The Buzz on Business for August 18th, 2024 

Vice President Harris released two planks of her economic platform last week designed, she says to fight high prices for consumers. 

One of these focuses on the housing market and the high prices we’ve seen in that sector, both for buyers and renters. We’ll deal with that proposal in another podcast, probably later this week. 

Today, we want to focus on her plan to control grocery prices. Apparently maintaining that the President, through the Federal Trade Commission, already possesses this power and that no legislation is necessary, Harris proposes that if elected, to punish corporate grocers who engage in what she describes as price gouging. 

We make no secret that we think this is bad policy and believe it will be counterproductive, but we very much see where the Vice President is coming from. 

Throughout the last one hundred plus years, there have been periods when prices for consumers increased much faster than have producer prices. In the 1990s consumer prices rose by 40.4%, while wholesale prices increased by just 28.3%. Likewise in the 2000s, consumers seemed to be getting the wrong end of the stick. 

But over the last two decades, that gap has closed dramatically and in fact since 2010 they’ve moved pretty much in lock step. 

Although there have been exceptions. Over the last four years, during a time when the Consumer Price Index and grocery prices have spiked, the Producer Price Index has tended to increase at a slower pace, at least at times. For example, in February of 2021, consumer prices rose by a whopping 1.2% while the PPI was flat. Likewise, in March of 2022, Consumer prices rose by 1% while the PPI rose just 0.30%  

And then there are the profit margins of grocery chains. 

While there are explanations for this discrepancy, the raw numbers are enough to make any consumer on a budget a little angry. 

Then there is the issue of grocery store profits. Typically, grocery stores earn about $1.20, or so, for every one-hundred dollars in sales. That profit margin spiked to over 3% industry wide in 2020 and while profit margins have reverted to the mean, they remain at historically high levels. 

Returning to just the last four years and while there have been months that might indicate consumers are being squeezed, there are just as many months that indicate just the opposite. There are a number of months where producer prices went up faster. Over the last 48 months, the Producer Price Index has increased by 17.6%, Consumer Prices have increased 17.3%. And, it needs to be said, Average Hourly Earnings increased by 16.7%. 

This is a dead heat. 

We understand that price increases, especially in food, are infuriating, we don’t see anything that might accurately be described as price gouging. 

Corporate greed is a constant in the human conditions, not a variable. It’s why the S&P 500 is up 30% this year. Every business seeks to maximize profits. But the hardest job for any business is getting a customer. The second hardest is keeping them. The best way to do that is by and through competitive prices. There is an ebb and a flow to this dynamic. But if one looks at the change in the number of hours an average person must work in order to purchase 1000 calories of food, that dynamic, over time, through innovation and productivity, accrues to the consumers benefit.  

We will examine this dynamic further during the week but based upon these data, we cannot support the case for an intervention into the prices of groceries by the government. 

Stock Market Report 

A pretty good day on Wall Street on Friday. Stocks and Bonds rallied across the board to finish out the best week so far this year. But breadth, while positive, fell from recent levels and volume was very, very low. Still, a win is a win. Am I right? 

• The Dow Jones Industrials were up 97 points, that’s just shy of one-quarter of one percent, and they finished the week at 40,660. 

• The S&P 500 was up 0.20%, that 11 points on the S&P, and it closed at 5,554. 

• The NASDAQ Composite was likewise up 0.20% and it closed at 17,632 for a 37-point gain. 

• And the Russell 2000 was up a bit over six points, that’s 0.30% and it starts the week this morning at 2,142. 

Bond Market Report 

Rates were down, bonds up on Friday. 

• The yield on the 2-year treasury was off four basis points and settled at 4.054%. 

• The 20-year was off three ticks, and it closed at 4.250% 

Oil, Gold, and Bitcoin 

• Oil surrendered virtually all of its recent gains on Friday. It fell $2.62 and a barrel now changes hands at $75.54. 

• Gold had a pretty good day. It was up $53.00 and closed at a new all-time high at $2,546.50. 

• And Bitcoin had a pretty good day. It was up $2,686.86 and at 4:00 PM ET Friday stood at $59,743.12. 

Economic Calendar Heats Up This Week 

Nothing on the Earnings calendar on Friday but a busy Economic calendar yielded mixed news. 

• Building Permits and Housing Starts came in well below expectations. If you’d like to know why housing prices have skyrocketed in recent years, this is the stat for you. Housing starts have been steadily falling for almost two years and are at half the level they were back in 2005.  

• The Atlanta Fed’s GDP Now Report came in well below expectations. 

• And the surveys of consumers done each month by the University of Michigan came in mixed. Consumer Sentiment and Consumer Expectations came in above expectations and in generally bullish territory. Consumer expectations for inflation one and five years hence did not. It appears that the consumers surveyed expect inflation to persist well into the future. 

The Jackson Hole Symposium gets underway this week. Typically, there isn’t much news generated from this annual meeting of business, political and economic thought leaders. Inexplicably, we weren’t invited but we’ll be watching, nonetheless. 

We also get more data from the labor market and the housing and manufacturing sectors. We will do what we do so all you’ve got to do is keep it right here on the Buzz.