SHI 2.14.18 Happy Valentines Day

SHI 2.7.18: Bonds, Bunds and Gilts
February 7, 2018
SHI 2.21.18 Buy a House
February 21, 2018

Our steakhouses had a good day on Wednesday.  Happy Valentines Day, steakhouses!

With a SHI10 reading of 218, our index reached its highest level this year — by a significant margin.  Interestingly, so did the Consumer Price Index (CPI).  Why?

  • I suspect many folks are celebrating their love for steaks, and their significant other, this Saturday.  Yes, the US economy is sizzling…but it’s not that hot.
  • The CPI, one gauge of inflation, is definitely higher.  But only one of the three “necessities” is WAY more expensive:  clothing.   Apparel prices were up 1.7% last month.   Blame the weak US dollar — this is an import issue.  Food and shelter were both up only 0.2%.   We are now importing a bit of inflation.
  • But don’t blame the CPI for the 2.9% 10-year Treasury.  Blame the increase in bond supply.  Blame the central banks and, even more, blame US budget deficits.

 

Welcome to this week’s Steak House Index update.

 

If you are new to my blog, or you need a refresher on the SHI10, or its objective and methodology, I suggest you open and read the original BLOG: https://steakhouseindex.com/move-over-big-mac-index-here-comes-the-steak-house-index/


Why You Should Care:   The US economy and US dollar are the bedrock of the world’s economy.   This has been the case for decades … and will continue to be true for years to come.

Is the US economy expanding or contracting?

According to the IMF (the ‘International Monetary Fund’), the world’s annual GDP is almost $80 trillion today.

During the calendar year 2017, US nominal GDP increased by $833 billion … by an amount approximately equal to the market capitalization of Apple.  At the end of 2017, US ‘current dollar’ GDP was about $19.749 trillion — about 25% of  the global total.    Other than China — a distant second at around $11 trillion — no other country is close.

The objective of the SHI10 and this blog is simple: To predict US GDP movement ahead of official economic releases — an important objective since BEA (the ‘Bureau of Economic Analysis’) gross domestic product data is outdated the day it’s released.

Historically, ‘personal consumption expenditures,’ or PCE, has been the largest component of US GDP growth — typically about 2/3 of the total.  In fact, the majority of all US GDP increases (or declines) usually result from (increases or decreases in) consumer spending.  This is clearly an important metric.   The Steak House Index focuses right here … on the “consumer spending” metric.

I intend the SHI10 is to be predictive, anticipating where the economy is going – not where it’s been. Thereby giving us the ability to take action early.


Taking action:  Keep up with this weekly BLOG update.  Not only will we cover the SHI, but we’ll explore related items of economic importance.

If the SHI index moves appreciably -– either showing massive improvement or significant declines –- indicating growing economic strength or a potential recession, we’ll discuss possible actions at that time.


The BLOG:

Here’s an interesting chart:

Look at the price jump for apparel.   Up 1.7% in January as measured by the CPI.

Food, shelter and clothing — the 3 necessities — bear close scrutiny.   Almost all textiles and apparel are imported.  On January 1st, the US dollar index (per Bloomberg) was 92.2 … on January 31st, it hit 89.9 — a 2.6% drop.  And the likely culprit for the price increase.

When a country’s currency falls in value, when measured against foreign currencies, import prices rise.  That’s likely what’s happening here.  We’re importing a bit of inflation.  If the dollar weakness reverses, this will reverse as well.  This should reverse itself in the coming months.

Our steakhouses are in high demand this Saturday!   Grills all over the country are flaming and hissing!   Take a look at this chart:

 

 

With the only exception of NYC, steaks are selling like hotcakes!   Look at Seattle:  This week, an SHI of 61!   I think that’s the highest we’ve ever recorded.   Here’s our long term trend:

 

Yes, love is in the air.   The love of steaks…baked potatoes…expensive bottles of wine.

And the love of spending money on expensive, high-priced meals.   Like that St. Louis T-Bone, our economy is cooking.   Make no doubt:  Consumer spending is on a tear.    Sure, much of this week’s spike can be attributed to Valentines Day.  But if starry-eyed lovers couldn’t afford an extravagant meal, they would probably stay home and … well, use your imagination.

– Terry Liebman

Comments are closed.