The specter of stagflation haunts US stock market

One of the typically least interesting pieces of data routinely published by the US government got the undivided attention of economists the morning of January 26. Retail inventories for December 2021 registered the biggest monthly increase since the data were first published in 1992. Retail sales dropped unexpectedly in November and December, leaving stores with unsold goods.

That’s a bad sign for an economy that has run on government-funded consumption since the pandemic hit in March 2020. The $6 trillion in federal stimulus pushed the level of retail sales back up to the pre-2008 trend. American consumers never caught up to the earlier trend line during the dozen years of post-2008 recovery, until federal subsidies occasioned the biggest increase in household income in US history.

Charts: David P. Goldman

In a matter of months, US consumers made up for twelve years of below-trend retail spending. America’s sclerotic supply chains couldn’t keep up with the surge in demand. The result was the highest inflation rate since 1982.

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