Quick Note: Hurricane recovery efforts continue to distort the picture. Recovery efforts mean a lot of spending on building materials as well as replacing cars and furniture.
Vice Index Data: Downshift Is Reversing
- Vice Index points to some acceleration
- Households digging into savings
Retail data is positive mostly thanks to short-term hurricane supply-chain disruptions.
First up was fear and stock-piling. Businesses were afraid of supply-shortages so they paid extra to ensure no disruptions occurred.
- Wages rose
- Overall spending rose on re-building/recovery efforts, but savings were hit
- Discretionary spending took a hit
Wage Growth Up – But Already Reversing
Among other things, truckers and construction workers were in big demand post-hurricane.
But that demand was short-lived. As recent payroll data shows, the wage spikes in September largely reversed in October. But not all completely reversed.
The supply-chain disruption reversed in full (for example, wholesale wages). Construction wages remain elevated: the rebuilding efforts on top of ongoing home construction demand continues to boost wages.
The implication is that October compensation growth will be slightly above trend.
Compensation turned up while the hurricane was underway.
But October earnings data shows the hurricane was underway…. sharp reversal
Hurricane’s Extra Spending Crowds Out Other Finances
The extra spending comes at a cost: it’s squeezing out spending on other sectors and denting savings.
Spending on dining out was already slowing. It’s slowed even more. It’s a prime example of households under pressure as spending gets squeezed out. (Hurricanes likely boosted dining out – the thousands of people displaced were unable to cook their food and had to rely on restaurants.)
Another sign of households under pressure is the drop in the savings rate.
(The following chart averages the rates of gambling growth for Detroit, Maryland, Connecticut, Atlantic City, & Pennsylvania.)
Gambling is still struggling…
Last year September, Hurricane Hermione was bearing down and the weather kept people indoors. This year the weather has been much more mild and so gamblers were out and about. Especially in Atlantic City (which lost a lot of revenue to the hurricane last year because it came around Labor Day weekend.)
It almost exactly mirrors the Food Service spending trajectory and the trend is the same: Americans are slowing their fun-money spending.
Escort prices: Future expectation is expected to be limited
Starting in Q4 2017, escort prices rose an average of $50 an hour. But they stopped rising by Summer time.
In terms of inflation expectations, it suggests that households expected inflation to rise in 2017 BUT they are not expecting much inflation in 2018.
First, understand that escort prices reflect inflation in at least two ways:
- Current inflation: Hotels are the biggest cost driver for escorts, followed by beauty supplies.
- Forward inflation: supply & demand factors drive prices up or down. In an expanding economy, it’s the classic case of more money chasing a limited amount of goods.
Inflation has cooled…
Hotel price inflation was strong in 2016 but cooled in 2017. (It could be tied to Aribnb, which competes with hotels.) The 10%+ increase in 2016 hotel prices contributed to escort price hikes.
And 2017’s slowdown in hotel price inflation relieves pressure to raise rates any further.
Demand remains strong too…
The key consideration in any escort pricing discussion is affordability. Assume that the supply of escorts has stayed relatively constant. For prices to go up without a drop in demand points to available discretionary funds.
An interesting data point is that, in response to the price hikes, customer pushback was minimal.
That is, on the chat boards on the various websites that cater to the escort industry, complaints about price hikes were immediate but receded fairly quickly.
That speaks to customer expectations about inflation: back in 4Q16/1Q17, escort’s customers accepted inflation. (They didn’t like it, but they understood and accepted it, as evidenced by (1) limited complaints and (2) no reduction in purchase activity.)
The lack of price hikes signals lower expectations of future inflation.
Editor of Moneyball Economics
P.S. Struggling to keep up with the market gains so far this year?
Well, Moneyball Traders got my new ETF Selector strategy July 11th.
The returns speak for themselves. And they’re CRUSHING the market returns. Check it out here.