The top graph lifted directly from the St. Louis Federal Reserve site provides us two insights, speaking to productivity gains, shifting demographics and a widening wealth gap.
First, the frequency of recessions has decreased, as have their duration (number of months/quarters). We see this as a combination of productivity gains by U.S. corporations and increased intervention by a more activist Fed and Treasury.
Second, the U.S. is employing LESS of its population, peaking in April 2000. Where the increased participation of woman in the workforce swelled the ranks working population starting in the 1970s, a number of factors have pushed it lower since 2000, including fewer workers entering (declining birth rates) and more of the 55+ population exiting at a faster rate. This last trend is due in part to the degradation of buying power from ‘the living wage’. As we wrote in last week’s Roundup, wages have NOT kept up with housing or education. This may have enticed the 55+ crowd to ‘sit on their assets’ instead of working for incremental, but less potent wages.
The second graph above suggests that the employment market is bracing for a recession if history holds. Given the combination of employers backfilling part-time workers after over firing and workers filling income gaps with multiple part-time roles…the relationship between recession and rising part-time employment is pretty clear.
We do know that MANY factors have changed over time, but the combination of these two graphs suggests to us that Fed activism will likely reassert in a market that is highly leveraged at the federal and consumer level, and accustomed to bailouts.
If we are wrong, and the Fed allows a full default cycle like 2002, well, then Warren Buffet’s 20% cash position may be the signal…along with Bitcoin.
Gimme Shelter
The U.S. consumer is running for cover and paying dearly for it.
Monday’s consumer credit release indicates behavior changed dramatically as borrowings, led by the revolving lines, posted the highest rate in over 2 years of $25.3 billion. The 6% increase was over 2x the estimated $12.3B, bringing total consumer debt to $5.1 trillion.
Turning the screw of unaffordability tighter was Wednesday’s higher than expected CPI print, led by shelter. Where CPI is based on August data, consumer credit is July data, suggesting the consumer will keep running for credit as jobs decrease and cost of food, rent increase.
But it is worse for those in Europe.
Monday’s report on the EU’s lack of competitiveness on the world’s stage that we highlighted above informs outcomes across Economics, Markets and Players within, the consumer in particular.
Penned by Former Italian Prime Minister and ECB head, the full 328 page report, is best summed up by the below statement which is applicable to the U.S. consumer whose buying power is being sapped, left with few options other than the unsustainable choice of more credit card debt.
“If Europe cannot become more productive, we will be forced to choose. We will not be able to become, at once, a leader in new technologies, a beacon of climate responsibility and an independent player on the world stage. We will not be able to finance our social model. We will have to scale back some, if not all, of our ambitions. This is an existential challenge”
The below excerpt highlighting the degree to which Europe lags the U.S. in venture capital investment should also act as a shot across the bow for the next U.S. President that further innovation is needed to maintain our leadership in technology, as others are coming. Without the U.S. investment in the internet, we would not have stock market gains of ~10-12% a year…food for policy thought when the next president eyes a Bitcoin policy.
