The “inflation” story has now moved to page two, not because it isn’t still the financial media’s mantra, but the disaster of the Afghanistan exit has taken its place. We don’t think it will make its way back to page 1. The reason: the burst of economic activity, for the Q1 and Q2 economic reopenings, and the rounds of helicopter money are now both in the rear-view mirror. Almost all the incoming data is on the soft side.
While still on the high side, data from various Fed surveys show easing backlogs at U.S. businesses, falling delivery delays, and some softening in prices paid and received. This implies that inflation is ebbing, although for many businesses, supply-chain issues and associated price increases may remain well into 2022. A lot depends on the path of the pandemic.
In addition, the voices of some deep economic thinkers are now gaining prominence. Lacy Hunt (Hoisington Investment Management) has compelling data implying that U.S. reliance on and build-up of debt, which now appears to be the only tool used by monetary and fiscal authorities, is actually the root of deflation. Chen Zhao (AlpineMacro) discovered strong correlations between real interest rates and inflation due to excessive savings, chronic since the Great Recession. The expected continuation of an aggregate savings glut, he says, will keep inflation and interest rates low for the foreseeable future.
The Data
Retail Sales: The big surprise of the week was the -1.1% M/M fall in July’s Retail Sales (-1.6% in “real” inflation adjusted terms). The overly optimistic consensus estimate was for a -0.3% decline. Excluding autos, sales fell -0.4% (consensus: +0.2%) and excluding autos and gasoline, -0.7% (consensus: -0.1%). Looking at this by selected sectors:
· Building Materials: -1.2% (negative four months in a row)
· Autos: -3.9% (negative three months in a row)
· Web-based Sales: -3.1% (negative two of the last three months)
· Clothing: -2.6%
· Groceries: -0.7%
· Restaurants: +1.7% (unfortunately, Open Table has indicated a significant decline in restaurant reservations; -8% lower than pre-Covid the week of August 10, likely caused by the Delta-variant; reservations were higher than pre-Covid levels in June).
· The control number from Retail Sales that feeds into GDP: March: +10.6%; May: -2.0%; July: -1.6%. How do we get to the consensus +7% GDP growth for Q3?
Housing: This looks to be well past its peak.
· The NAHB Homebuilding Index showed up at 75 in July vs. 80 in June. Five points is a huge decline for this index.
· The University of Michigan (U or M) Consumer Sentiment Index shows Home and Auto buying at 40-year lows and appliances at a 10-year low. The Home Buying Intentions Index: December: 134; February: 125; April: 114; June: 74; August: 61. 70% of those polled say now is a “bad” time to purchase a home – the worst number since August 1982! (For auto buying plans, the survey registered the worst number since May 1981!)
· Housing starts were off -7.0% M/M (consensus: -2.6%). YTD starts are down -12.8% annual rate (AR), with single family starts down a whopping -25.1% AR. (Multifamily starts are up significantly; perhaps this will help moderate the oncoming upward pressure in rents!)
Confidence, Over-Optimism, and Commodities:
· The U of M overall Consumer Sentiment Index is at its lowest level since 2011 (see chart at the top).
· Nevertheless, the “consensus” views of where the economy is and where it is going all appear to be on the overly optimistic side. Perhaps these are all sell side economists just wanting to keep stock prices elevated. Citigroup has developed an “Economic Surprise” Index. When the consensus views are “less” than the incoming data release, that is a “positive” surprise. When the consensus is more optimistic than the income data, that is called a “negative” surprise. The overly optimistic views are shown in the chart – 14 straight days of negative readings. And the chart shows general negative readings for the last three months.
Citigroup Economic Surprise Index
Citigroup and Bloomberg
· The commodity price cycle, a major contributor to the “systemic” inflation hysteria, appears to have run its course. The following data show percentage declines from recent peaks (prices are as of August 19):
Lumber: -72.8% (13 month low)
Iron Ore: -36.5% (8 month low)
Oil (WTI): -15.4% (3 month low) (when will it transfer to the pump?)
Copper: -15.3% (3 month low)
World Container Index- Assessed by Drewry
Drewry
China and the Delta-Variant
· China recently closed the world’s third busiest container port. This means more delays in the supply-chain and a continuation of cost and availability issues for many businesses. The chart shows the explosive cost to rent a shipping container because most of them are parked in the ocean waiting for an opening at a port.
· Retail sales in China were slightly negative for July (-0.1%), very unusual for the fastest growing developed economy in the world. Even Industrial Production was off -1.3% and that has been negative in four of the last five months. The unemployment rate ticked up to 5.1% in July from 5.0%. The headline of the story on page A16 of the Wall Street Journal (8/17) read: “China’s Recovery Is Losing Steam.”
· The Delta-variant continues to play havoc with the economic recovery in the U.S. and worldwide:
Air travel in the U.S. has declined two weeks in a row.
Hotel bookings are falling.
Restaurant reservations are falling.
Many companies have announced significant delays in their return-to-office schedules.
Labor Markets
Initial Claims (ICs): Initial Unemployment Claims, a proxy for new layoffs, moved down -12K in the state programs to 309K (Not Seasonally Adjusted) the week of August 14. They rose +5K in the federal Pandemic Unemployment Assistance (PUA) programs. Only a small decline (-7K) on net about offsetting last week’s small rise.
The PUA IC programs, which have been running just north of 100K/week, end on September 4. State programs will be all that is left for new claimants. The state programs, at about 309K/week are not that far above their pre-pandemic norm of 200K. We expect that, by September’s end, we will see the state numbers re-approach this pre-pandemic norm, albeit the re-emergence of the virus may keep some parents from rejoining the labor market due to child-care and school issues.
Total State & PUA ICs
Universal Value Advisors
Continuing Claims (CCs): Continuing Unemployment Claimants from all programs continue to fall. They were 12.1 million the week of July 24 and fell to 11.7 million the week of July 31 (latest data). As indicated in past blogs, the vast majority of these claimants are in the PUA programs which end September 4. Unless Congress extends these programs (haven’t heard such talk yet), nearly 9 million will be without a weekly check. There will be an impact on Retail.
We have been following the state CC data for several months from the point of view of Opt-In states vs. Opt-Out (those states in or out of the federal $300/week supplemental unemployment benefit program). As reported in our last blog, the data appears to be conclusive that the federal supplement has dis-incented the desire or need to work. The table shows the progression of the fall in CCs in the Opt-Out and Opt-In states and includes a line showing the Opt-In state totals without CA, as the data from that state are too volatile to be meaningful.
Percentage Changes in CCs: Opt-In vs Opt-Out States
Universal Value Advisors
As can be seen, the reduction in CCs in Opt-Out states is at a far higher rate than in the Opt-Ins whether CA’s data is included or excluded. The table below continues the analysis:
Relative Performance: Opt-Out States vs. Opt-In States
Universal Value Advisors
Note that for the 7/31 week (final data) while representing only about a quarter of the total number of CCs, the Opt-Out states produced 85% of the reduction in total CCs. A similar story for the preliminary data for the 8/7 week. And when the data from CA are excluded, the rest of the Opt-In states showed an increase in their unemployment rolls.
Continuing Unemployment Claims
Universal Value Advisors
We believe there will be two consequences come the end of the federal programs in early September:
There will be a rush to fill open job slots. Nevertheless, that is not an instantaneous process and make take several weeks, or even months. In addition, those that do find jobs must wait for the next pay cycle to get cash.
Retail Sales will weaken further as the federal benefits end, and, given the overly optimistic consensus estimates we have seen lately, the hit to Retail Sale will likely be more severe than markets currently contemplate.
Conclusions
We question the still high expectations for GDP growth in the second half of 2021, still near +7%. We believe that much of Q2 GDP growth was front-loaded by two rounds of helicopter money and initial economic reopenings. In addition, as discussed, the cash distributions to the vast majority of unemployed end in the next two weeks! In our view, if there is positive GDP growth in Q3, it will be quite low, and we worry that there won’t be any growth at all in Q4.
So far, our calls on the economy (slowing growth) and interest rates (lower for longer), while out of sync with most media pundits, have been the correct ones. FYI, our confidence in our economic view is rising!
Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.
Here’s a timeline of key events in the bread price-fixing case.
Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.
Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.
Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.
Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).
Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.
June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.
Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”
Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.
July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.
Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.
This report by The Canadian Press was first published Sept. 19, 2024.
Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)
TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.
The S&P/TSX composite index was up 254.62 points at 23,847.22.
In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.
The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.
The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.
The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.
This report by The Canadian Press was first published Sept. 19, 2024.
VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.
Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.
The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.
“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.
“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”
Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.
The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.
The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.
Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.
More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.
Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.
“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.
Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.
“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.
Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.
Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.
Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”
“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.
This report by The Canadian Press was first published Sept. 18, 2024.
