So, what did you get for Christmas? Mariah Carey’s torturous Christmas album from an odious relative? A package of tube socks from Walmart? What about a MAGA hat that may have once been worn by former President Donald Trump? Well, whatever you received on the big day, you can take comfort in the economic truth that cash is a superior Christmas present to anything to be found in a department store, on Amazon, or in Santa Claus’ workshop.
Although society frowns upon this gift, cash is perhaps the best way to show respect for the other person because you allow that individual to determine the money’s utility. For the most part, whether it is a gift from a colleague or loved one, not extending physical money and choosing a Dan Brown novel or label maker instead shows that you are selecting the utility for that person.
Moreover, some economists contend that Christmas presents are nothing more than a “deadweight loss.” The problem is that the present might not be tailored to the recipient’s desires, or the gift may be the wrong color or size. Considering that approximately two-thirds of Americans plan to return some of their holiday gifts, it is clear the public is not getting it right, much like statist interventionists who believe they can craft consumer behaviors. This will also cost the recipient of the gift more time and perhaps lost money by having to travel to the store and find a suitable replacement.
Suffice it to say, everyone should strive to be like Jerry Seinfeld in The Deal episode and give someone $182 in cash. However, if you are convinced that cash is king, a cost-benefit analysis may be in the cards next year because you will need to mull over some of the unintended consequences, most of them socially related.
Powellflation Fails to Dissipate
Everyone’s favorite inflation measurement, or at the very least, the Federal Reserve’s chief cost of living gauge, shot up to its highest level in nearly 40 years. The reading proved that, once again, the Eccles Building was way behind the curve compared to the rest of a nation that could feel the banknotes exiting their wallets and the digits slowly absquatulating from their bank accounts.
In November, the personal consumption expenditures (PCE) price index advanced 5.7% year-over-year, up from 5.1% in October. The core PCE price index, which strips the volatile food and energy sectors from the calculations, also soared 4.7%, higher than economists anticipated. On a monthly basis, the PCE price index also climbed 0.6%.
But why does the PCE price index matter more than the consumer price index (CPI)? The former measures the out-of-pocket expenditures of all U.S. households, while the latter measures all urban households. No matter how you crunch the data, price inflation is surging everywhere.
Making Consumers Confident Again
Are U.S. consumers confident about the economy again? If so, they are having a tough time proving it. The University of Michigan’s Consumer Sentiment Index climbed to 70.6 in December, up from 67.4 in November. This is slightly higher than the median estimate of 70.4. Consumer expectations rose to 68.3, while current economic conditions advanced to 74.2. Many Americans also lowered their inflation expectations over the next year to 4.8%. Their five-year inflation forecasts were also trimmed to 2.9%.
But their actions might be suggesting otherwise. According to the Bureau of Economic Analysis (BEA), personal income edged up 0.4%, while personal spending eased to 0.6% in November. Despite spending growth slowing down ahead of the holiday season, they still spent more than they earned, likely resulting from 39-year high inflation. Whether this will hurt retail sales data for Christmas or not remains to be seen, but the jury is still out on if consumers are giving the Biden economy the thumbs up or thumbs down with their wallets.
Aneta Markowska, the chief economist at Jefferies LLC, summarized the present situation in a recent research note: “We are still on track for very strong fourth-quarter consumption, but I am now seeing that that momentum continues to fade.” Over the next several weeks, the data will be crucial for President Joe Biden, the financial markets, the U.S. central bank, and the private sector.
~ Read more from Andrew Moran.