Elgin Area Chamber Of Commerce: Another Gauge Shows Higher Inflation, December Jobs Report Could Disappoint, Consumer Confidence Sli

Press release from the Elgin Area Chamber of Commerce:

January 31, 2022

Another Gauge Shows Higher Inflation

An inflation gauge the Federal Reserve Board watches closely rose to the highest level since the early 1980s.

The Commerce Department reported Friday that the personal consumption expenditures index climbed 5.8% from a year earlier. Excluding volatile food and energy, the index rose 4.9% in December, the highest rate since the country was recovering from a recession in September 1983.

Economists with The Conference Board, a business think tank, told reporters last week they believe inflation growth may have peaked at the end of 2021. If it didn’t, Dana Peterson, the organization’s chief economist, predicted the peak coming in the first quarter of this year and that it would be a while before the rate would slow to about 2% where it was before the pandemic.

The Fed signaled last week that it would start raising rates in March. The expectation is that the Fed makes increases of 0.25% each time through the year. The number of projected frequency of increases can run from four to seven for the year.

In addition to inflation, the Commerce Department’s latest report reflects how consumer spending habits are changing. Julia Coronado, an economist and professor at the University of Texas in Austin, wrote on Twitter that the data suggests the consumer is getting choosier and more price sensitive while generally spending less on goods and more on services.

“People still need to get their hair cut and teeth cleaned,” Coronado said.

December Jobs Report Could Disappoint

The White House is getting ahead of the potential bad news with government’s jobs report on Friday.

Brian Deese, President Biden’s top economic adviser told CNBC Friday the omicron coronavirus variant could put a damper on the Labor Department’s jobs report, which includes the unemployment rate, because of how the government collects data.

Employees out sick who don’t get paid sick leave won’t be counted as employed even if they weren’t laid off, and folks “need to be prepared for employment data that could look a little strange,” Deese said.

That could also mean numbers from payroll company ADP once again look higher than the Labor Department’s figures, a frequent occurrence during the pandemic, because ADP counts any active employee on the payroll. Last month, ADP reported that private payrolls expanded by 807,000 in November while the government reported two days later total private job growth of 211,000.

For the past several months, the Labor Department’s numbers have been being revised up as more data arrives from companies filling out the surveys used to gather information.

Consumer Confidence Drops Further

The University of Michigan’s consumer sentiment index weakened since the beginning of January.

Its preliminary report had showed the index dropping to 68.8. But its final number released Friday dropped to 67.2, down from 70.6 in December and far below 79 a year ago.

Half of the respondents in the survey said the economy has worsened while a third said the economy will improve. Over the long run, 58% expect a renewed recession.

Inflation is a bigger concern than unemployment. Negative views on home, car and durable prices hit a 50-year low, worse than sentiment in the late `1970s, “when inflation was about twice as high, those high rates were not personally experienced by most of today’s consumers,” the report said.

The Federal Reserve’s indicated plans to tame inflation with slow rate increases poses the danger that “consumers may overreact to these tiny nudges, especially given the uncertainties about the coronavirus and other heightened geopolitical risks,” Richard Curtin, the survey’s chief economist, said in a statement.

Source: www.CoStar.com

This press release was produced by the Elgin Area Chamber of Commerce. The views expressed here are the author’s own.