“President” Joe Biden described the U.S. economy as, “Strong as hell,” in a recent sound bite. No one except his most ardent supporters, a vanishingly small number in reality, believes that.
He and they point to statistics, “internals” in Biden-speaks, that point to why the U.S. is better off than everyone else. Well, yes, we may be better than everyone else, that doesn’t however mean the economy is “strong as hell.”
It just means it is the most attractive horse at the glue factory, to invoke more Biden-esque rhetoric.
Honestly, I was waiting for a Corn Pop reference, but Fox cut away too quickly.
The headline numbers—jobs, U-3 unemployment, etc.—don’t tell the whole story. If anything they tell a story directly opposite of what they normally would. Why? Math.
U-3 unemployment measures people still in the workforce looking for work, defined by those applying for unemployment. I don’t know about you but we’ve all heard the stories of record job openings. This also means the economy is supposed to be strong.
But then why are real wages negative? Why are they not only lagging inflation but slowing rapidly in nominal terms while headline (and massively understated) inflation is rising.
Taken together these statistics give you a clearer picture of the labor market in the US.
Low wage jobs and job openings remain high as the supply of low and medium skilled workers remains tight. Anyone who wants a job as a waitress, register jockey, customer service folks, etc. can have one. These are the people most likely, by the way, to file for unemployment.
In fact, these are the people unemployment insurance is suppose to target to help them through the job transition.
But when layoffs, which are concentrated in the higher paying jobs and those jobs are literally retired, then those folks 1) don’t file for unemployment and 2) contribute heavily towards real median household wages dropping.
Someone making $100k as a middle manager or department chief isn’t filing for unemployment because, more often than not, they don’t even qualify for benefits. So, again they won’t show up in the normal headline statistics.
In previous recessions when the credit cycle was virtuous and it could be pumped up again by central bank largesse of one form or another, it was always cut the little guy who is easily replaced and hold onto the best mid and upper professionals to keep the company operating smoothly.
Now we have the opposite problem. Companies are top heavy and bottom light.
I can’t throw a stick and not hit a basic business with a help wanted sign out for entry-level jobs in my area of Florida. And Florida’s economy is booming!
My favorite local restaurant had to shut down on Monday’s after COVID last year because, “We can’t find anyone to work. Sorry.” Then they shut down DINNER and were only open until 2pm all week. Slowly they are resuming normal hours. Last night I was pleasantly surprised that Wed-Fri are now normal dinner hours.
This is a nothing fancy, southern burger/ribs and fries joint. But they were able to survive.
But the reality is that the Fed’s restrictive monetary policy is having the desired effect of contracting credit-based asset prices, causing deflation there—housing, Class A office space, used car prices, etc. That, in turn, is putting extreme pressure on leveraged assets based on those things and those entities invested in those leveraged products.
LQD and HYG are down hard this year. HYG is the 3rd worst, year-to-date, in redemptions, $-6.8 Billion. LQD is up $3.1 Billion in AUM. Clearly, looking at this list of ETF in and out flows the shift is out of high risk and into low risk assets, including banks.
The market is clearly signaling it needs higher returns from debt in this environment. As prices on U.S. Treasuries come down they are being bought up all across the yield curve. S&P 500 net flows? Positive. Russell 2000? Negative.
Dividend stock flows, positive. Industrials and Europe, negative.
Read the rest of this article at Tom Luongo’s blog Gold Goats n’ Guns.