The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.
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May 27, 2015
myCPI: Getting More Personal with Inflation
Last Friday's inflation report was interesting. The consumer price index (CPI) rose only 1.2 percent in April, as falling energy and flat food prices helped to keep the overall index in check.
Does a 1.2 percent (annualized) rise in the cost of living sound about right to you? No? Well, the performance of the CPI reflects the buying habits of the average urban consumer, which is a way to say it sort of reflects the buying habits of everyone, but isn't likely to reflect the buying habits of anyone in particular.
Are you a dapper guy? Good news for you—the cost of men's suits, sport coats, and outerwear fell 4.5 percent (monthly) in April. Fitness buff? Not such good news for you—sporting goods prices jumped 0.9 percent last month. Did you spent a lot of time in the emergency room in April? Even worse news for you: the cost of hospital services rose 1.9 percent last month, their biggest jump in about 25 years! Are you a big blue monster that lives on Sesame Street? Then you had a really good month in April—cookie prices fell 2.4 percent.
OK, you get the idea: different people, different experiences with costs. And of course the folks over at the Bureau of Labor Statistics (BLS) recognize that "it is unlikely that your experience will correspond precisely with either the national indexes or the indexes for specific cities or regions." (Here are some helpful facts about the CPI.)
But that got us wondering if we could take some of the same building blocks that the BLS uses to construct the CPI and create somewhat more individualized price indexes that reflect a wider variety of price change experiences.
So we created 144 individualized market baskets that attempt to capture some of the variation that occurs across different demographic characteristics including age, income, gender, size of household, education, and whether or not you are a homeowner. (You can find greater detail on the construction of these indexes here.) The resulting indexes—we're calling this myCPI—may yield a closer approximation to your cost of living experience than one based on the apocryphal average consumer.
For example, suppose you are a single female who is over 55 years old, rents her place, has an income of more than $70,000, and didn't attend college. In April, your myCPI rose at an annualized rate of 1.4 percent, pretty close to the official CPI growth rate of 1.2 percent for the month. However, your myCPI has risen 1.1 percent over the past year, whereas the official CPI has fallen 0.2 percent.
Are you a male, under 35 years old, married, and without a college degree, but you own your home and make more than $70,000 annually? Your myCPI was virtually flat in April, and people matching your description have seen their cost of living decline by 1.0 percent over the past year.
1-month percent change (annualized rate)
Year-over-year percent change
Female, over 55, without college degree, renter, high income
Couple, less than 35 years, without college degree, homeowner, high income
Family (3+ persons); head of household 35–55 years old, homeowner, college degree, middle income
We don't know exactly what you are buying, where you shop, and what prices you are paying, so we can't know how closely your particular circumstance matches any of the 144 indexes we came up with. But within some (perhaps large) margin of error, we can construct a market basket based on the spending habits of people who fit your description in rather broadly defined terms, and we can apply the major price components of the CPI to that particular basket of things. So if you want an idea of the rise (or fall) in the cost of living for someone like yourself (and you know you do), head on over to our website, answer a few questions, and sign up. Every month we'll send you an e-mail update on your myCPI shortly after every CPI release.
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May 18, 2015
Sales Flexing Muscle at More Firms
The news in this month's Business Inflation Expectations (BIE) report is that, in the aggregate, firms' unit sales levels continue to strengthen: Specifically, the survey question measures firms' perceptions of current unit sales levels relative to "normal times."
This month, 70 percent of firms indicated their sales levels are at or above what they consider normal. Last November, that share was 61 percent, and one year ago, it was only 54 percent. We typically report the aggregate results in a diffusion index (see the chart), which also shows the overall progression toward "normal times" (a value of 0).
But, typical of aggregate statistics, these results obscure the diversity of experience among sectors. Digging deeper, we found that most (but not all) of the sectors represented in our panel have shown further improvement in their sales performance relative to last November (see the chart).
Retailers and those in the real estate and rental leasing/construction sectors reported the most significant improvement since November, with retailers approaching what they consider normal sales levels. This news is likely to be most welcome to Dennis Lockhart, our boss here in Atlanta, who has put the performance of the consumer on his "must watch" list. Two industries—finance and insurance, and transportation and warehousing—reported above-normal sales levels in our recent survey.
Only the manufacturers in our panel indicated that their sales performance has deteriorated since November, and they are now reporting sales well below normal. Of course, this news shouldn't be terribly surprising given the recent softness in the manufacturing indexes from both the Institute for Supply Management and industrial production data. This information was also on the boss's watch list, as he made clear in his speech:
Well, judging from our May BIE report, manufacturers aren't seeing improvement quite yet.
The stronger dollar was likely reflected in a drag on net exports...[and] looking ahead, I expect net exports to be a modest drag on economic activity over much of the year.... It should be noted, however, that in recent weeks the dollar has stabilized and oil prices have begun to move up a little. These developments, if they stick, could dilute somewhat what would otherwise be drags on the economy in the near term. We shall see.
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May 07, 2015
All Eyes on the Consumer
It appears that the first quarter may have been even worse than we thought. The CNBC rapid update—consensus estimates from a panel of forecasters—registered a decline of 0.3 percent as of yesterday.
Clearly, the year didn't start out so well, but here at the Atlanta Fed we have not yet lost faith. We are sticking to the narrative that 2015 will be another solid year of recovery.
That said, our faith is not blind and, befitting data-dependent policymakers, we need to make some call about what it will take to shake our confidence. In a speech delivered yesterday (May 6) in Baton Rouge, Louisiana, Atlanta Fed President Dennis Lockhart pointed to our current lodestar:
As I assess the possible and necessary contributors to a rebound in the second quarter and thereafter, attention has to fall on consumer spending, in my view.
Is there a case for optimism? We think so, and it is based on the assumption that the fundamentals supporting consumer spending have been stronger than the actual recent pace of expenditures. President Lockhart continues:
What's up with the consumer? It's puzzling. The fundamentals supporting consumption growth seem strong. I consider consumer fundamentals to be real personal income growth, household wealth, access to credit, and consumer confidence. Consumer confidence is, in turn, highly influenced by the broad employment outlook.
To be more precise about that sentiment, the chart below illustrates an experiment based on a simple model that incorporates President Lockhart's description of "fundamentals." To be even more precise, we ask the following question: What would we have predicted for consumer spending growth during the past four months based on the history of actual consumer spending and its relationship to income, employment (and unemployment), confidence measures, and wealth (specifically, equity prices)? We also threw inflation and oil prices into the mix for good measure.
Here's what we got:
In other words, the "fundamentals" suggest the four-month annualized growth of consumer spending should have been in excess of 4 percent, as opposed to the approximately 1.5 percent we actually saw. That is a story we don't expect to persist, and our current view of the year is that first-quarter consumer spending results are not indicative of future performance.
Consumers are, of course, a forward-looking bunch, and it is possible the recent weak spending reflects a looming reality not captured by the simple model described above. But our forecast for now is that consumers will move to the fundamentals, and not vice versa.
As President Lockhart said in Louisiana: "Stay tuned."
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May 01, 2015
Signs of Strengthening Wage Growth?
The average hourly earnings measure for the private sector, reported in the U.S. Bureau of Labor Statistics's Establishment Survey, increased by a meager 2.1 percent in the first quarter (year over year). This increase was barely above the 2.0 percent pace observed in the fourth quarter of last year. However, Thursday's Employment Cost Index report showed a more sizable uptick in the wage and salary growth picture. Year-over-year growth in the first quarter was 2.5 percent, up from 2.1 percent in the fourth quarter of 2014. Another wage measure that we discussed in a February macroblog post also moved notably higher in the first quarter. That measure, which is derived from earnings data in the Current Population Survey, increased from 2.8 percent in the fourth quarter of 2014 to 3.2 percent in the first quarter of this year (see the chart).
This Wall Street Journal article (subscription required) also notes that anecdotal signs suggest a turnaround in wage growth, especially among lower-wage occupations. Overall, we take the evidence to suggest some emerging momentum in wage growth. Rising wage growth is an encouraging sign and is consistent with a tightening labor market.
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- Making Analysis of the Current Population Survey Easier
- Mapping the Financial Frontier at the Financial Markets Conference
- The Tax Cut and Jobs Act, SALT, and the Blue State Blues: It's All Relative
- Improving Labor Force Participation
- Young Hispanic Women Investing More in Education: Good News for Labor Force Participation
- A Different Type of Tax Reform
- X Factor: Hispanic Women Drive the Labor-Force Comeback
- Tariff Worries and U.S. Business Investment, Take Two
- Trends in Hispanic Labor Force Participation
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