This has obviously been a bad year so far for long-term investors. Pick your asset class and it’s down year-to-date, and some are down much more than others. The real letdown, however, has been the bond market’s poor performance. We’ve talked about this and the reasons why before, but what’s interesting now that we’re near the halfway point this year is seeing how bond returns have impacted the traditional 60/40 stock/bond mix that is so prevalent across portfolios.

I’ve included some recent work on this topic below from my research partners at Bespoke Investment Group. But to give this some scale let’s first look at a couple of charts showing three major asset classes: US stocks (the green line), foreign stocks, (in blue), and US bonds (in orange). To these I’ve added a super-basic 60/40 portfolio mix (in lavender) so we can compare performance.

The first shows dates I cherrypicked from October 2008 through March 2009, the worst of the Great Financial Crisis. Owning the right kinds of bonds helped back then while the stock market was going nuts. It didn’t magically make your performance positive but took the edge off as shown in the spread below. Charts like this foster a certain amount of reliance on bonds as a source of strength within a portfolio.

Now let’s look at this year so far, a year that among other things has turned into one about interest rates (kryptonite for bonds). We see bonds falling more or less in tandem with stocks and a lack of the positive spread shown in the chart above. There have been glimmers, but they haven’t held very long.

This performance tracks along with growing inflation fears and concerns about Fed interest rate policy and if/when it might trigger a recession. The Fed, as you’ll recall, briefly soothed investors in May and we see that in the orange line moving up that month. But then the Fed ripped off the Band-Aid recently with its largest single rate increase in decades to combat inflation at a 40yr high. Rate increases impact markets in a variety of ways but this time it’s sort of twisting the knife, so to speak, in the backs of investors who are merely trying to do as they’re supposed to by practicing the battle-tested approach of asset allocation. “Fairness” isn’t really something that fits within the context of stocks and bonds, but one shouldn’t be blamed for feeling a bit ill-treated by the markets this year.

Where to go from here? As I’ve mentioned before, at some point soon (hopefully) we’ll get to that point of ultimate capitulation and buyers will come back home to stay. In the meantime it’s all about ensuring your portfolio is structurally sound, rebalancing as needed, and harvesting losses as appropriate. Not much fun these days but critical in building and maintaining your portfolio for the duration.  

From Bespoke…

We are only halfway through June, but a 60/40 portfolio continues to get crushed by the combination of soaring bond yields and new equity bear market lows. Using mid-month data from June, a 60/40 portfolio is down nearly 18% in 2022. A similar asset allocation has started the year down over 6% twice previously, in 2002 and 2008. Nothing else comes close to the losses this year. Even looking at all six-month periods, the move since the end of last year is among the worst ever recorded. During 2008-2009, the utter collapse of stocks was a brutal hit to performance. But despite an enormous surge in credit spreads [this happens when investors sell risky bonds and buy safer Treasurys], bonds didn't drop very far or for very long. That's because Treasury yields plunged, driving gains from the risk-free component of the bond market. This time around, though, it's a very different story. While credit spreads have widened, far more important has been the huge surge in Treasury yields [investors sold Treasury bonds and caused yields to rise]. As a result, bonds have delivered -11.7% total returns this year, adding to - and arguably causing - the collapse in equity prices rather than offsetting the stock bear market.

We hope decision-makers (like the Fed) and pundits saying that we still need to see a "market flush" truly appreciate the wealth destruction seen so far this year. [Last week], Chair Powell thought financial conditions including equity performance were "appropriately" tightening, signaling he and other FOMC policymakers are satisfied with the pain in stock and bond markets. For the "average" person that only has a 401k retirement plan that's set to a 60/40 allocation, they're now not only dealing with 8%+ CPI and $5/gallon at the pump, but also the biggest shock to their retirement portfolios since the worst stretches of the Financial Crisis. Not even during the Dot Com Crash of the early 2000s did we see a six-month decline of this magnitude in 60/40 portfolios.

Of course, investor sentiment remains historically bearish after such large declines, and we definitely aren't hearing anything positive from market commentators that had been bullish leading up to the peak six months ago. In terms of historical analysis, most of our work shows that if you have longer than a one-year time horizon, now is the time to be putting money to work rather than raising cash. Remember, the goal is to buy low and sell high, not buy high and sell low! There's a reason the phrase "buy when there's blood in the streets" came into existence. Historically, it has worked. While there isn't an official "blood in the streets" indicator (maybe we'll make one!), we think the second-worst period for 60/40 in 50+ years at least comes close to qualifying.

Have questions? Ask me. I can help.

There’s a perplexing dynamic playing out between how people feel about their own financial situation compared to how they see everyone else’s. This shows up in private conversation and in national surveys where people report feeling pretty darn good about their own finances while also reporting that the world around them seems to be falling apart a little more each day. Maybe these two things (positive me, negative you) can exist simultaneously but it’s hard to imagine them doing so at extremes for very long.

This appeared in two different places recently and I wanted to share some snippets with you. First, the Federal Reserve updated its annual Fall survey last month for 2021. They’ve been doing so since 2013. Second is a monthly survey conducted by my research partners at Bespoke Investment Group, in this case the data goes back to 2014.

The Fed’s survey found that Americans, at least on average, were doing quite well last Fall. Their personal financial well-being had improved from 2020 which, as the report suggests and makes intuitive sense, ties into the ongoing economic recovery from the pandemic and many months of government money flowing into lots of households. Accordingly, more Americans reported being able to pay cash to cover a relatively small, unexpected bill, whereas even pre-pandemic they would have needed to whip out their credit card.

But amid this positive, even rosy, assessment lurked the glaring and perplexing issue The Atlantic recently called the “everything is terrible but I’m fine” perception gap. The piece suggested that this could simply be part of human nature, that we’re wired to be “individually optimistic and socially pessimistic”. If that’s true I don’t pretend to know why. Maybe it’s obvious to you but the gap exists and, at extremes, can have real world implications for the economy and, by extension, the markets. This is especially true when negative sentiment gets overblown.

Here's a chart and a few sections from the Fed’s report and a link to the whole thing is below if you’d like to read more.

… Despite persistent concerns that people expressed about the national economy, the survey highlights the positive effects of the recovery on the individual financial circumstances of U.S. families.

In 2021, perceptions about the national economy declined slightly. Yet self-reported financial well-being increased to the highest rate since the survey began in 2013. The share of prime-age adults not working because they could not find work had returned to pre-pandemic levels. More adults were able to pay all their monthly bills in full than in either 2019 or 2020. Additionally, the share of adults who would cover a $400 emergency expense completely using cash or its equivalent increased, reaching a new high since the survey began in 2013…

… In the fourth quarter of 2021, the share of adults who were doing at least okay financially increased relative to 2020. With these improvements, overall financial well-being reached its highest level since the survey began in 2013.

Seventy-eight percent of adults were either doing okay or living comfortably financially, the highest share with this level of financial well-being since the survey began in 2013.

Forty-eight percent of adults rated their local economy as “good” or “excellent” in 2021. This share was up from 43 percent in 2020 but well below the 63 percent of adults who rated their local economy as “good” or “excellent” in 2019, before the pandemic…

The Fed survey was conducted last Fall before inflation flared up, before Russia invaded Ukraine, and before the stock and bond markets had one of their worst starts to a year ever. So if the survey was done now it might look something like Bespoke’s results below: declining personal confidence and the perception gap widening even faster.

From Bespoke…

Consumers are extremely negative on the US economy in general. As shown below, economic confidence is a full standard deviation below the previous record low for the data dating back to July of 2014. Typically, general economic confidence is consistent with confidence in consumers' personal finances and expected spending on discretionary items, but over the past year the disconnect has gotten truly enormous. While confidence in personal finances and expected spending are basically at average levels, economic confidence has continued to plunge.

The reason for the collapse in economic confidence is inflation. In the chart below, we show economic sentiment over time by category of inflation expectations. Consumers that expect deflation are by far the most optimistic about the economy, while those who expect manageable inflation (up 5% or less) are more negative. Consumers that expect high inflation over 5% have seen sentiment collapse deep into negative territory. The bottom line: the higher consumers expect inflation to get, the worse they feel about the economy.

Inflation concerns have caused extremely negative sentiment readings, and it's hard to imagine these readings getting too much worse as there's a floor in terms of how low they can go.  Therefore, barring a significant negative shift in the economy, this would suggest a higher likelihood of positive surprises (lower rate of inflation) than downside surprises at this point, and any cooling on the inflation front should result in a bounce-back for sentiment (and potentially the stock market).

Here’s a link to the Fed’s paper.

https://www.federalreserve.gov/publications/files/2021-report-economic-well-being-us-households-202205.pdf

And here’s a link to the opinion piece from The Atlantic on this issue.

https://www.theatlantic.com/newsletters/archive/2022/06/american-economy-negative-perception-inflation/661149/

Bespoke Investment Group is a subscription-based service, but you can follow them on the socials for free.

https://www.bespokepremium/interactive

Have questions? Ask me. I can help.

The rough patch for stocks deepened last week with the S&P 500 posting its seventh weekly loss in a row and almost touching bear market territory (a 20% loss from a recent high). Parts of the index, such as Consumer Discretionary and Technology sectors, are already there. In fact, the only two positive sectors so far this year through last Friday are Utilities and Energy, up about 1% and almost 49%, respectively. Otherwise, the next best (or least bad, depending on your mood) sectors are still down around 8% this year.

During times like these we often have to sift through the rubble to find silver linings. Here are a random few as I write on this Tuesday morning.

Major indexes like the S&P 500 eked out a positive close last Friday, even though they were down for the week. Stocks had opened higher Friday morning and, as has often been the case lately, promptly fell and seemed set to close on a dismal note. But then prices reversed higher in the last hour, even the last 15 minutes, of the trading day. This phenomenon has been around for a while and tends to be when the so-called smart money shows up.

Here's what this looked like on Friday. The smart money can go either way, but this sort of last-minute buying is positive. We got confirmation yesterday when futures were higher before the morning bell and the big indexes stayed higher for the whole session – a real anomaly these days. Markets are set to open lower again this morning, but at least Friday shows there are willing buyers out there.

Retail investor sentiment has understandably gotten worse in recent weeks. How can that be a silver lining? Simply, extreme retail investor “bearishness” is a contrarian indicator. Fanning the flames, major financial news outlets are referring to current market volatility with terms like biblical, carnage, and even lost decade. Lost decade? There have been exceptionally few rolling ten-year periods when a well-diversified investor has lost money in the stock market. In fact, to go negative you’d have to end your 10yr period in the middle of the Great Depression or the Great Financial Crisis, according to Crestmont Research. There will always be those peddling doom and gloom, and the rising volume of their hyperbole is probably a contrarian indicator too.

This economic indicator heatmap from JPMorgan contains lots of small type, but just look at the color difference from 2020 on the left to this year on the right – from red to green, poor to positive. The outlook is mixed and there are various opinions about a recession in the offing. “Recession” is defined by the National Bureau of Economic Research as a significant and widespread decline in economic activity lasting more than a few months, and its beginning and ending dates are only determined afterwards. Activity usually peaks heading into a recession and maybe that’s where we are now. But whatever comes next, our economy is still humming along even amid myriad issues.

The bond market seems to have found it’s footing after falling, sometimes in lockstep, with stocks for much of this year. Bond performance has been a gut punch for more conservative investors who rely on bonds for cash flow but also for stability within their portfolios. The following chart shows the last ten days for stocks, the black line, and bonds, the blue line. High quality bonds should perform like this when stocks are challenged, so the last couple of weeks or so is a return to normalcy. Let’s hope it lasts.

Also, bond investors are reassessing their fears of runaway inflation. There are many ways to gauge inflation expectations, and one way common in financial markets is to look at so-called breakevens in the Treasury Inflation-Protected securities, or TIPs, markets. These breakevens are trying to price the future direction of the Consumer Price Index and suggest lessening inflation pressure across the 2yr, 5yr, and 10yr timeframes. The chart below from Bespoke Investment Group shows this clearly, especially for CPI in the short-term. Maybe inflation ends up waning because we’ve entered a recession, or maybe it dies down for a host of other reasons. Either way, slowing inflation would be welcome by just about everybody.

Here's a link to the page about 10yr rolling periods. This isn’t a guarantee, just a historical perspective on the importance of thinking like a long-term investor – it’s a marathon, even an ultramarathon, and not a sprint. Sprinting would be like buying NFTs just because your favorite boxer gets paid to “influence” you to do so. Don’t let that be you.

https://www.crestmontresearch.com/docs/Stock-Rolling-Components.pdf

And here’s a link to the heatmap above so you can see the details more clearly.

https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/on-the-minds-of-investors/are-we-in-or-headed-towards-a-recession/?email_campaign=302853&email_job=315388&email_contact=003j0000018XcwiAAC&utm_source=clients&utm_medium=email&utm_campaign=ima-mi-publication-WMR-WEB-OTM-MSR-05232022&memid=7220927&email_id=60820&decryptFlag=No&e=ZZ&t=613&f=&utm_content=Readthelatest

Have questions? Ask me. I can help.

I don’t know about you but I’m feeling very exposed lately. Exposed to what, exactly? Everything. Inflation, interest rates, the stock and bond markets, our dysfunctional politics, geopolitics, cultural and demographic shifts, the growing risk of this or that. Each would make for interesting theoretical discussions as a one-off or even a pair. But now they’ve all seemed to coalesce into something much larger, a problem greater than the sum of its parts.

In a way this reminds me of Warren Buffet’s quote about only seeing who’s been swimming naked when the tide has gone out. He was probably thinking about how good times can allow poorly run companies to continue for a while until markets turn and investors start caring about risk again. The quote also works well for personal finance if you put yourself in the company’s role. Are we managing our own situation like Enron, or are we really in much better shape and just feeling extra anxious because of tumultuous headlines and prices at the pump?

How we feel about this is primarily a psychological issue and that’s not where my expertise is. That said, I’m human and am willing to admit to feeling the weight and needing a reminder that I’m okay, even though so much around me isn’t. Funny, that sounds just like what we were talking about last week, right?

Since my corner of the world is all about personal finance, here are some questions to assess your level of exposure to the financial side of all this. Hopefully the end result is at least a little relief from the stressful times we’re living through.

Is your income secure? This question alone can lead to lots of anxiety, but think about it: Is your job pretty steady? If you own a business, how’s your cashflow? If you’re retired and much of your income is from Social Security and pensions, are the checks clearing? All kidding aside, consistent income is the bedrock of your household’s financial well-being and leads into these next questions.

Do you have cash on hand to cover at least six months of household expenses? While there’s no one right amount for the size of your emergency fund, six months is a good target. This should provide time to pivot if you lose your job or have a large emergency expense. But remember this is based on your typical spending and doesn’t include buying big-ticket items in the next year or so. If those expenses are on the horizon you should add that money to your emergency fund so as not to draw it down too low. A much smaller or nonexistent emergency fund leaves you exposed to a number of risks beyond your control.

Do you have enough cash or short-term assets beyond your emergency fund to cover larger expenses expected sometime in the next 3-5 years? Maybe this is tuition money, a car purchase, buying a house, or even starting your own business. Whatever the expense, having those dollars allocated to no-risk or low-risk assets such as CDs or shorter-term bonds eliminates your exposure to stock market volatility for those expenses – five years or less is no place for stock investing. And interest rates are higher now, so this money can actually earn something in the meantime.

Where you hold this money is important as well. It should be easily accessible without large fees or other restrictions and can be at your bank or credit union, or an investment account somewhere. Ideally, short-term spending shouldn’t come from your retirement account unless you’re already retired. Sometimes life happens and you need to withdraw retirement money early because, well, you need it and that’s where it is. I had to raid my 401k when I started this business back in 2014, so I get it, just be extremely careful about the details.

Are your longer-term investments managed appropriately? I don’t mean are they making money right now, because your investments are likely down quite a bit from a year ago. Instead, I’m referring to quality, proportion, and cost of the investments in your portfolio. If you own good stuff in the right proportions and the values are all over the place due to the world today the best thing to do is hold on. Buy more if you’re still accumulating. Hunker down if you’re retired.

I’m rebalancing client portfolios and harvesting losses where appropriate. This is important and helps performance in the longer-term, but there’s little else to do in the meantime. You should be able to weather this just fine if you have adequate assets to cover the short-term categories mentioned above. If not, you’re overly exposed to market risk and should either cut your losses and rebuild from the ground up or tough it out and hope it out, so to speak.

Are your debts manageable and sustainable? Ideally, these days your debts should cost 4% or less on a fixed rate. Student loan debt has lots of twists and turns to it, but payments should be manageable within your current budget. If your debt is more expensive or you’re carrying credit card balances, this is “bad debt” that you’ll want to prioritize paying off based on rate and terms.

If you can answer yes to each of these questions it means you’re probably less, or even much less, exposed to today’s craziness than you think. You can ride out market volatility because you won’t have to sell stocks to cover near-term expenses. You can let your portfolio and your humble financial planner do their work. In other words, you’re wearing a wetsuit versus swimming naked.

Lastly, I suggest keeping a record of your basic financial information that you look at regularly. Mine is a super-basic Excel spreadsheet that I’ve used for years and manually update every workday. While I love automation and have access to lots of fancy tech in this area, I like the manual process for this because I have to log into accounts and personally fill in the cells, keeping me closer to the information. It doesn’t take long either, maybe 10 minutes or less most days.

Updating my spreadsheet reminds me of what I have at least some control over, like our personal income, spending, savings, and overall structure. It also helps me better understand my actual versus perceived exposure to everything going on out there in the world. I highly recommend you do something like this, whatever format you choose, and regardless of how much money you have. We all have to start somewhere, right?

Have questions? Ask me. I can help.

Memorial Day weekend was quite busy this year and I hope you enjoyed it. I took most of Monday off, so this week’s post is lighter than usual. With inflation still elevated and rising risk of recession, it’s interesting to watch what’s happening with prices at the pump and airfares as the summer travel season gets going. Here’s a handful of different data points and some charts for a quick check on the inflation-as-travel-deterrent question.

According to AAA, Memorial Day travel was expected to almost be back to pre-pandemic levels and the summer travel season should be very busy.

If by road, Memorial Day travelers faced a national average gas price of $4.60 per gallon, also according to AAA, but prices are pushing $6 in Sonoma County. Both prices have risen over 50% in the past year.

Gas prices typically go up heading into summer but are obviously a lot higher than normal. The following charts from Bespoke Investment Group detail average Memorial Day gas prices since 2005 and how current prices have shot much higher than the typical seasonal curve.

If by air, travelers were seeing limited options, canceled or rerouted flights, and a huge year-over-year ticket price jump. Jet fuel is up about 116% in the past year, according to an airline industry group, IATA, which of course contributes to higher ticket prices.

But airlines are also making up for ground lost during the pandemic. Even with input costs rising, this is still expected to be a very profitable summer as demand remains high. For example, United Airlines told stock analysts recently that it expects its revenue per seat mile to be around 25% higher this season than during 2019. That’s a huge increase for the airline while flying 14% fewer flights than pre-pandemic levels, according to Reuters. In other words, airlines like United are directly and indirectly passing increased costs through to customers because they can. The following chart from the St. Louis Fed shows the CPI for airfares through April, but just imagine the line steepening into May and probably into summer as well.

Higher prices for air travel likely caused some folks to hit the road instead, but an average of over 2.2 million people still flew each day this holiday weekend, down about 8% from the same time in 2019 but up substantially from pandemic lows, according to data from the TSA.

So what to make of all this? Add it all up - inflation, the shaky stock and bond markets, recession fears, horrific events at home and abroad – Americans still want a vacation and after too long without, no cost seems high enough to dissuade them. Does that kind of elevated consumer demand indicate a recession around the corner? Hard to imagine immediate recession risk, but maybe that’s just me being optimistic on a day memorializing those who gave all to defend our way of life.

Here are links to the data points I mentioned.

https://newsroom.aaa.com/2022/05/the-heat-is-on-memorial-day-forecast-points-to-sizzlin-summer-travel/

https://www.iata.org/en/publications/economics/fuel-monitor/

https://www.tsa.gov/coronavirus/passenger-throughput

Have questions? Ask me. I can help.

Last week was a busy one for the markets. The S&P 500 had its sixth weekly loss in a row on lots of news and volatile trading. Stocks snapped back a bit as the week ended, which is encouraging, and futures are brighter as I write this morning. The crypto space suffered a thwacking last week as well after a highly-speculative-but-marketed-as-safe “stable coin” basically bit the dust. Bitcoin, the comparatively stodgy digital asset, got hit as well but has since found its feet. And the much-maligned bond market finally picked up some slack by staying positive when stocks were down.

Also last week we learned that inflation rose at an annualized rate of 8.3% in April. This is slightly slower than the 8.5% Consumer Price Index in March. Energy, apparel, and used vehicle costs declined during the month, but everything else tracked by the Bureau of Labor Statistics was higher on average. 

The CPI numbers move markets and are upsetting for many, so it’s helpful to get a better understanding of how they’re derived. There’s a bunch of reading material on the BLS’s website and I’ve copied some below as a summary. Additionally, there was a great piece from The Wall Street Journal last week covering BLS staff who go into the field to collect data. I’ve copied some parts from that article as well and a link is below if you’d like to read more.

Assorted information from the BLS [notes and emphasis mine] –

The CPI is widely used as a cost-of-living index, which answers the hypothetical question concerning what expenditure level is needed to achieve a standard of living attained in a base period at current market prices. [In other words, the CPI is trying to approximate how a typical person’s cost of living changes over time. The BLS doesn’t know the value of your time, your personal buying habits, or the substitutions you make as prices rise. This is part of the reason why people often feel like their personal inflation rate is much higher.]

The CPI focuses on the consumer experience of inflation, therefore the price sought is typically the consumer's out-of-pocket price, including sales and excise taxes.

The CPI is calculated in a two-stage process. First, basic indexes are calculated; these are indexes for specific item-area combinations. Ice cream and related products in the Chicago-Naperville-Elgin metro area are an example. These are structured by item category and geographic location. In the second stage, the basic indexes are aggregated into broader indexes, all the way up to the all items U.S. city average index. Thus, the CPI has both a geographic structure and an item structure.

Expenditure items are classified in the CPI into more than 200 categories, arranged into 8 major groups [that are unique to the CPI calculation process].

Eight major groups and examples of categories in each follow:

• Food and beverages (breakfast cereal, milk, coffee, chicken, wine, full-service meals, snacks)
• Housing (rent of primary residence, owners' equivalent rent [roughly what a homeowner would pay to rent their own home], utilities, bedroom furniture)
• Apparel (men's shirts and sweaters, women's dresses, baby clothes, shoes, jewelry)
• Transportation (new vehicles, airline fares, gasoline, motor vehicle insurance)
• Medical care (prescription drugs, medical equipment and supplies, physicians' services, eyeglasses and eye care, hospital services)
• Recreation (televisions, toys, pets and pet products, sports equipment, park and museum admissions)
• Education and communication (college tuition, postage, telephone services, computer software and accessories)
• Other goods and services (tobacco and smoking products, haircuts and other personal services, funeral expenses) 

[CPI] directly affects the income of almost 80 million people. Social Security benefits as well as military and Federal Civil Service pension payments are indexed to the CPI. In the private sector, many collective bargaining agreements tie automatic wage increases to the CPI and some private firms and individuals use the index to keep rents, alimony, and child support payments in line with changing prices.

Additionally, for analytical purposes, the CPI is also divided into food, energy, and all items less food and energy. The CPI for all items less food and energy gets considerable attention as a measure of underlying "core" inflation, which is not subject to the volatile movements of food and energy prices.

Now from the recent WSJ article –

READING, Pa.—Emily Mascitis has one of the most important jobs you never knew existed.  

As Americans’ monthly bills climb at the fastest rate in four decades, it is Ms. Mascitis’s work that confirms the $9 you just paid for a 4-pound bag of clementines isn’t an anomaly. 

Ms. Mascitis is an on-the-ground economist with the Bureau of Labor Statistics, one of 477 workers employed by the federal government to track changing prices for hundreds of thousands of goods and services every month. The culmination of their work is the Consumer Price Index, which moves markets and monetary policy and charts changes in the cost of living for millions of people. 

A typical day on the job might take Ms. Mascitis to a beauty salon to check the price of a blowout, to a jeweler to see what a strand of pearls costs and a funeral parlor to learn what it is charging for cremation services. It also gives her a front-line view on how broad economic forces ripple in the real world.

Prepandemic and before the rise in inflation, store managers—along with Ms. Mascitis’s own family and friends—didn’t take much interest in the numbers she was collecting.

Now, she says a grocery store or mechanic visit can take an extra 10 minutes as business owners complain to her about rising prices. Her husband looks to her for help cutting costs to feed and clothe their 10-person household. (Ms. Mascitis, a mother of six, is trying to curb her family clementine obsession: “We need to pick a less expensive fruit.”) Her friends ask for the inside scoop into the next BLS reading—something she can’t disclose under any circumstances as confidentiality is one of the core elements of an on-the-ground economist’s job.

Ms. Mascitis, 50, who has been working as a BLS price checker since 2013, describes her job as “a treasure hunt.”

Participation in the CPI is voluntary for businesses, so having a rapport with individual company owners helps, Ms. Mascitis says. As a branch chief, she helps recruit new small businesses as well as corporations to be part of the index. She also oversees 10 employees. 

The job of a price-checker is exacting. To price an item, workers go through an up to 11-page list of data points to make sure they are pricing the same item they did the prior month. A can of soup has 12 different specifications, including flavor, size, brand, organic labeling, material of the packaging and dietary features, such as sodium content. 

At a grocery store outside Reading, Pa., Ms. Mascitis introduces herself to the night manager and heads to the soup aisle to price a can of chicken noodle. She double checks to make sure it is the exact item she is supposed to record—If not, she could skew the accuracy of the entire index or make her data point unusable. 

“Do you see what I just did? I almost just ruined the whole thing,” she says, pointing to a teeny “low sodium” label on the can.

Next Ms. Mascitis heads to the frozen foods aisle, hunting for a noodle dinner. After rifling in the freezer, she resolves to ask the manager whether it is out of stock and says she will return. 

Supply-chain shortages have made it more difficult to check prices from month to month over the pandemic, since goods are often out of stock, Ms. Mascitis says. During the visit, an announcement over the grocery-store PA asked shoppers to be patient as the store deals with limited supply.

Crouching down to price a bag of potato chips, Ms. Mascitis notices a trend she has been seeing a lot of recently: shrinkage. The price of the chips has stayed the same but the contents of the bag have shrunk, from 12 to 11 oz. 

“That is called shrink-flation, and it’s sneaky because the consumer doesn’t always pick up on that,” Ms. Mascitis says.  

The BLS tracks prices for up to 100,000 goods and services, and 8,000 housing units every month. The agency decides which items to price using census-collected data on buying habits, making sure the measurements reflect the way Americans spend their money and rotating items out after four years.

Here’s the link to the portion of the BLS website and the org’s “Handbook of Methods”.

https://www.bls.gov/opub/hom/cpi/concepts.htm

And here’s a link to the WSJ article.

https://www.wsj.com/articles/inflation-bls-price-checkers-who-determine-cpi-11652132333?mod=hp_lead_pos8

Have questions? Ask me. I can help.