With most of the companies in the S&P 500 Index having reported 3rd quarter earnings, at this point it’s not so much how well they have done, but what they’re saying that matters. At the end of October, it was noted that nearly 400 companies had mentioned “supply chain issues” in their quarterly calls.
As of last week, more than half of the companies in the S&P had stated concerns about “inflation” in their quarterly earnings calls. So far, there is little progress from either a fiscal or Fed policy standpoint that would ease inflation, fuel prices, or supply chain issues.
Last week, the Producer Price Index showed another monthly increase (18th consecutive monthly increase). Producers had been willing to absorb much of the increase in costs in order to retain consumer demand.
However, the last 3 months show a considerable pickup in consumer prices. The Consumer Price Index for October was released last week and showed the gap between PPI and CPI is closing. Consumer prices have increased for 17 consecutive months and show no signs of slowing in the near term. This week Retail Sales will be scrutinized to determine how long the consumer demand will hold up.
The rest of the economic data wasn't exactly rosy either. While Wholesale Inventories increased greater than expected - good news for the supply chain crisis - and the Consumer Bureau's measure of employment trends improved, other data disappointed. Small Business optimism dropped for the 2nd consecutive month. The JOLTs report showed that 10.4 million jobs were open in September, more than the market expected.
What's more disappointing is the number of people who quit their jobs in September. A total of 4.4 million people have quit their jobs this year, with the September increase being 164,000. Lastly, the preliminary reading of November Consumer Sentiment declined to low of 66.8. Sentiment wasn't that bad during the first few months of the pandemic.
The key to the remainder of the year and into early next year is the consumer and how much spending occurs during the holidays. Retail Sales are expected to have increased 1.1% in October. That would be good news in light of inflation and supply chains. According to the National Retail Federation, holiday sales are expected to rise between 8.5% and 10.5% year-over-year. If that turns out to be correct, it would mark an all-time high for holiday sales growth. However, that result would be a double-edged sword. Higher sales means continued economic growth. However, more consumers chasing fewer goods means continued inflation.