CPI, PPI, Home Sales, China, Ports, and the Tax Court
The Numbers
Let’s start with the Consumer Price Index – CPI.
Last month’s monthly CPI came in at 0.4%. Expectations were for 0.6% and lo and behold it was 0.6%. Ouch.
The monthly core was 0.3%, same as last month but above the 0.2% expected. Turning to the annual number…
The annual CPI was 3.4% last month, with expectations of 3.6%.
It came in at 3.7%. Ouch.
The annual core was 2.6%, above last month’s 2.4% and the 2.5% expected. Double ouch.
Just a reminder… the core measurement excludes food and fuel, and it still went up.
I don’t think the Fed is happy about that. But wait, there’s more!
The Producer Price Index – PPI aka the wholesale inflation index – was released.
The monthly measurement increased a teensy-weensy little bit.
Expectations were for 0.6%, up from the previous 0.4%. It came in at 1.3%. For the month.
The annual number came in at 6.3%, up from 5.4% and expectations of 5.5%.
Green face emoji.
The good news is that social security benefits are increasing 3.6%. While they last until 2033.
Existing home sales rose in September for the first time since May.
Sales were up 1.5% over August; expectations were for a decline of 0.8%.
Year over year, sales were down 2.2%.
Inventory is at 1,600,000 units, the highest since 2019.
These sales were contracted while rates were in the sixes.
Last week, the 30-year fixed rate home loan hit 7.4%. With rates now in the sevens, existing home sales will continue to slow.
The Economy… but of what country?
Which country’s auto sales dropped 28% in August from the same month last year?
If you guessed the United States, you are… wrong.
It’s China. OK, here’s another quiz…
The Wall Street Journal reports…
…Gen Z expected a better life than their parents. Instead, they feel burned out and betrayed as good jobs become harder to get and the milestones of adulthood slip away.
Born during… boom years, this generation is now entering adulthood with dwindling opportunities, fiercer competition and a growing sense of despondency that years of hard work won’t pay off.
A weakened economy and rapid AI adoption have shrunk the job market, just as a record crop of graduates enters the workforce. That squeeze is pushing millions into the precarious gig economy, while others buckle under a cutthroat work culture.
So, which country is the WSJ talking about? The sense of déjà vu is strong…
You guessed it… China.
China has always wanted to be like the U.S. and now, they are.
One more China tidbit
There is a University of Madison Wisconsin demographer that has been keeping an eye on China’s population.
In this Report July 13, I stated that the population of the country has already declined by approximately 13,000,000.
That may have been understated.
Our Wisconsin demographer estimates that China’s actual population may be closer to 1,270,000,000, not the 1,413,000,000 currently reported.
His conclusion is based on the number of vaccines distributed to newborns (the amount dispensed doesn’t come close that what would be needed by the “official” numbers) as well as significantly declining population counts of the same cohort (of the 17,700,000 babies born in 2000, only 14,400,000 of that cohort were counted in 2010 and 14,200,000 were counted when they graduated from middle school).
That has the potential for a shrinking economy and a smaller purchasing pool of consumers. Hence the dissatisfaction of the Chinese zoomers.
And thousands of empty apartments.
Imports
Well, it’s the most wonderful time of the year.
In the last couple of Reports, I have discussed how expectations are for retail sales to do materially better than last year’s holiday season. Well…
The Ports of L.A. and Long Beach received 1,055,086 TEU containers in September.
That’s Twenty-foot Equivalent Units. Ok, and so what…
That’s 24% above the same month last year. Ahhh.
Low water in the Panama Canal and security concerns in the Suez Canal is part of it, making the L.A. and Long Beach Ports a better destination.
I’m guessing the expected increase in holiday sales may have something to do with it as well.
It must be that Santa’s checking his list and perhaps more people are being nice this year.
Creative Tax Dodging
From Kiplinger… A man who founded and is president of a 501(c)(3) tax-exempt organization had the charity loan $590,000 on an interest-free basis to an LLC that he wholly owned.
No independent board members here, assuming there was even a board.
He signed the promissory note on behalf of the charity and the LLC.
The founder alleged that the LLC repaid the debt to the charity, but the Tax Court didn’t find this credible.
In other words, there wasn’t evidence of that.
The Court decided that the borrowing violated the tax code’s excess benefit rules.
That would be tax free income.
It hit the founder with a 25% excise tax on the purported loan amount of $590,000 plus an additional 200% excise tax because he didn’t timely repay the excess benefit to the charity as required under the law.
Along with other penalties and fines, he owes $1,327,500 on a $590,000 transaction.
I love it when scumbags get caught.
A couple of things…
I have a focus on China because it is a significant player in the world economy, right behind the U.S., and it has gotten to the point that if China sneezes, the world could catch a cold (oddly enough, right now the world has the flu and we don’t, yet).
At any rate, it’s important to try and estimate the impact that your business would have if China did catch a cold and things started to go wonky. Currently, I think the Mucinex is working for China but at some point, it’s going to wear off. One of the scenarios is that to raise cash, they have an inventory reduction sale, shipping its stuff all over the world at reduced prices, impacting the competition in other countries by flooding the markets with its goods. It helps with cash flow and may keep some banks afloat, but what happens when the sale is done?
It appears that it will be a good Christmas this year in the U.S., but you should be planning for 2027. If oil continues to stay high, what is that impact? If you think it’s impacting us domestically, you should see how its impacting the rest of the world. This is a price shock that some countries must pass on to the buyers of its exports. See the PPI number above.
A somewhat dour Report this week; I’ll see what I can report next week, but I’ll start with the quote below. Also, please look for a California Election issue by the editors of the Report coming out tomorrow.
"Don’t let the fear of striking out keep you from playing the game."
– Babe Ruth, baseball legend
