Are we caught in an economic Groundhog Day?


Headline beat, big revisions, muted wages, repeat.  Things are great, oh wait maybe not, repeat.  Fed threatens to or does raise rates, economy brakes either immediately or somewhat shortly thereafter, repeat.

While tomorrow is the real Groundhog Day, frankly I feel like I’ve been in an economic groundhog day since roughly 2000.  For those of you that have followed me, you know I keep repeating my thoughts about the disconnect between the reality of our new economy and how traditional economists fail to understand the nuance between broken and different.  We talk about a jobless recovery.  Then we talk about an inflation-less recovery.  Now that jobs are moving gain, we talk about the lack of wage growth.  We want to read these numbers as great.  Let’s face it, the headline number today was great!  So then isn’t all this tightness in the labor market not pushing through to wages and therefore perplexing the Fed?

The disconnect is economists at large are dismissing the underlying reality which is that consumers and businesses have changed forever.  The consumer experience has changed forever.  What used to be a process of want, buy, enjoy, repeat, has become, need, shop, wait, shop, wait until I get the best price, buy, repeat.  Hold one though, this isn’t just on the consumer.  Let’s push up the chain a bit  because this doesn’t make complete sense.  We want to be happy right?  Shiny new things make us happy right?  So why has QE infinity generally failed?  I’d argue it’s gone something like; company borrows cheap,  keeps the savings because sales are slow, holds wages, no disposable income, people still not euphoric, muted buying, bigger sales to trigger buying, consumer conditioned to not want/need as much, made sales at little to no profit, can’t increase wages, automate processes to find margin, repeat.   It’s this huge economic black hole.  We’ve seen it before, after the Great Depression.  Folks stocking up cans even 40 years after we were long out of it.

The catch 22 is how can companies push wages without price elasticity and how can prices grow if people don’t have disposable income to spend or the desire to spend it??  OK, OK, so then why has there been a measurable recovery in certain segments of the country/economy.  Well I’ve covered that ad nauseam as well.  From my perspective, all the money that has gone to creating some of these mini-booms over the last two decades has been driven by everything except earned income: inheritance, market growth, real estate appreciation, low rates, tax cuts.  And when any or all of those things go away or a family doesn’t experience any of those events, we’re left with wages suck in the late 90’s and therefore no real ability to spend at the level and pace needed for a real, widespread recovery.  Need proof?  Household income in 2017 was negligibly higher (like 2%) than it was in the late 90’s.  The late 90’s!!!!  Make no mistake though, we also have an altered sense or doing well.  5 TVs, 3 iPhones and 4 cars wasn’t exactly the family norm in 1955 when things were “great.”   We consume more and that is no doubt a huge factor is our spending patterns.  One could certainly argue that our heightened level of consumption has a ton to do with our heightened persistence to focus on price and value.

So what does this all mean?  Well at the risk of repeating myself for about the millionth time, until we figure out that automation and information isn’t going away, in my humble opinion; we’re doomed to repeat the rate cycle we’ve been stuck in for nearly two decades now.  I still see no reason to believe that the rate friendly environment we’ve been in since the 80’s won’t keep trucking along.  Every time things start looking good, Ole Punxsutawney Phil seems to duck back into his hole for some more winter…

-Philip Mancuso

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