Today’s economic data confirm a recovery stuck in low gear. For the week ending May 21, seasonally adjusted jobless claims increased to 424,000. The government also confirmed that first-quarter gross domestic product rose only 1.8 percent — no upward revision. Manufacturing activity, as measured by the Kansas City Fed, came in tepid. Stocks fell for four out of the past five sessions.
Corporate profits continue to do well. But the real problem continues to lie with growth and persistent high unemployment. The May unemployment report will be worth watching, to see if job creation can continue in the 240,000 range — not great, but better than last year. If not, the economy will be showing signs of further weakening. Indeed, an alternative dataset in today’s GDP report shows just that.
Inflation is a problem on Main Street, the poll conducted a few days ago confirms this. It’s hitting retailer Costco, too, among others. Steve Gordon of Gordon Trucking told me, “From our little corner of the world it’s very difficult to dismiss inflation as anything but a very real threat to the economy.”
Certainly, transportation as a large user of oil is feeling it already. Diesel fuel prices have gone up pretty much every week this year, which gets passed along automatically via surcharges to shippers across a broad spectrum of modes. But that’s just a starting point. We’re seeing large increases in trucks, trailers, tires, components, etc. Between China’s demand for one million trucks built this year (about three times North America’s improved rate) and a rubber shortage, we’ve endured two-double digit price increases in 6 months. We’re also starting to see price increases in products with our customers closer to the commodity base with less value added content, such as Kimberly Clark, General Mills, Procter and Gamble and others. Eventually that will show up across a broader spectrum of consumer goods.
To an extent, inflation is a healthy marker in the business cycle after the deflationary pressures of the Great Recession. But with wages still stagnant and millions unemployed, it hurts average Americans more than normal. Then there’s all the money out there from the Federal Reserve’s QE2. I’m still betting it won’t cause serious inflation. Most of you disagree with me. Either way, the economy is not yet growing its way into a wide expansion.
Today’s Econ Haiku:
A Locke in China
Won’t open those closed markets
Huntsman didn’t hunt