Inflation Is Cooling, Leaving America Asking: What Comes Next?

[Torie]

Inflation Is Cooling, Leaving America Asking: What Comes Next?

Just as nobody knows what the Ukraine situation will look like by the end of the year, nobody knows what the inflation rate will be either. We live in interesting times.

https://www.nytimes.com/2023/01/23/business/economy/inflation-turning-point.html

"Many economists and Fed officials themselves estimate that price increases will take years to fall back to the 2 percent annual rate that used to be typical. But some on Wall Street think inflation could drop sharply, possibly even returning to the historically low levels that prevailed before the pandemic. The stark divide is visible: The highest forecast in a Bloomberg survey of economists expects consumer price increases to remain at or above 5 percent by the end of 2023, while the lowest show them dropping to 1.5 percent."

[Blue3]

Welcome to economics/politics/life.

[Frodo]

If the optimists are right, a new bull market is what's coming next:

A new bull market is underway amid Powell's acknowledgement of falling inflation, Fundstrat says

[Del Tachi]

Off-topic, but I take issue with the use of "historically" in the quoted excerpt.  Doesn't the author actually mean inflation could return to the ahistorically low levels that prevailed before the pandemic? 

"Historically" should not be used to mean "exceptionally" or "unusually."

[Amenhotep Bakari-Sellers]

The problem is the stimulus check are gone and we still have inflation and we are still not out of Covid so when politicians say Covid is over it's not true it's just no more stimulus checks just like we were told 20K Student loans Forgiveness and it's blocked

[Fmr. Pres. Duke]

Covid as a pandemic most certainly is over. Covid as an illness will be with us forever, much like the flu. We don't need anymore economic stimulus.

[All Along The Watchtower]

Recession.

[Amenhotep Bakari-Sellers]

It's not cooling enough but Biden isnt losing on Docugate in 24 because it's a Misdemeanor like Hillary and Trump committed Felonies and Trump leads by 14 over DeSantis

Rents are out of control there is a homeless crisis among Blk men that's why it's a call for reparations they are sleeping in McDonald's we aren't gonna elect an R Govt and people still need for entitlements

[Zinneke]

Inflation at 4-8% at medium term while maintaining employment levels high may actually be preferable to a sudden Volcker shock that sends the Western economies into a deep recession. The Fed and especially the ECB are caught in between two chairs though, they don't know if they should keep interest rates down and see an inflation spiral leading to guys with little mustaches pop up or raise them and cause a recession, potentially seeing guys with little mustaches pop up.

In the long term the banking sector has to be reformed. Right now the banks have too little incentive to allocate credit in an efficient way. The vipers on the hotdesks only care about short term deals to get their end of quarter/year bonus, not about the risks in the long run. I'd make every end year bonus 100% tax and put that in a money pot for the next bailout the bank has to endure. Right now its just people playing casino on cheap credit, and the reason the tech sector is feeling the brunt is because they themselves are the drivers of venture capitalism at its worst i.e. you can create new products and code out of thin air with no inventory, costs, risk anything but no intrinsic value either. A fantastic way to speculate.

Every banking employee that is bailed out by the government should be put on a minimum wage salary.

[Clarko95 📚💰📈]

I think the recession is here and possibly started in March. Retail sales fell 2% in real terms across virtually all categories, including appliances and apparel, and bank lending plunged by over $105 billion. Inflation is rapidly falling, and some price indicators are showing outright price declines.

The banking panic from March is over, and bank deposits have started to recover, but likely this has scared the banks and so they will cut back lending. The construction sector also saw its first overall job losses in a long time, which is usually a harbinger of recession. Unemployment claims have rebounded off their 2022 lows, but are still low. Mortgage defaults are still low, but have started ticking up.

But again, this could be a very mild recession. We are starting from a point of very low unemployment and relatively healthy household and business balance sheets. Credit card debt is still lower in real terms than it was in 2019, despite a higher nominal amount.

Even if we have a 2001-style recession, where about 2 million people lose their jobs, that would just cause unemployment to go back to....not even 5%, which is historically considered to be "normal" unemployment. We don't have a demographic bulge like we did in the 1981-1982 recession, early-1990s, or aftermath of 2008; quite the contrary, we have low birthrates combined with several years of reduced immigration. Such a mild recession could just be simply hitting the reset button, and if it's also a short recession, we could see economic and employment growth return by the end of the year.

But it's still early to tell. Business investment keeps chugging along, and employment creation is still quite high compared to what you would see heading into a recession. Our economy has taken some massive kicks in the nuts over the past year and still has managed to hold up. Usually you need several months of consistently declining indicators to really tell if we have a recession.

[Blue3]

Next three days will tell us about the state of the U.S. economy:

Tomorrow : JOLTS report
Thursday: unemployment claims
Friday: jobs report

and... it seems none of it is news.

[MaxQue]

Next three days will tell us about the state of the U.S. economy:

Tomorrow : JOLTS report
Thursday: unemployment claims
Friday: jobs report

and... it seems none of it is news.

Because they were good news for Democrats and the Republican media can't have that.

[oldtimer]

Inflation should continue to fall Year-on-Year until July to about 4% and then probably goes up a bit to 5% in the second half of the year.

You can see that inflationary pressures are up a bit since last Autumn, and Bitcoins and Tech Stocks are also way up since then, while interest rates have dropped a bit since their October peak.

Student loan payments resuming might take some money out of the overheated economy, but the impact won't be felt for about a year at least.

The FED has really lost control of the economy, everytime they try to increase interest rates the Biden Administration increases spending, so the economy remains overheated.

3% unemployment and 6% inflation might become the norm until something breaks.

The interesting thing is that the Government can keep running large deficits because nominal GDP will rise rapidly due to the inflation caused by the deficits.

[Clarko95 📚💰📈]

As DFB pointed out elsewhere, real inflation-adjusted investment in construction in the manufacturing sector is booming like never before:



Construction spending on streets and highways is also up almost 25%.

If I may quote a Financial Times article:

The federal stimulus includes $1.2tn in infrastructure spending, $369bn from the Inflation Reduction Act (IRA) for clean energy projects, and $39bn from the CHIPS and Science Act to spearhead the country’s production of semiconductors.

Construction unemployment sat at 4.6 per cent in 2022, the second lowest on record, according to the BLS. Hourly wages averaged $36 an hour in January, exceeding the private industry average of $33 and typical starting salaries for college graduates.

Despite increasing wages, 80 per cent of construction companies say they are struggling to hire workers, according to a survey by the Associated General Contractors of America last month.

In Columbus, Ohio, Intel has pledged $20bn to build two semiconductor factories, and Honda is building a $4.4bn battery plant with LG Energy Solution. The projects will require nearly 10,000 construction workers.

“The entire state of Ohio does not have the number of professionals to perform this alone,” said Catherine Hunt Ryan, manufacturing and technology president of Bechtel, one of the companies building Intel’s factories.

Bechtel said it will pull some of the 7,000 workers it needs from across the country and is in conversation with hotels for temporary housing. A middle-ranking labourer at the site could make as much as $40 per hour.

“The reshoring of manufacturing to the United States is creating a huge demand for construction workers in what was and continues to be an already tight labour market,” said Jim Brownrigg, senior vice-president at Turner Construction, the group working on the Honda-LG venture. Brownrigg said its demand for clean tech construction projects had more than quadrupled since last year.

“[Labor shortages] continue to be a bigger challenge. I think 2023 is going to be challenging. [Next year] could even be bigger,” he said. Brownrigg added that the company was investing in off-site construction and workforce development programmes and pulling workers from elsewhere to alleviate labour shortages.
Biden has made workers’ rights central to his industrial agenda and has repeatedly talked of “good-paying union jobs”. Some tax credits in the IRA and Chips act require companies to meet prevailing wage and apprenticeship requirements.

But construction bosses say the criteria presents another headwind by further narrowing the labour pool. There were nearly 200,000 registered construction apprentices in 2021, according to the Department of Labor.

The Department of Labor said it was “urgently” trying to meet the demand for workers, adding that the administration has invested more than $330mn in apprenticeships.

So, yeah, maybe this business cycle is still young despite the rapid monetary tightening going on. As said during the BBB debate, more spending and redistribution will allow us to raise interest rates with minimal damage to the real economy, and we can finally get out of the cycle of repeatedly inflating and bursting asset bubble that we've had for the past 40 years.

Rapid monetary tightening is harming some sectors (tech, real estate, retail) but other sectors such as construction, manufacturing, etc. are seeing the effects of enormous government stimulus and booming business investment. The service sector is settling into slow but stable growth, but manufacturing (especially durable goods) continues to see strong, healthy growth.

(Also, the salt in the comment sections on these article from the MAGA crowd is delicious. If Trump had actually decided to govern and pass his trillion dollar infrastructure bill in 2017 instead of trying to strip people of their health insurance, pass a massive handout to the rich, and then whine all the time on Twitter, we'd never hear the end of it on how he would have been a true working class jobs President or whatever)