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  • Writer's pictureDimitri Petit-Frere

Economic Update September 20, 2021

Economic Update September 20, 2021

  1. Americans are still willing to go out and spend despite the surge in Coronavirus cases. This is a good sign for our country since it relies on spending.

  2. Inflation is not as high as many expected but it still high enough to be felt by most

  3. Keeping a close eye on Evergrande, which is on the brink of a Lehman Brothers style collapse. No one knows what it will mean economically for China or the international landscape which has seen a real estate boom recently.

Retail Sales Rise in August

Two-thirds of U.S. GDP is generated by consumer spending, making retail sales a key indicator for growth. According to the U.S. Census Bureau, retail sales rose 0.7% last month. This is a sign that Americans are still spending a lot of money despite the rise of the delta variant. High inflation is likely to be responsible for some of this increase. Sales rose in nearly every major retail category in August, and auto sales were excluded. Why? Why? Because there is a shortage of new cars and trucks, which has slowed sales at auto dealers.

Retail sales are up 15% compared to last year. Even though the country was hit by the coronavirus delta strain, broad measures of consumer spending remain healthy. While Americans may not be spending as much in the spring as they did in the spring of 2004, they still spend a lot. Economists believe that there is more than enough to prevent the U.S. economy from stalling. What they spend their money on has changed. People bought many goods during the pandemic, especially when they were trapped at home. You can buy groceries, computers and furniture, as well as cell phones, mobile phones, and other items. They are now spending more on services that they avoided during the pandemic. These include dining out, hotel rentals and tickets to theaters. These services have seen a slowdown due to the recent surge in delta cases. In August, sales at restaurants were flat.

Economists predict that spending will rebound once the Delta wave recedes. Car dealers saw the biggest drop in sales, with receipts dropping 3.6%. Due to a shortage of computer chips worldwide, automakers are unable to produce enough cars and trucks for buyers. This is significant because auto sales account for approximately one-fifth all retail sales. Also, sales fell in big-box electronics stores and hobby shops that sell sports equipment and items.

Consumer Price Index Increased August

Consumer prices increased in August, but at a slower pace than January. They rose 0.3% for the month. Even with this slower increase, consumer prices have risen a remarkable 5.3% over a year ago. This is well above the Federal Reserve’s long-term goal of 2.0%. Analysts may believe that August’s data was a win for the temporary group, but overall consumer prices rose at 3.3% annually in August, well above the Fed’s inflation target. The gains were led by energy, which saw a 2.2% increase in monthly prices, while food prices rose 0.4%. Prices of “core” (which excludes food and energy) rose 0.1% in August. Unusual price drops, such as airfares (-9.1%), used vehicles and trucks (-1.5%), motor car insurance (-2.8%) and hotels and motels (-3.3%) kept these prices down.

These four factors combined reduced the gains in both core and CPI growth by 0.2%. Yes, used car prices and truck prices will continue to fall in the months ahead after a significant run-up last year. However, airfares and motor vehicle coverage remain below pre-COVID levels. Core inflation will accelerate in the months ahead. Core inflation should accelerate due to the lifting of the national moratorium against tenant evictions. Housing rents, both from actual tenants and the imputed rent by owner-occupants, which account for almost 40% of core CPI have been increasing lately. With the Case-Shiller Home Price Index rising 18.6% over the past year, many homeowners might shift to renting, which will further increase rents.

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