Thread by @DianeSwonk

Retail sales slide 0.5% from April in May on slowdown in vehicle sales. Level of spending remains on track to post a double digit gain in 2Q, despite set back. Supply constrained on vehicles, while surging prices souring demand.

Big pivot to spending to see and be seen. Increase in department store, specialty clothing, health and beauty - can’t find my favorite lipstick - and at restaurant and bars.

Dynamic in spending of food and drinking place really important. We estimate that we have exceeded the pre-pandemic peak hit in Feb 2020 in May by 1.3%, after adjusting for inflation. BUT EMPLOYMENT STILL DOWN STAGGERING 1.5 M.

We have seen large retailers and large chains, who are also better positioned to leverage the adoption of new tech and absorb higher wages than small businesses, up wages and gain market share. Some jobs were eliminated entirely. Food behemoths automating orders and payments.

This is concentrating more employment at large companies and could eventually undermine worker bargaining power as we get through initial frictions of reopening. That could undermine dynamism and worker bargaining power as we get into 2022.

The phenomenon supports concept that current hikes for low wage workers represents a step function, not the start of a persistently higher cycle in wages. The catch up in good for low wage workers but could be a one time event for low wage workers, esp w/rapid adoption of tech

PPI was much hotter than CPI in May, underscoring what producers where absorbing. Big mover was in retail margins on vehicles, which jumped more than 27%, largely on used vehicles. Consumer attitudes soured on spending on vehicles and home in May.

Prices are the bridge between supply and demand. Consumers are being repelled by high prices in key areas of economy, even though they are armed with $2 trillion in extra saving coming emerging from quarantines. Same time supply moving to catch up with demand.

Those relationships won’t keep us from suffering a long hot summer but, for moment, are signs that the flare in inflation we are seeing is at least somewhat transitory. That matters for the trajectory of rate hikes and how Fed responds.