The most anticipated recession is yet to arrive. The US labor market is resilient & wages grow faster than inflation. This is reflected in consumer spending. Yet, consumers are cautiously optimistic.
The big concern I have, in the medium and long term, is the US debt. The Federal debt isn't a problem...until it becomes one. The is no timeline where the current path, both fiscally and politically, is sustainable. Something will have to give in the next 5-10 years.
I am with you 100%. As per the CBO projections, the Federal deficit is projected to double by 2033 and there is no end in sight to the growing Federal debt, which will be driven by a rise in interest payments, military spending, social security and medicare. So, we are looking at a larger volume of Treasury issuance coming every year, for the foreseeable future, which has to be absorbed one way or another. The high interest rates and ongoing QT further aggravate the situation, as the banks/private sector have to absorb the Treasury issuance with lesser reserves/liquidity, which drives up the yields on the bonds. To me, this is a vicious cycle that had been unleashed post GFC, and is now out of control with high inflation and interest rates. The worst thing is this phenomenon leaves very little room for the private sector to invest in other productive assets, thus starving the economy of long term productivity growth. The longer this situation persists, the more political it will get. I wish there was a light at the end of the tunnel. What do you think?
I am in the camp that we have entered an era where there will be structurally higher inflation due to a combination of factors. Unfortunately, current policy framework is still not grasped the reality, imo
Oct 16, 2023·edited Oct 16, 2023Liked by Amrita Roy
I'm happy to see Americans spend more on food and travel than on materialistic stuff — I like to think about it as investing in present pleasure and future memories.
That's a great way to put your observations. I think Americans had their fair share of splurging on "materialistic" stuff, and I think by "materialistic", you are referring to goods, at the start of the pandemic until the lockdowns ended. You can see how consumer spending on durable goods spiked up until 2021. It is only after the lockdowns ended, that Americans started spending on services (such as restaurants and travel) with a vengeance, especially with so much excess savings lying around. I think the composition of spending on materialistic vs. memory building services change according to the economic cycle. But you are right, it is good to see that people are spending on stuff that are based on enriching experiences.
Thanks Hannah for your lovely words. I do tend to do quite a bit of research, which helps. Though admittedly, there are lots of times where I have information overload and it takes me way too many hours to write a meaningful post.
well, looks i have to learn alot )) I am impatient and absent-minded
I pretty good in research I used to , when i was younger, i
I had to feel it myself, so I played various roles, homeless people, I lived with them, because interviews alone were not enough, I pretended to be a single mother for social care, I tried to live on $137... etc. I only touched on other topics, hence the careful research, other topics, I am full of praise for you, because, as I have already written, these are not my cup of tea at all, when it comes to substantive preparation, the substantive preparation is so far from my skills, but you raise very interesting topics. I think we're both writing about something different, it's cool )) Happy Halloween ) ake care
Great perspectives, as always. .......My 2 cents:- the labor market is currently being held up by folks who are working >2 jobs at the same time. BLS does a good job at capturing some of this in their Multiple Job Holders stat which is currently at ATH. This explains why your participation rate is low+unchanged despite more jobs being added since before the pandemic started. And then there are influencers, gig workers etc. who may be earning via different channels which is not captured by BLS. These people dont claim unemployment benefits yet and will most probably indicate NA on the monthly labor survey that BLS sends out. That explains why U3 is so low too. I think a gentleman in your comments section suggested that its not a problem until it becomes one. He's right. The job market too is not a problem now and may not be for the next few months but when spending suddenly stops, the gigs dont pay gig workers and influencers and there will be a SURGE in U3 etc. Let's hope this never plays out.
Thanks for your insightful comments as always. You are fully right with all the shortcomings of the BLS report that doesn't paint the correct picture. You have also brought about the gig workers piece, which I think is extremely powerful, as there is an increasing population who are making a living as influencers/gig workers. I also think that given how outdated certain methods of capturing economic indicators today, we might even enter a recession with "technically" full employment.
Great summary of the labor market and US consumer Amrita. Love your style of writing it’s understandable and having it backed by data is always great!
Thank you Dylan. Appreciate your feedback.
The big concern I have, in the medium and long term, is the US debt. The Federal debt isn't a problem...until it becomes one. The is no timeline where the current path, both fiscally and politically, is sustainable. Something will have to give in the next 5-10 years.
I am with you 100%. As per the CBO projections, the Federal deficit is projected to double by 2033 and there is no end in sight to the growing Federal debt, which will be driven by a rise in interest payments, military spending, social security and medicare. So, we are looking at a larger volume of Treasury issuance coming every year, for the foreseeable future, which has to be absorbed one way or another. The high interest rates and ongoing QT further aggravate the situation, as the banks/private sector have to absorb the Treasury issuance with lesser reserves/liquidity, which drives up the yields on the bonds. To me, this is a vicious cycle that had been unleashed post GFC, and is now out of control with high inflation and interest rates. The worst thing is this phenomenon leaves very little room for the private sector to invest in other productive assets, thus starving the economy of long term productivity growth. The longer this situation persists, the more political it will get. I wish there was a light at the end of the tunnel. What do you think?
I dont see any light at all, personally. I see a future of stagnation. Hopefully I am wrong.
I agree. I think something might give in even sooner.
I am in the camp that we have entered an era where there will be structurally higher inflation due to a combination of factors. Unfortunately, current policy framework is still not grasped the reality, imo
I'm happy to see Americans spend more on food and travel than on materialistic stuff — I like to think about it as investing in present pleasure and future memories.
That's a great way to put your observations. I think Americans had their fair share of splurging on "materialistic" stuff, and I think by "materialistic", you are referring to goods, at the start of the pandemic until the lockdowns ended. You can see how consumer spending on durable goods spiked up until 2021. It is only after the lockdowns ended, that Americans started spending on services (such as restaurants and travel) with a vengeance, especially with so much excess savings lying around. I think the composition of spending on materialistic vs. memory building services change according to the economic cycle. But you are right, it is good to see that people are spending on stuff that are based on enriching experiences.
Substantively, no matter what topic you touch, you are perfectly prepared :)))
Thanks Hannah for your lovely words. I do tend to do quite a bit of research, which helps. Though admittedly, there are lots of times where I have information overload and it takes me way too many hours to write a meaningful post.
well, looks i have to learn alot )) I am impatient and absent-minded
I pretty good in research I used to , when i was younger, i
I had to feel it myself, so I played various roles, homeless people, I lived with them, because interviews alone were not enough, I pretended to be a single mother for social care, I tried to live on $137... etc. I only touched on other topics, hence the careful research, other topics, I am full of praise for you, because, as I have already written, these are not my cup of tea at all, when it comes to substantive preparation, the substantive preparation is so far from my skills, but you raise very interesting topics. I think we're both writing about something different, it's cool )) Happy Halloween ) ake care
Great summary. Really enjoy this.
Thank you, I am very glad you liked it.
Great perspectives, as always. .......My 2 cents:- the labor market is currently being held up by folks who are working >2 jobs at the same time. BLS does a good job at capturing some of this in their Multiple Job Holders stat which is currently at ATH. This explains why your participation rate is low+unchanged despite more jobs being added since before the pandemic started. And then there are influencers, gig workers etc. who may be earning via different channels which is not captured by BLS. These people dont claim unemployment benefits yet and will most probably indicate NA on the monthly labor survey that BLS sends out. That explains why U3 is so low too. I think a gentleman in your comments section suggested that its not a problem until it becomes one. He's right. The job market too is not a problem now and may not be for the next few months but when spending suddenly stops, the gigs dont pay gig workers and influencers and there will be a SURGE in U3 etc. Let's hope this never plays out.
Thanks for your insightful comments as always. You are fully right with all the shortcomings of the BLS report that doesn't paint the correct picture. You have also brought about the gig workers piece, which I think is extremely powerful, as there is an increasing population who are making a living as influencers/gig workers. I also think that given how outdated certain methods of capturing economic indicators today, we might even enter a recession with "technically" full employment.
Great stuff
Thank you James. Glad you enjoyed the post.