While in many ways the strong January jobs numbers were good news for the economy and workers, there’s a run of disturbing news in other reports.
The Producer Price Index for final demand was up 0.7% in January, seasonally adjusted. Unadjusted over the last 12 months, prices were up 6.0%.
“In January, a 1.2-percent rise in prices for final demand goods led the advance in the final demand index,” the Bureau of Labor Statistics reported. “Prices for final demand services also moved higher, increasing 0.4 percent.”
There was some good news for CRE, as the PPI for final demand construction was 16.6%, down significantly from the 18.5% the previous month. However, that is still a very high 12-month rate of price growth.
Overall, the jump in final demand goods was the largest since June 2022, though most of the increase is the result of a 5.0% month-over-month leap in final demand energy. Core PPI — final demand goods less food and energy — was up by 0.6%. Prices for final demand foods were down 1.0%.
The 12-month figure was lower than the pace of the previous few months — 8.0% in October 2022, 7.4% in November, and 6.2% in December. However, it’s an indication that wholesale goods prices are still climbing faster than experts had expected and that inflation may be more intransigent than anyone would like.
That would become more fodder for the Federal Reserve’s Federal Open Markets Committee to decide on maintaining rate increases.
More hikes on the baseline federal funds rates would mean additional increases to short-term financing, making property deals even harder to structure, possibly resulting in even stricter lender underwriting.
There are also additional economic complications, according to the most recent budget and economic outlook report from the Congressional Budget Office:
“CBO projects a federal budget deficit of $1.4 trillion for 2023. (Deficits and spending have been adjusted to exclude the effects of shifts that occur in the timing of certain payments when October 1 falls on a weekend.) In the agency’s projections, deficits generally increase over the coming years; the shortfall in 2033 is $2.7 trillion. The deficit amounts to 5.3 percent of gross domestic product (GDP) in 2023, swells to 6.1 percent of GDP in 2024 and 2025, and then declines in the two years that follow. After 2027, deficits increase again, reaching 6.9 percent of GDP in 2033—a level exceeded only five times since 1946.”
Government debt held by the public under this project would rise from $24.3 trillion at the end of 2022 to $46.4 trillion by the end of 2033. As a percentage of GDP, that would end up at 118% of GDP, a 210-basis point increase from 2022.
According to an Associated Press report, the CBO said that Social Security would only be able to pay 80% of benefits across the board and, as the CBO and groups like the Peter G. Peterson Foundation have warned, debt service would far and away become the single largest item on the federal budget, bigger even than defense spending.
“’The debt trajectory is unsustainable,’ CBO director Phillip Swagel told journalists at a press conference after the report’s afternoon release,” according to the AP story. “The CBO can’t tell Congress what to do, he said, ‘but at some point, something has to give — whether it’s on spending or revenue.’”