Weekly Review & Outlook: May 20, 2024

Inflation data in April remained elevated with producer prices surprisingly hot. Other consumer measures such as confidence and retail sales show weakening. Leading economic indicators fell while bank stocks gained for a 5th straight week.

Government inflation data for April showed prices increased well above rates corresponding with the 2% target. BLS April Producer Price Indexes (PPI) (May 14) reported final demand prices increased 0.5% from March. Services final demand showed the larger increase of 0.6% in the month representing the biggest index jump since July 2023.

Reported April Consumer Price Index (CPI) (May 15) remained elevated with a 0.3% monthly increase. The report was viewed optimistically as core CPI was lower from the 0.4% increase observed each of the previous 3 months. Still my chart of the annualized last 6-months core inflation trends finds the recent inflation rate trend well above 4%. With future roll months either 0.3% or 0.4%, we will likely see April as a near term peak in this calculation.

Next, The Conference Board release their April Leading Economic Index (LEI) (May 17) which showed continued deterioration. However, the LEI no longer signals recession for a 2nd month. In the report the Senior Manager of Business Cycle Indicators commented, “Deterioration in consumers’ outlook on business conditions, weaker new orders, a negative yield spread, and a drop in new building permits fueled April’s decline. In addition, stock prices contributed negatively for the first time since October of last year. While the LEI’s six-month and annual growth rates no longer signal a forthcoming recession, they still point to serious headwinds to growth ahead. Indeed, elevated inflation, high interest rates, rising household debt, and depleted pandemic savings are all expected to continue weighing on the US economy in 2024. As a result, we project that real GDP growth will slow to under 1 percent over the Q2 to Q3 2024 period.” Finally, in thinking about U.S. economic growth, I reviewed long-term measures of labor productivity. There have been major large cycle drivers to labor productivity growth over the decades with speculation on the impact of Artificial Intelligence and robotics in future growth. As observed in the nearby chart, the smoothed rate of productivity growth was greater in the early post-WW II era until the early 1970s. The computing and internet era has coincided with a slower rate in productivity growth which in isolation may seem counter intuitive. Economists theorize the decline in long run labor productivity growth is a result of the economy having shifted from more labor-intensive sectors that have been automated while also growing in low-productivity services such as retail and hospitality. Whether new technology can lift productivity growth higher will be interesting to follow.