U.S. CPI Increases Steadily M/M; Core Prices Pick Up

Consumer prices increased 0.2% (2.8% y/y) during May for the second straight month. The gain matched expectations in the Action Economics Forecast Survey. The CPI excluding food & energy rose an expected 0.2% (2.2% y/y) after a 0.1% rise.

Last month's increase was led by a 0.9% rise (11.7% y/y) in energy prices which followed a 1.4% strengthening during April. Gasoline prices increased 1.7% (21.8% y/y) after a 3.0% rise, but fuel oil costs fell 0.7% (+25.3% y/y) on the heels of a 2.7% increase. Electricity prices ticked 0.1% higher (1.0% y/y) after a 0.6% decline, but natural gas prices fell 0.6% (-0.8% y/y), off for the third consecutive month.

Goods prices excluding food & energy slipped 0.1% for the third straight month. The 0.3% y/y decline in prices, however, moderated from the 1.0% y/y drop in October. Prices for used cars & trucks fell 0.9% (-1.7% y/y), down for the fourth straight month. New vehicle prices increased 0.3% (-1.1% y/y) after declines in three of the prior four months. Recreation product prices fell 0.7% (-3.3% y/y) as prices for video & audio products dropped 0.8% for the third straight month (-12.6% y/y). Furniture & bedding costs were off 0.3% (-0.1% y/y), but appliance prices rose 0.3% (-0.1% y/y) following two months of strong increase. Medical care product prices surged 1.3% (2.7% y/y) after a slight dip, but apparel prices held steady (-1.4% y/y) following a 0.3% rise.

Services prices less energy increased 0.3% (3.0% y/y) after a 0.2% rise. Recreation services led the gain with a 0.4% rise (+1.8% y/y) which followed two months of decline. Education & communication services prices also improved 0.4% (0.7% y/y) after declining during each of the prior four months. Shelter prices rose 0.3% (3.5% y/y) for the second straight month reflecting a 0.3% increase (3.6% y/y) in rents of primary residences. The owners' equivalent rent of primary residences increased 0.3% (3.4% y/y) for the third straight month. Medical care services prices eased 0.1% (+2.3% y/y) after a 0.2% gain, but public transportation costs fell 1.2% (-2.8% y/y) led by a 1.9% drop (-6.6% y/y) in airline fares.

Food prices held steady last month (1.2% y/y) after increasing 0.3% in April. Fruit & vegetable prices eased 0.3% (-0.4% y/y) after a 1.0% jump. Meat prices declined 0.7% (+1.4% y/y). Egg prices fell 3.3%, but were up by nearly one-quarter y/y. Dairy & related product prices eased 0.1% (-0.6% y/y), after a 0.4% rise. Cereal & bakery product prices held steady (-0.2% y/y), following a 0.2% dip. Nonalchoholic beverage prices rose 0.4% (-1.3% y/y), after a 0.6% decline.

The consumer price data can be found in Haver's USECON database with additional detail in CPIDATA. The Action Economics survey figure is in the AS1REPNA database.

The National Federation of Independent Business (NFIB) indicated that its Small Business Optimism Index increased to 107.8 during May following two months near 104.8. It was the strongest reading since the third quarter of 1983.

A record 34% of firms indicated that now was a good time to expand the business. A stronger 30% of firms planned to make capital outlays, the most in nine months. A higher 37% of firms expected the economy to improve, the most in three months; but that remained down below the 2017 average of 39%. A greatly increased 31% of firms were expecting higher real sales, the most in six months. Eighteen percent of businesses were planning to increase employment. That was up m/m but still well below the 24% November high. Meanwhile, a lessened 48% indicated that there were few or no qualified candidates for job openings, down from the December high of 54%.

Pricing pressure strengthened as a net 19% of firms were raising average selling prices, the most since September 2008. Twenty-six percent of firms were planning to raise prices, also a ten year high. A record 35% of firms increased worker compensation, but a lower 20% of businesses were planning to raise compensation.

Finding the financial resources to expand business remained relatively easy. A stable five percent of businesses reported difficulties in obtaining credit, up from three percent during the first quarter.

This survey inquires about problems facing small business. The most pressing problem in May continued to be labor quality as a near-record 23% indicated a problem, up from four percent in 2010. A lower six percent of firms reported the cost of labor as the most significant problem. Government requirements became much less worrisome at 13%, down from 22% in 2015. A still-low 18% indicated that taxes were the largest problem, down from a December 2014 high of 27%. Competition from large businesses remained high at 10%, and insurance costs/availability worried a lessened 10%. Poor sales remained at an expansion low of 8% while financial & interest rate problems (1%) remained negligible. Price inflation problems strengthened to a six month high of three percent reporting a problem. 

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. The index is based 1986=100. The typical NFIB member employs 10 people and reports gross sales of about $500,000 a year.

The NFIB figures can be found in Haver's SURVEYS database.

The U.S. Treasury Department reported that the federal government ran a $146.8 billion budget deficit during May 2018. That compared to a $88.4 billion deficit during May 2017. A $119.5 billion had been expected in the Action Economics Forecast Survey. During the first eight months of fiscal year 2018, the government's budget deficit totaled $532.2 billion, up 22.9% versus $432.9 billion in the first eight months of FY'17.

Net revenues rose 2.6% y/y so far in FY'18 after a 1.5% increase during all of last fiscal year. Individual income taxes increased 9.0% y/y following a 2.7% rise during all of last fiscal year. The increase in social insurance receipts eased to 2.1% y/y from 4.2% last year, and excise taxes improved 11.5% y/y and reversed last year's 11.8% decline. The rate of decline in corporate income taxes quickened to -25.4% y/y with the corporate income tax cut, after taxes fell 0.8% during all of last fiscal year.

Government spending increased 5.9% y/y so far in FY'18 compared to 3.3% growth during all of FY'17. National defense spending rose 5.2% y/y after slight increases during the last two fiscal years. Health insurance spending grew a steady 4.1% y/y, while Medicare outlays increased an accelerated 2.5% y/y. With the lower unemployment rate, income security payments slipped 0.6% y/y after their 2.1% FY'17 decline. Social Security payments rose an accelerated 4.3% y/y. Interest payments gained 17.5% y/y so far in FY'18 after increasing 9.2% last fiscal year.

Haver's data on Federal Government outlays and receipts are contained in USECON. Considerable detail is given in the separate GOVFIN database. The Action Economics Forecast Survey numbers are in the AS1REPNA database.