Weekly Economic Report
While the Federal Reserve may not be worried about inflation, the US consumer certainly is – and we believe they have very good reason for concern. This week’s round of economic data and the market’s reaction was far too reminiscent of the early 1970s for us. We started working on Wall Street in 1982 for Gary Shilling, who twice earned II’s top economist award in the mid-1970s for recognizing that soaring nominal economic data was actually foreshadowing the 1973-75 recession when adjusted for rapidly rising inflation. It was a bold, well out-of-consensus call, especially given he had been famously fired earlier by Don Regan, then head of Merrill Lynch, who told him “Don’t predict recessions, they don’t sell stock”. This week, the consensus treated the 0.6% rise in retail sales as a victory after last month’s decline – despite the fact that the shocking CPI inflation report earlier in the week suggested pricing accounted for all of the gain. Federal Reserve speakers pooh-poohed the “transitory” inflation and the markets retreated just 1.5% from recent record highs – but consumer confidence unexpectedly plunged from 85.5 to 80.8 on record high complaints about rising prices for houses, cars and durables according to Richard Curtin, the Director of Consumer Sentiment Surveys at the University of Michigan since 1976!