Stocks rose broadly Thursday morning after the GDP report, but they retreated later in the day, with the Nasdaq falling 1.4%, the S&P 500 dropping 0.54%, and the Dow Jones Industrial Average off 0.02%.
Thursday’s report contained warning signs. Most of the growth owed to companies’ restocking rather than people and firms buying stuff. In part, the rise in inventory investment reflected a rebound from super-low inventory levels in the summer. Inventory levels remain low because of persistent shortages. Excluding the inventory effects, output grew at a modest annual rate of 1.9% in the fourth quarter.
Americans reined in shopping toward the end of the quarter, according to other Commerce Dept. data on retail sales, as the Omicron variant of Covid-19 triggered a new wave of infections and higher prices cut into their paychecks. A separate Commerce Department report Thursday showed sales of durable goods such as long-lasting items (cars, refrigerators and bulldozers) fell in December.
And Why is that?
Two factors that helped drive last year’s expansion – a torrent of cash sent by Congress to house-holds and ultralow borrowing costs stoked by the Federal Reserve’s loose-money policies – are fading. Households have spent down some of the stimulus money. And the Fed reaffirmed this week its intention to raise interest rates, as early as March, to combat a sharp rise in inflation, which has damaged consumer confidence and outpaced the growth in workers’ wages.
Increased Interest rates hurts Main Street
Surplus aid-funds money are decreasing. A large pool of inactive labor exists. Threats of higher interest rates is better than the action (which is ridiculous). There will be surplus inventory and prices will drop. Planned production order quantities are surpassing or will surpass demand. The Feds (nobility) whacking Labor (the peasants) makes no sense as business’s poor planning, control of production, and the supply chain are the issues. Companies decreasing production orders, moving production orders out, and canceling them (if they can) will slow things down.
Whether this is business manipulating the supply chain as Paul Glastris (Washington Monthly) contends, the carnival will end. Someone will be looking to sell off inventories of finished goods cheaply (just like automotive does “every” end of model year), raw materials, or sit on inventory/material the costliest component of manufacturing.
What is going on?
On the automotive side, my son trades-in his oversized, well maintained, not-to-old Ford Expedition with 49,000 miles on it. Dealer calls him making an offer. In trade, he receives a new Ford Expedition and is paying $35 more per month.
Such is called moving inventory.
My other son is thinking of leasing a small four-wheel drive Jeep truck to take out on some of the hard to get to hiking trails in Colorado where he likes to go. If he leases, he will buy it outright at the end of lease as it will be less costly (depreciation) in the end.
Semiconductor prices are up the same as what was in 2009 and 2010. This is the second time manufacturers have used a market downturn to profit. They will blame “no-orders” to build against. It appears like automotive played dumb again and failed to maintain orders for semiconductors. By maintaining orders with their supply base (key-fobs, etc.) maintains semiconductor inventory for themselves.
McConnell has already said all of this will be a report card about Biden. What the hell, Repubs were instrumental in blocking aid in 2008 helping lead to a longer recession.