Confidence Falls as Prices Rise: February 7 – 11

Prices and sentiment are moving in opposite directions. Here are the five things we learned from U.S. economic data released during the week ending February 11. 


Consumer inflation surges to a 40-year high in January. The Bureau of Labor Statistics tells us that the Consumer Price Index (CPI) jumped a seasonally adjusted 0.6 percent during the month, matching December’s increase and just below October’s (+0.9 percent) and November’s (+0.7 percent) advances. CPI has risen 7.5 percent over the past year, its largest 12-month comparable since 1982. Energy and food CPI both surged at a 0.9 percent rate, the latter despite gasoline prices dropping 0.8 percent. Five of six grocery food categories experienced rising prices. Net of energy and food, core CPI jumped 0.6 percent in January and 6.0 percent over the past year. Prices rose for used vehicles (+1.5 percent), apparel (+1.1 percent), new vehicles (+1.0 percent), transportation services (+1.0 percent), medical care commodities (+0.9 percent) and services (+0.6 percent), and shelter (+0.3 percent). 

Consumer sentiment plummeted to a decade-low in early February. The preliminary February 2022 Index of Consumer Sentiment reading 61.7 (seasonally adjusted) was down 5.5 points from January, 15.1 points from a year earlier, and its lowest point since October 2011. The University of Michigan also reports that its current conditions index lost 2.5 points to 68.5 (February 2021: 86.2) and the expectations index shed 6.7 points to 57.4 (February 2021: 70.7). The press release linked the recent deterioration in confidence to “weakening personal financial prospects, largely due to rising inflation, less confidence in the government’s economic policies, and the least favorable long term economic outlook in a decade.” 

Inflation weighs on small business owner confidence. The Small Business Optimism Index, from the National Federation of Independent Business, fell by 1.8 points in January to a seasonally adjusted 97.1 (1986=100). The measure has not been this low since February 2021. Only one of the index’s ten components (expected economic conditions) had a positive reading. Falling the most were components for expected real sales, plans to increase inventories, and earnings trends. Twenty-two percent of survey respondents said inflation was “their single most important business problem,” matching a 41-year high. Further, a net 61 percent of small business owners were raising prices (the highest percentage saying so since 1974).

Wholesale inventory expansion outpaced sales growth in December. The Census Bureau estimates merchant wholesaler inventories swelled 2.2 percent during the month to a seasonally adjusted $790.8 billion. In December, durable and nondurable goods inventories increased 2.6 percent and 1.6 percent, respectively, with farm products the only major category experiencing a drop. Wholesale sales inched up 0.2 percent to $295.1 billion, with a 0.5 percent gain for durable goods outpacing the 0.1 percent decline for nondurables. The resulting inventories-to-sales (I/S) ratio of 1.25 was a three-basis point improvement from November even as it remained three-basis points below its year-ago reading. The five-year I/S ratio average between 2015 and 2019 was 1.32. 

Exports, imports, and the trade deficit swelled in December. The Census Bureau and the Bureau of Economic Analysisreports that exports grew 1.5 percent during the month to $228.1 billion and imports jumped 1.6 percent to $308.9 billion. The resulting trade deficit of -$80.7 billion was up 1.8 percent from November and leaving it just below its record of -$80.8 billion in September. The U.S. racked up a record -$859.1 billion trade deficit in 2021, up 27.0 percent from the previous year. In December, the goods deficit swelled by $3.2 billion to -$101.4 billion and the services surplus rose by $1.8 billion to +$20.7 billion. The former grew thanks to increased imports of consumer goods (including cellphones, toys, and household appliances), passenger cars, and capital goods). In 2021, the U.S. had its largest goods deficits with China (-$355.3 billion), the European Union (-$219.6 billion), and Mexico (-$108.2 billion).

Other U.S. economic data released over the past week:

  • Jobless Claims (Week ending February 5, 2022, First-Time Claims, seasonally adjusted): 223,000, -16,000 vs. the previous week, -640,000 vs. the same week a year earlier). 4-week moving average: 253,250 (-70.4% vs. the same week a year earlier). 
  • Monthly Treasury Statement (January 2022, Fy22 Federal Budget Deficit to Date): -$259.0 billion (vs. 1st 4 Months of FY21: -$735.7 billion).
  • Mortgage Delinquencies (2021Q4, Delinquency Rate for Mortgage on 1-to-4 Residential Properties, seasonally adjusted): 4.65% (down 23-basis points vs. 2021Q3; down 208-basis points vs. 2020Q4). 

The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.

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