocks to Stocks: Markets Fall as Data Points Disappoint
- Kick to the Coin: Bitcoin Buckles on Elon’s Edict; Dogecoin Too
- Fexit: How Does the Fed Tighten Its Sheet but Not Frighten the Street
- Bankless Banking: A New World of Finance
- After the Plague: Hospitals Returning to Normalcy Post-Covid
- Care Where? Health Sector: Expect More Healing in Homes
- What Befalls the Malls? A Rebound, Simon Says
- The Great Estate Inflate: Monetary Stim Plus Supply Crunch Means Prices Soar
- And This Week’s Featured Place: Gary, Indiana, How to Heal from the Ghosts of Steel
Quote of the Week
“The people that I listen to most are the people who from time to time will say: ‘I don’t know.’”
-Former U.K. central bank governor Mervyn King (speaking on the “Capitalisn’t” podcast)
First, a disappointing April jobs report. Next, a worrisome inflation report. Then, signs of tepid retail sales. Adding to the unease: A survey showing heightened inflation concerns among U.S. consumers.
It was an uncomfortable week for the U.S. economy, unnerved by a sharp jump in the Labor Department’s consumer price index (CPI). Inflation, after all, is the great fear associated with the economy’s reopening, a fear amplified by unusually large doses of fiscal and monetary amphetamines. The index was almost a full point higher in April than it was in March, and up 4.2% from this time last year. Comparisons versus last year, of course, are only so useful—this time last year, businesses were shutting down; now they’re opening up. In addition, the index was heavily influenced by a few specific categories experiencing unique supply shocks—used cars, for example (affected by a shortage of new cars due to semiconductor issues) and utilities (affected by disruptive weather in Texas). Gasoline prices also rose sharply, but from extremely low levels a year ago. Other categories pushing the index upward included several linked to travel, like airfares, hotels and rental cars. Here too, the increase was from abnormally depressed levels.
Housing, by far the weightiest category in the index, showed a more modest increase. Yes, housing prices are soaring across the U.S., but mortgage rates remain low and in some big markets, rental costs have dropped. Food, the second weightiest category, saw a more pronounced monthly jump linked to a broader global rise in commodity prices. In the meantime, government data showed other signals of rising prices, i.e., for producer inputs and imports.
As for retail sales, non-auto purchases unexpectedly declined from March to April. Recall, however, that March figures were exceptionally strong. The biggest drops were for things like clothing, sporting goods and department store purchases. Spending on autos, restaurants and electronics was solidly up month to month. Separately, a University of Michigan survey of consumer sentiment revealed concerns about the recovery’s impact on prices.
Some investors aren’t reacting well to the string of disappointing data. Stock markets dropped last week. Tech and other growth stocks dropped even more. Bond markets, on the other hand, took things in stride, with Treasury rates momentarily jumping a bit but ultimately ending the week largely unmoved. Also unmoved: The Federal Reserve, insisting again that today’s rising prices are just temporary. Weighing more heavily on its mind is the discouraging jobs report from a week earlier. Also lodged in its mind: Memories of a lethargic recovery after the last crisis, accompanied by too little inflation. So no easing its foot off the stimulative breaks just yet.
Eventually, the Fed will have to taper. And when it does, some worry a frothy stock market won’t handle it well. A stock bubble pop, or a pop in asset prices more broadly, is another risk alongside inflation. Some are separately worried about the crypto hype, pointing to episodes like last week’s reaction to the tweets and comedy routines of Elon Musk. He’s apparently less enamored of Dogecoin and Bitcoin than you thought.
The crypto space is nevertheless still burning with potential for disruptive change. The Ethereum blockchain in particular is winning more attention as a platform for new crypto applications. Its developers are now working to make it faster and more energy-efficient, two major shortcomings right now. As a reminder, blockchain technology allows a network of computers to do things that once required trusted third parties—like undertaking a financial transaction. The technology is young and immature. But it’s attracting lots of minds and money.
Will more money attract more workers? Companies like Mcdonald’s are raising pay. Amazon, meanwhile, is hiring another 75k people, with average stating pay exceeding $17 per hour. It’s also incidentally giving $100 bonuses to new hires that show proof they’ve received the Covid vaccine. This comes as the Centers for Disease Control relax the rules on mask-wearing. The darkest days of Covid, for the U.S. anyway, seem finally past.