Summary
The stock market's current attempt at a decent, sustained rally is faltering. Elsewhere, despite their inherent bias to understate inflation, the PPI and CPI continue to show disquieting trends.
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The Stock Market
Last week, many of the bellwether stock indexes hit multi-month lows, with a rally attempt then staged off those lows. The situation was looking increasingly promising with Wednesday's strong gains, only to have most of those lost in yesterday's sell-off.
As of yesterday's close and for 2005 to date, the DJIA, S&P 500, and NASDAQ 100 showed respective price-only losses of 4.7%, 2.8% and 4.0%. Considering the high level of euphoria prevailing as this year commenced, these returns represent something that at minimum qualifies as "disappointing."
There appears to be a pervasive belief (hope) among those in the bullish camp that 2005 will closely mirror 2004 -- that the year's last couple months will produce a significant rally that not only will expunge this year's losses, but will also result in attractive full-year gains.
Maybe, maybe not, but it's my strong view that conditions are much different -- as in worse -- this year than at this time last year. In fact, I can make a cogent case that last year's November-December rally lacked justification.
At any rate, I will have a look at all this in more detail in the next edition of "Last Week in the Markets..." In turn, I plan on writing and publishing this missive over the weekend.
The Government's Latest Inflation Data
There are three government inflation or inflation-related series I monitor regularly: the Producer Price Index, the Consumer Price Index and import prices. I believe the PPI and CPI are now materially understating the actual inflation and inflationary pressures affecting the US economy, but keeping track of these series remains important anyway. These are the numbers most visible to the public, and they are the numbers hyped incessantly in places like "Tout TV" and the other venues in the regular propaganda loop. They also have been among the numbers most frequently cited by Alan Greenspan as the basis for Federal Reserve monetary policy.
Even including the understatement inherent in the PPI and CPI, they still are showing an uncomfortable acceleration. For instance, through September, the PPI was up 6.7% year over year. As of September 2004, the 12-month change was 3.3%. As for the CPI, through September, it showed a year-over-year rise of 4.7%. For the year ended September 2004 , the 12-month change was 2.5%. (See also the graph on the home page of the GRA website.)
(NOTE: For those who have not yet visited John Williams' Shadow Government Statistics website, this is a good time to do so. In turn, within the context of the foibles of government inflation and other data, I highly recommend a reading of "Government Economic Reports: Things You've Suspected... Series Master Introduction" and "Consumer Price Index.")
The "Core" Rate Flimflam
Of course, one of the giant games played with these numbers is emphasizing their change when the "inconsequential" food and energy sectors are removed from the calculations. This constitutes the so-called "core" rate.
I have been consistent over the years in expressing the opinion that it is nothing short of moronic to make a big deal of life as a consumer that is void of price considerations relating to eating, heating, cooling, driving, etc., or life as a businessman in which energy costs in particular are taken so lightly.
This is done all the time by Wall Street, however. Well, not quite all the time -- only in instances when the removal of food and energy costs results in more favorable inflation data.
(As an aside, do you imagine that any intelligent person in a position of power at the Federal Reserve really believes this nonsense? If so, the United States is in far greater trouble than is generally realized.)
Following are results for the PPI, CPI and import prices over various periods. (NOTE: The applicable portions of the data shown in the tables below have been posted to the "Data & Charts" section of the GRA website.)
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Producer, Consumer and Import Prices (Com-
posite Results & Annual PPI, CPI Results)
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Producer Consumer Import
Price Index Price Index Prices
Month/ ----------------------------------------
Year Y/Y L3Mos* Y/Y L3Mos* Y/Y L3Mos*
------------------------------------------------
09/05 6.7% 14.8% 4.7% 9.4% 9.9% 20.5%
08/05 5.1% 6.1% 3.6% 4.2% 7.9% 15.3%
07/05 4.6% 1.8% 3.1% 1.9% 8.2% 6.4%
06/05 3.6% -0.5% 2.5% 1.9% 7.4% 5.3%
05/05 3.6% 3.2% 2.8% 4.4% 5.9% 9.4%
04/05 4.7% 6.7% 3.5% 6.2% 8.4% 17.1%
03/05 5.0% 5.4% 3.2% 4.3% 7.6% 15.4%
02/05 4.7% 1.1% 2.9% 1.7% 6.1% 0.0%
01/05 4.2% 2.1% 2.9% 1.3% 5.7% -4.5%
================================================
09/04 3.3% 1.9% 2.5% 0.6% 8.2% 9.8%
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*Trailing three-month com-
pound annual rate of change.
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Producer Price Index
(Finished Goods)
-- Y/Y Change
---------------------------
Excl. Food
Year All Items & Energy
---------------------------
2005 -- 9 Months
----------------
[1] 4.7% 1.7%
[2] 6.3% 2.3%
========================
2004 4.3% 2.2%
2003 4.0% 1.0%
2002 1.2% -0.6%
2001 -1.8% 1.0%
2000 4.1% 1.6%
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Consumer Price Index
(All Urban,
All Items)
-- Y/Y Change
---------------------------
Excl. Food
Year All Items & Energy
---------------------------
2005 -- 9 Months
----------------
[1] 3.8% 1.5%
[2] 5.1% 1.9%
========================
2004 3.4% 2.2%
2003 1.9% 1.1%
2002 2.4% 2.0%
2001 1.5% 2.7%
2000 3.4% 2.6%
---------------------------
[1]Nonannualized.
[2]Annualized.
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Import Prices (Detail)
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U.S. IMPORT PRICES - % CHANGE
(3-Mo.= Three-month Compound Annual Rate)
-----------------------------------------------------
All Imports, Petroleum
All Imports Excl. Petrol. Imports Only
Month/ -------------- --------------- ---------------
Year Mo. 3-Mo. Y/Y Mo. 3-Mo. Y/Y Mo. 3-Mo. Y/Y
-----------------------------------------------------
09/05 2.3 20.5 9.9 1.2 4.4 3.0 7.3 124.2 48.9
08/05 1.2 15.3 7.9 1.0 -1.2 1.9 6.0 137.8 43.4
07/05 1.2 6.4 8.2 -0.2 -2.3 2.1 7.6 57.3 47.2
06/05 1.2 5.3 7.4 -0.2 0.0 2.3 8.9 35.3 39.9
05/05 -0.8 9.4 5.9 -0.2 2.0 2.6 -4.4 59.2 27.1
04/05 0.9 17.1 8.4 0.4 3.2 3.0 3.6 132.7 45.5
03/05 2.2 15.4 7.6 0.3 2.8 2.9 13.4 120.6 40.1
02/05 0.9 0.0 6.1 0.1 3.2 2.8 5.1 -17.9 29.8
01/05 0.6 -4.5 5.7 0.3 6.6 3.1 2.2 -47.4 24.2
=====================================================
09/04 0.5 9.8 8.2 0.1 1.6 2.9 3.3 75.1 53.5
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