FLASH UPDATE

December 16, 2008

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 Annual CPI Slowed to 1.1% (9.3% SGS) in November

November Real Retail Sales Down 8.3% Year-to-Year

Production Falling at 10% Annualized Quarterly Pace

Money Growth Beginning to Spike?

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PLEASE NOTE: The next full SGS newsletter should be posted over the coming weekend.  
– Best wishes to all, John Williams

CPI Likely Has Absorbed Bulk of Impact from Collapsing Energy Prices. The sharp hits in November’s reported monthly and annual inflation rates were about as expected, due to the continued collapse in oil-related prices, particularly in gasoline. With oil and gasoline prices perhaps near a bottom, however, annual CPI inflation likely is near a bottom, too, and not likely to turn negative in a formal deflation. 

CPI-U.  The Bureau of Labor Statistics (BLS) reported seasonally-adjusted November CPI-U declined by 1.68% (down by 1.92% unadjusted) +/- 0.12% for the month, versus a 0.96% drop (down by 1.01% unadjusted) in October.  Year-to-year or annual inflation in November fell to 1.07% in November, from 3.66% in October, still remaining in positive territory.  For those of you interested in exploring the various facets of official CPI-U reporting, I refer you to cpiwatch.com, a site prepared by one of my SGS colleagues.

Annual inflation would increase or decrease in December 2008 reporting, dependent on the seasonally-adjusted monthly change versus the 0.36% monthly increase seen in December 2007.  The difference in growth would directly add to or subtract from November’s annual inflation rate of 1.07%.

C-CPI-U.  Year-to-year or annual inflation for the Chain Weighted CPI-U — the fully substitution-based series that increasingly gets touted by CPI opponents and inflation apologists as the replacement for the CPI-U — also eased sharply, to 0.69% in November, from 3.28% in October.

Alternate Consumer Inflation Measures.  Adjusted to pre-Clinton (1990) methodology, annual CPI growth eased to roughly 4.4% in November from 6.9% in October, while the SGS-Alternate Consumer Inflation Measure, which reverses gimmicked changes to official CPI reporting methodologies back to 1980, dropped back to roughly 9.3% in November from 11.6% in October.  The alternate numbers are not adjusted for any near-term manipulations of the data.

Real Retail Sales. Following up on November retail sales reporting (see the Flash Update of December 12th), real (inflation-adjusted) retail sales fell by 0.08% on a monthly basis, versus a 2.01% contraction in October, based on CPI-U inflation. Annual real retail sales fell by 8.33% in November versus 8.00% in October, while the annual contractions on a three-month moving-average basis were 7.47% and 5.99%, respectively, in November and October.

Industrial Production Down 5.5% Year-to-Year. The Federal Reserve reported that seasonally-adjusted November industrial production fell by 0.6% (down 1.1% net of revisions) for the month, after a revised 1.5% (previously 1.3%) gain in October. The year-to-year decline in November production was 5.5%, following a revised 4.5% (was 4.0%) drop in October. Consistent with the still-deepening recession, fourth-quarter 2008 production is on track for roughly a 10% annualized quarterly contraction, following an 8.9% contraction in the third quarter.

Housing Starts Plunge Anew. Also showing no signs of a bottoming economy was the November report on housing starts. The Census Bureau reported that seasonally-adjusted November housing starts fell by 18.9% (down 21.0% net of revisions) for the month, following a revised 6.4% (previously 4.5%) decline in October. On a year-to-year basis, starts were down by 47.0%, after a revised 39.5% (previously 38.0%) drop in October.

SGS-Ongoing M3 Estimate for November Annual Growth at 8.9%, a Near-Term Bottom? With detail posted on the Alternate Data tab at www.shadowstats.com, the SGS-Ongoing M3 estimate of annual growth in November was 8.9%, down from 10.8% in October.

The most recent weekly money supply report, however, showed an ongoing pick-up in M2 and institutional money funds, and a stabilizing pattern in what had been plunging large time deposits. If (a big "if") those weekly current trends continued for the month of December, annual M3 growth could rebound to over 13% in December, from 8.9% in November. As with the CPI, it is possible that the near-term trough in slowing annual growth in the broad money supply has been seen. Details will follow in subsequent weekly reports.

Due to weak oil prices, near-term inflation is muted, but a resumed surge in money growth would tend to counter that. Also clouding the inflation outlook would be a related decline in the U.S. dollar and renewed upside pressure on oil prices.

Greater detail on the latest data will follow in the full newsletter.

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