The Deep File: America's muddling economy
In which the second quarter ends with major recession indicators checking the boxes, but other economic measures showing "improvement," and politicians struggling to get some kind of win from it all.
July 8: Time to use the “R” word?
It’s been such a long run of negative economic news of late, it’s a wonder no one has been talking about recession… until now.
With the second quarter over, inflation up (and possibly becoming “entrenched”), energy prices still climbing, a bearish market, etc., etc, negative GDP growth is looking pretty likely, which means: We’re officially in a recession.
Of all the economic indicators pointing that direction, the most obvious indicator to me that an official recession (two straight quarters of negative GDP growth) was likely was Vox.com saying so. Why? For the last couple of years, Vox has been one of many progressive news outlets that have been at least “nuanced” and at most whitewashing the bad economic trends. This week, they didn’t even try to sugarcoat it. I’d say the data is pretty conclusive.
Does a recession mean everything is going to be bad, economically speaking? Not exactly. Like any economic season, it will be good for some, bad for others, so it wouldn’t hurt to take stock of your finances. Additionally, though, recessions need to be understood as the correctives they are for inflationary policies. When an inflationary period has exhausted itself, the recession is the gravitational pull that brings an economy down to a more “natural” baseline. In that respect, it can be a helpful (though difficult) thing.
That’s not to say one should desire recessions. Like I said, they’re largely a consequence of inflation and risky, overconfident/stupid policy decisions and investment practices. So, what we should desire is a measure of self-control and humility amongst our policymakers and financiers. We certainly don’t have much trust to give them.
July 15: Your best economy now!
I emphasize the role of inflationary monetary policy and unrealistic energy policy in the case of Sri Lanka because of their parallels to the American economic situation. The two countries are not the same, not even close, but the parallels are instructive.
This week in economic news started with President Biden and team taking victory laps for a stronger than expected June jobs report. That single data point was amped up to ‘11’ to describe America’s continued post-Covid economic “recovery.”
I put the word in air quotes because following hard on the heels of that jobs report was the report on inflation and the consumer price index. Lo and behold, both continued to climb to historical highs in the month of June.
Jobs =/= healthy economy when you can’t save money. New data shows that 42% of Americans are barely getting by (and blaming government policy for it), which means that all those Covid-era savings that got talked about have been completely eaten by inflation. With unemployment benefits ending people need to get back into the job pool to keep their heads above water.
America’s economy is more sound than Sri Lanka’s, but let’s not pretend it’s healthy, or recovering, or that the Biden administration isn’t going to experience the political consequences from this situation.
July 22: To recession or not recession? That is the question.
Last week, I noted that ,a good jobs report being the exception, all indicators pointed to an impending recession. Jury’s still out on that as final Q2 macroeconomic numbers get tallied. The political pressure to avoid a recession must be “Find WMD in Iraq, now!”-enormous, and it would seem that economic reporters are grasping at any little thing to avoid using the “R” word.
Axios points out that the stock market is actually up this week after taking a strong slide, while other observers believe that if things were recession bad, then we’d be seeing worse inflation than we are.
However, one man’s boom is another’s bust, so one shouldn’t expect an across the board drop. Stock markets usually do stabilize, at least for a while, after a skid, but that doesn't mean the bull is back. In fact, profit margins for major banks dropped and the housing market continues to cool. Across the pond, the euro fell against the dollar to near parity (great for the American tourist and stock markets) with news of a rate hike by the European Central Bank.
Rate hikes at home and abroad can restore some investor confidence, which explains the market boost, but it also means that it’s harder to get a loan (see the housing market slowdown).
Bottom line: Everyone’s waiting to see what the official word on recession is. Until then, people are still jittery and feeling the inflation pinch, and they’re grasping at any economic data point to allay their concerns.
July 29: Biden’s “too little too late” economy?
The lackluster economy is still lackluster no matter how you slice the data. The brute fact is that despite all the deficit spending, the low unemployment, and the wild stock market (until recently), the economy is overheated and needs a break. That’s why the Fed raised interest rates again on Wednesday. The moves by the Fed this year have contributed to a slowing housing market, while inflation has largely undercut the consumer goods market. Troubles in the Chinese economy (more on that below) means supply chain troubles won’t go away either. And while energy prices appear to be dropping, they’re still high and are largely dropping from strategic reserves releases, not new supply (you wouldn’t call dipping into your emergency fund to keep the lights on a resounding personal finance success would you?).
So while President Biden is waxing optimistic on the economy, American consumers are decidedly not optimistic, and as the poll numbers have been indicating for the last several weeks, they don’t seem to think Biden’s the man for the down economy job.
So, there’s two ways to read the Biden administration’s maneuvers this week: They’re feeling a new sense of optimistic urgency and energy now that Biden is back from Covid, or they’re in hair-on-fire panic mode and doing everything they can to blunt the worst economic effects from hitting before November.