For the past several months we have warned about the pernicious effects soaring prices are having on both corporations (“Buckle Up! Inflation Is Here!“) and consumers (“”This Is Not Transitory”: Hyperinflation Fears Are Soaring Across America“), prompting even otherwise boring sellside research to get (hyper) exciting, with Deutsche Bank (which warned this week that “Inflation Is About To Explode “Leaving Global Economies Sitting On A Time Bomb“”) and Bank of America (which “Just Threw Up All Over The Fed’s “Transitory” Argument“) now openly claiming that the Fed is wrong, and the US is facing an unprecedented period of far higher, non-transitory inflation, with DB going so far as to warn “policymakers will face the most challenging years since the Volcker/Reagan period in the 1980s.”
But none of this has spooked the Fed into conceding – or believing – that inflation is anything more than transitory. And maybe just this once, the Fed has a point because all else equal, by which we mean lack of rising wages, the best cure to higher prices is, well… higher prices.
Presenting Exhibit A: two weeks ago, we observed that anticipating an end to Biden’s stimmy bonanza end and that soon they will have to live again within their means, Americans’ buying intentions (6 months from today) as measured by the Conference Board, had cratered across the 3 major spending categories: homes, automobiles and major household appliances.
The drop was so massive, it amounted to the biggest ever one-month drop in intentions to purchase appliances and homes.
This confirms what we noted earlier, namely a record divergence between crashing homebuyer confidence (due to record home prices) and soaring homebuilder confidence (also due to record home prices). Guess which one will matter in the end.
Fast forward to today when we just got Exhibit B: the June UMichigan Sentiment Survey.
While there was some good news here, in that inflation expectations for both the 1-year and 5-10 look ahead periods dropped slightly…
… what we found more concerning is what chief economist, Richard Curtin said namely that since “Rising inflation remained a top concern of consumers”, the spontaneous references to market prices for homes, vehicles, and household durables fell to their worst level since the all-time record in November 1974.
And as Curtin adds, “these unfavorable perceptions of market prices reduced overall buying attitudes for vehicles and homes to their lowest point since 1982. These declines were especially sharp among those with incomes in the top third, who account for more than half of the dollar volume of retail sales.”
This can be seen in the following chart showing records across the board for “bad buying conditions” due to high prices for houses, durable goods and autos. In other words, due to soarking prices is America is going on a buyers’ strike.