Weekly Economic Report
This week’s data reflect the confluence of forces that are dominating the economy in the short run: 1) an ongoing surge in consumer spending driven by income not associated with production; 2) a manufacturing sector that is struggling with bottlenecks and supply chain issues; and 3) the resultant rise in prices where demand is running far hotter than supply. The sustained strength in April retail sales – with far less stimulus flowing – suggests that the consumption is being supported by a decline in the savings rate. We won’t get more precise estimates until the personal income and spending report is issued later this month. However, with roughly $2 trillion in increased consumer deposits sitting on the sidelines, we can expect the supply-demand mismatch can go on for a while as manufacturers – hampered by labor shortages and rising materials costs -- try and catch up. During the first four months of 2021 – when the money tap has been wide open -- retail sales have risen by 15.7%, not annualized! Over the same period, industrial production in manufacturing has increased a very modest 0.6%, reflecting the shortfall in inputs from, chips to labor, and the slow recovery from the winter storm across the deep South. As a result, prices are up – raw materials in the PPI have climbed 12.1% since December, intermediate goods are up 9.6%, and the CPI has risen 2.0% already this year, with 1.4% in just the past two months – again, not annualized.