by Louis Navellier
November 5, 2024
The Fed’s favorite inflation indicator, the Personal Consumption Expenditure (PCE) index, was released last week, rising only 0.2% in September and +2.1% in the last 12 months. That may have helped to squelch inflation fears a little, but pundits are saying that if Donald Trump is elected, inflation could surge back again, especially due to his promised across-the-board tariffs, and punitive tariffs against China.
Candidate Trump has a different opinion. At his Madison Square Garden rally, Trump promised to contain inflation and cut gasoline prices by 50% by aggressive new drilling and fracking to increase supplies.
This week, since the PCE is close to the Fed’s 2% inflation target, the FOMC (meeting this week) is expected to cut key interest rates by 0.25% on Thursday, November 7th, but the core PCE rate may concern the Fed in the upcoming months. (Treasury yields were largely unimpacted by the PCE report).
Crude oil prices declined sharply in the wake of Israel’s attack on Iran, since Iranian oil facilities were not targeted. In addition, this is the time of year when global crude oil demand typically declines as winter approaches. As it turns out, Israel was in close consultation with the Biden Administration, which did not want to see higher energy prices going into the election, so they put pressure on Israel to avoid striking energy facilities and target only air defense systems, missile-making facilities and missile launchers.
Since Israel has the upper hand in this fight with Iran, for now, especially with Iran’s air defenses crippled, it will be interesting to see if Iran backs down, since its missile attacks have been essentially futile so far.
Speaking of inflation, in the euro-zone, consumer inflation rose to a 2% annual rate through October, up from a 1.7% annual pace through September. The European Central Bank (ECB) is still on track to cut interest rates by 0.25%, since many countries, led by Germany, are now in the midst of a contraction. ECB President Christine Lagarde remains worried about the U.S. imposing tariffs on the euro-zone and is warning about potential inflation. Lagarde remains hostile to a potential Trump Administration and is speaking out about potential tariffs. Ironically, the euro-zone’s tariffs are currently higher than U.S. tariffs, so Lagarde could propose reducing euro-zone tariffs to fend off Trump’s criticism, but she remains mute on that option.
Growth in Europe (and especially Germany) now comes from Germany’s VW Group, which operates 10 manufacturing plants with 300,000 employees in Germany. The company is now preparing to close three of its German plants, cut tens of thousands of jobs and slash pay 10% for its remaining staff. Ouch!
The main problem is that VW Group is losing market share in China and, despite being third in global EV sales after Tesla and BYD, VW’s sales and profitability remain under pressure. Another way to explain what is happening is that deflationary forces in China are spreading globally, as China dumps its cheaper EVs into Europe and other countries. Since many of VW Group’s woes are related to a green transition and the European Union’s (EU) stricter emission standards, it will be interesting to see if the EU will change any of its rules. In the meantime, German Chancellor Olaf Scholz is expected to be a casualty of VW’s woes, since he backed the EU emission rules that are now destroying the German auto industry.
The Wall Street Journal on Tuesday had an opinion piece that said of VW, “The German company’s layoffs and pay cuts are a warning to America about Biden-Harris climate policies.” The Journal pointed out that Germany’s electricity prices are well above the European Union’s average, which undermines its manufacturing base. Germany simply cannot compete with Hungary, Poland and Slovakia, which have lower electricity prices, so manufacturing migrates to where there is cheaper electricity. The WSJ opinion piece concluded, “Europe’s auto-industry travails are painful evidence that net-zero climate policy is the worst act of economic masochism in the West since the 1930s. At least the news comes in time for Americans to contemplate whether they want to continue making the same mistakes that Europe has.”
The U.S. Jobs Report Turns Negative
In the final monthly jobs report before the election, the Labor Department reported that only 12,000 net new payroll jobs were created in October, which was substantially lower than the economists’ consensus estimate of over 100,000. What’s more, 40,000 of those jobs were government jobs, so private sector jobs were a net 12,000 job loss. This lackluster payroll report was clearly influenced by the Boeing strike and Hurricane Milton. Specifically, manufacturing jobs declined by 46,000 in October, due largely to 44,000 transportation jobs lost due to the Boeing strike. The other shocking statistic from the Labor Department was that the August payroll report was revised down by 81,000 (from 159,000 down to 78,000 jobs) and the September report was revised down by 31,000 jobs, for a total downward revision of 112,000 jobs.
We have now seen downward revisions in 14 of the last 16 monthly jobs report, making you wonder why they don’t just wait until they think the number is accurate before releasing it to the public.
Amazingly, the unemployment rate remained unchanged at 4.1% in October, even though the number of jobless workers rose by 150,000, since the size of labor force shrank. The labor force participation rate declined to 62.6%, another sign that Hurricane Milton likely disrupted the overall labor pool. Clearly, the October payroll report was a statistical mess, and more revisions are anticipated in the upcoming months.
In one of those frustrating conflicts of statistical reports, the private firm, ADP, reported on Wednesday that 233,000 private payroll jobs were created in October, which was substantially higher than the economists’ consensus expectations of 111,000. In contrast to the Labor Department, the ADP September private payroll report was revised up to 159,000, up from 143,000 previously reported. I can’t explain the huge differences, other than that ADP works with private payroll departments and the Labor Department makes surveys, but if you want the complete picture, you must always dive into the details of each report.
In other economic news, the Commerce Department on Tuesday announced that that trade deficit soared by 14.9% in September to $108.2 billion. Imports surged 3.8% in September, while exports declined by 2.6%. Part of this is due to the anticipation of a port strike, which could begin again in January.
The U.S. dollar is back at its highest level in three months, thanks largely to higher Treasury yields in response to the anticipation of higher inflation and hence higher interest rates for longer, as well as a larger federal deficit, as the Treasury announced it would borrow $1.38 trillion over the next six months.
On Friday, the Institute of Supply Management (ISM) announced that its manufacturing index declined to 46.5 in October, down from 47.2 in September, so the U.S. manufacturing sector remains in a recession (any number under 50 is a contraction) as 11 of 16 manufacturing sectors reported contracting in October.
Navellier & Associates, owns Nvidia Corp (NVDA), in managed accounts and a few accounts own Tesla (TSLA), and Intel (INTC), per client request in managed accounts. We do not own Volkswagen AG Unsponsored ADR (VWAGY), or BYD Company ADR (BYDDY). Louis Navellier and his family own Nvidia Corp (NVDA), via a Navellier managed account, and Nvidia Corp (NVDA), in a personal account. They do not own Intel (INTC), Tesla (TSLA), or BYD Company ADR (BYDDY), personally.
The post 11-5-24: Inflation is Down for Now, But What About 2025? appeared first on Navellier.
