Is China about to start exporting inflation?

Shouldn’t we be seeing more inflation than we are?

The anecdotes add up to rising inflation. But you can’t see it in the official numbers.

Are the anecdotes misleading? Are the official numbers wrong? Or are we simply looking at a lag between anecdote and official number?

Vale (VALE), the big Brazilian iron ore producer is looking for a 40% price increase in March and another 40% price increase in May.

BHP Billiton (BHP), the big Australian miner, has just signed a contract to provide coking coal (the kind used in making steel) to Indian steelmakers that provides for a 55% increase in prices.

Oil climbed to $82 a barrel today, March 8. That’s a two-month high.

At that price oil is still within the $69 to $83 a barrel trading range established since September 2009 but the climb since December has broken the pattern that held in the earlier part of the range. Back in September and October much of any increase in the price of oil was a result of a fall in the value of the dollar. When the dollar was worth less, oil producers demand more of them for a barrel of oil and the price of oil climbed. Since December, however, the price of oil has climbed even though the dollar has strengthened. Oil producers are getting more dollars per barrel even though the value of each dollar has climbed.

Wages are rising in China thanks to a labor shortage in China’s coastal export centers. The shortage is at least partially a result of government policies that encourage economic development in the neglected interior provinces. The New York Times recently report that the hourly rate for temporary factory workers in Guangzhou, for example, recently climbed to $1.17 an hour from 95 cents in February before the Lunar New Year holiday. That’s a 23% increase.

But if all this is inflationary smoke, where’s the inflationary fire?

What’s wrong with this picture? Consumer spending up but saving down

The Commerce Department announced today (March 1) that consumer spending rose by 0.5% in January.

But that personal income fell by 0.1%.

The report pretty much sums up everything that worries me about the economy.

Consumers lag but business confidence builds on recovery

Hmmm. Is that a trend I see in today’s economic numbers? It sure looks like we’re seeing a recovery led by business and manufacturing, and where consumers still lag.

Today’s (February 26) revised numbers for U.S. GDP (gross domestic product) show the economy grew at a faster than expected 5.9% in the fourth quarter. That’s above the 5.7% growth in the initial numbers for the quarter reported last month.

The extra growth came from inventories—which accounted for 3.9 percentage points of growth, more than initially reported—and from business investment in software and equipment. Investment in those categories grew at the fastest rate since 2000. Purchases of equipment and software increased at an 18.2% rate in the quarter.

Contrast those positive economic trends with the bad news today and earlier this week on consumer confidence.

Update Sysco (SYY)

On February 1 Sysco (SYY) reported earnings of 45 cents a share for the company’s fiscal second quarter. That was 3 cents a share above Wall Street projections. Revenue for the three months that ended in December 2009 was $8.87 billion, roughly matching analyst expectations for $8.83 billion.

The most encouraging news in my opinion came on operating margins.

Second-quarter revenue fell by 3.1% from the year-earlier period showing that the company and the economy aren’t yet out of the woods. But the company’s efforts to wring costs out of its distribution system paid off. Operating margin expanded by 0.6 percentage points in the quarter to 5.2%.

That matches the highest annual margin the company has recorded in any of the last 10 years. That bodes well for earnings and earnings growth as the U.S. economy picks up steam. Higher revenue at a higher operating margin would give an extra boost to earnings and the company’s continued cost-cutting should lead to gains in market share as it takes business from less efficient food service companies or buys them out right. Food service is still a very fragmented industry: Sysco is the biggest player by far at 15% market share. (The No. 2 company has a 10% share and the third largest just 3%.)

The company’s board of directors seems to have faith in that scenario. Sysco raised its quarterly dividend by a penny a share (a 4% increase) to 25 cents payable to shareholders of record on December 31, 2009. (I added these shares to the Dividend Income portfolio on December 8, 2009.)

At an annual rate of $1.00 a year, Sysco paid a yield of 3.52% as of February 18.

Update McDonald’s (MCD)

Economists aren’t sure but McDonald’s (MCD) is investing for a global economic recovery.

McDonald’s expects to increase global capital spending to $2.4 billion in 2010, up from $2.1 billion in 2009. That will let the company add 1,000 new stores and “re-image’ 2300 more. To put that capital budget in the context of the rest of the fast-food industry, the $300 million increase in McDonald’s capital spending is larger than Burger King’s (BKC) entire capital budget, Deutsche Bank calculates.

 The increased spending includes a 25% increase in capital spending in China that would finance the opening of 150 to 175 new stores in China in 2010.

None of this is terribly surprising when viewed through the lens of the company’s February 9 report of same-restaurant sales for January.