Inflation is beaten!
Only one problem. 3.6% unemployment, 5.6% wage growth according to the wage tracker from the Atlanta Fed, global oil consumption is projected to hit 101.9 mb/d according to IEA (so no demand curb), and the dollar has started to slide.
Sure the base effect and the previous deflationary run of energy (mostly due to storage filled up and SPR releases) have helped inflation to come down. But where is the beef?
By beef I mean demand destruction. Have people scaled back their spending? Not really. For 2 years consumers ordered every printer, TV, backyard BBQ, laptop, and Lululemon tights they could find on Amazon so they are good for another couple of years. Sure they are buying fewer homes and cars but that’s also freeing up disposable income for travel, leisure, and services. There has been a shift again, the 3rd in 3 years and the BLS is again not reacting fast enough.
Consumers have shifted again their consumption habits and the BLS is behind the curve. Goods and durable goods are not what they are consuming. More young adults are living together with other adults (non-partner or married) than ever before. They aren’t getting married, having kids, or buying homes (it’s baby boomers and Gen X that are buying homes and competing against each other). Millennials and Gen Z are living with roommates or parents and their large disposable incomes are being spent on services.
Services are now the bulk of the economy or 80% of GDP up from 67% in 1997. Labor has become the hottest thing in the economy since the 1960s when manufacturing peaked. We don’t have enough pilots (hence a 40% hike), plumbers, electricians, mechanics, nurses, and other key workers. If we are to onshore and create an even greater need for workers after the bulk of the baby boomers enter retirement how do we expect to control inflation?
The economy is in transition. One not scene since the late 1970s or early 1980s. Back then, the transition resulted in the US giving up most of its manufacturing (to NAFTA and China), devaluing the dollar by 50%, and financialize the economy through deficit spending, lower rates, and pumping Wall Street. In 2008, the bill came in. So we doubled down on Finance with QE and bailouts. 2020 hit and we tripled down.
Not sure how many times we can borrow to put in more chips and expect not to have a margin call or your access to borrowing cut back. Not like baby boomers are going to let the government take their savings and roll the dice nor will they accept their savings taxed and their entitlements cut. The rest of the developed world has the same problem, if not worse, so they are not likely to let you roll the dice with their money too.
So here we are, expecting to roll the dice without money but expecting to print monopoly money and not pay a price with higher inflation and rates.
#inflation #wagesandsalaries #economics #babyboomers #housing #deficits #fed