FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
November 16, 2021

IN THIS ISSUE:

1. Lots of Interesting News Lately, Some Troubling

2. Consumer Confidence Plunges to 10-Year Low

3. Record Number of Americans Quitting Their Jobs

4. Why the Economy Slowed Down & Inflation Soared

Overview – Lots Of Interesting News Lately, Some Troubling

We’ve had quite a bit of economic news so far this month, some of it good, some not so good. We’ve seen consumer confidence fall off a cliff over the last couple of months, and most forecasters are not entirely sure why. Consumer confidence as measured by the University of Michigan Consumer Sentiment fell to a 10-year low this month.

Rising inflation concerns continue to weigh on consumers, with 1 in 4 households reporting scaled back living standards. Meanwhile, half of all families anticipated lower real income in the year ahead when adjusted for inflation. While wages are expected to rise again next year by around 5%, apparently these folks believe inflation will more than offset the pay raise. It did this year.

Elsewhere, we’ve seen a record number of Americans quit their job, this year, about 3% of the workforce, over each of the last two months. Economists believe most are leaving their old jobs for work which pays better or is more desirable or both. Still, there are 3 million more unfilled jobs than there are Americans looking for work, so the job market remains very tight, and many employers continue to struggle to fill job openings.

Finally, we’ll look at how the tight labor market could affect the holidays. Think shortages.

It’s a lot to talk about in one letter, so let’s get started.

Consumer Confidence Plunges to 10-Year Low This Month

Consumer confidence hit a 10-year low this month as inflation climbed to the highest levels since the early 1990s, complicating efforts from policymakers to sell the case that the current surge of price increases is “transitory” (temporary).  The University of Michigan Consumer Sentiment Index tumbled to 66.8 for November, according to a preliminary reading last week. That was the lowest since November 2011 and well below the Dow Jones estimate of 72.5. October’s reading was 71.7, meaning the November level represented a 6.8% drop.

The survey showed consumers expecting still-higher rates of inflation, with the 12-month forecast nudging up to 4.9%. “Consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation,” said Richard Curtin, the survey’s chief economist.

The survey showed 1 in 4 consumers have reduced their living standards due to price increases. Seemingly robust increases in average hourly earnings, which rose 4.9% in October from a year ago, still have not kept pace with inflation, bringing real wages down by 1.2% from the same period in 2020. The Consumer Price Index rose at an annual rate of 6.2% in October, matching June for the largest 12-month increase since November 1990 (31 years).

The food at home index rose 5.4% over the past 12 months as all of the six major grocery store food group indexes increased over the period. The index for meats, poultry, fish and eggs increased 11.9%, with the index for beef rising 20.1% and pork rising 14.1%, its largest 12-month increase since the period ending December 1990.

The energy index rose 4.1% in October after rising 1.3% in September. The gasoline index rose 6.1% in October, its fifth consecutive monthly increase. The index for natural gas rose 6.6% over the month, its largest monthly increase since March 2014. Overall, the energy index rose a whopping 30.0% over the past 12 months, its largest 12-month increase since the period ending September 2005. All the major energy component indexes increased sharply over the last 12 months.

The medical care index increased in October, rising 0.5%, its largest monthly increase since May 2020. The index for hospital services rose 0.5% last month, and the index for prescription drugs advanced 0.6%. These are just a few examples of the price increases we’ve seen over the last year. Unfortunately, there are many others. Obviously, this is weighing on consumer confidence.

Record Number of Americans Quit Their Jobs, Find Better Ones

The plunge in consumer confidence in the economy happened as workers quitting their jobs hit a fresh record in a labor market that has nearly three million more positions available than there are people looking for jobs. In a sign of confidence in the labor market, 4.43 million people quit their jobs last month, part of what some have called “The Great Resignation,” the Labor Department reported earlier this month. That number topped August’s 4.27 million and brought the “quits rate” as a percentage of the labor force to 3%, also a record.

The tight job market, where workers have more leverage to move around and employers are doing everything they can to staff up, is already impacting the holiday shopping season, ZipRecruiter chief economist Julia Pollak warned. So far, roughly 34.4 million people have quit their jobs this year, with more than 24 million doing so since April. By comparison, 36.3 million people quit their job in all of 2020.

Why The Economy Slowed Down & Inflation Soared

The US economy was gangbusters in the first half of this year, with GDP surging at a 6.5% annual rate. Yet in the 3Q, growth slowed significantly to only 2%. Meanwhile, inflation has soared to the highest level in over 30 years. Today, I’m reprinting the latest column from Stephen Moore of the Heritage Foundation, who is one of my favorite writers. Stephen offers his latest analysis on why the economy has slowed down significantly and inflation has soared. I hope you enjoy it.

“The Wheels Are Coming Off the Biden Economy
by Stephen Moore

A good friend who owns a major auto dealership in the Dallas area recently told me he typically has about 500 to 1,000 cars and trucks on his lot. Now, he has 15. That’s how severe the supply chain problem has become.

He said people are buying cars over the sticker price. You usually haggle down the price for a new car. Now, you haggle up the price! Welcome to Bidenflation.

But now, the Commerce Department has reported that the high-flying U.S. economy with a 6.5% growth rate for the first half of this year has crash-landed in the third quarter with an anemic rate of just 2% growth. Those lousy numbers predate the supply chain crisis that emerged in October.

At the start of the year, the Philadelphia Federal Reserve Bank predicted 7% growth. So, that’s quite a downgrade we are seeing.

Car sales, for example, are way down because of microchip shortages. The carmakers also don’t have the metals they need to make the cars. Don’t try to buy a used car, either. Those prices in many parts of the country are up by more than 20% — even for clunkers. Many grocery stores now have empty shelves of produce and vegetables.

It means we have slow growth while inflation has hit its highest level in more than a decade at 5.6%. In addition, consumer confidence in the economy has tumbled.

All of this is a bit reminiscent of the economy of the 1970s. Does anyone remember the term stagflation?

Those under the age of 40 probably don’t even know what that is, and they’ve certainly never experienced it upfront and personally.

Here’s the definition from Investopedia: Stagflation is characterized by slow economic growth while at the same time accompanied by rising prices (i.e., inflation).

Under Presidents Richard Nixon, Gerald Ford, and Jimmy Carter, years of persistently high inflation triggered a surge in unemployment. That then led to the term “misery index.” The sum of the inflation rate and the unemployment rate. It exceeded 18% in Carter’s last year in office.

And then it was, "So long, Jimmy." With the economy sagging, Carter lost a landslide election to Ronald Reagan.

The lesson here is straightforward: The witches' brew of slow growth and higher prices is the ultimate curse for politicians.

Inflation, which had been relatively tame for 40 years, has been a cascading problem in Biden’s first 10 months in office. The consumer price index suddenly galloped from less than 2% in the Trump years to 5% and 6% in the past four months. The cross-your-fingers hope by the Federal Reserve Board and the White House that the sticker-price rises at the grocery store, the restaurant, and the gas station were only “transitory” have melted away like an ice cream cone on an August afternoon. Inflation is accelerating, and Jack Dorsey, the CEO of Twitter, predicts hyperinflation.

Let’s hope he’s wrong, but there is no plan in Washington or by the Fed to slow it down.

In fairness to Biden, some of the steep rises in prices were bound to happen due to the depressed prices in 2020. As consumer spending popped like a cork from a champagne bottle when lockdowns ended and the economy returned to normal, there was a natural demand response to reopening.

But nearly every Biden policy has made inflation and the economic slowdown worse. The absurd $1.9 trillion blue-state bailout bill passed in March marinated the economy with hundred dollar bills as if dropping like confetti from helicopters. According to Casey Mulligan at the University of Chicago, the expansion of welfare programs such as food stamps and unemployment benefits (not tied to working) is paying people up to $75,000 for not working a single hour in many states.

Big surprise that the labor force participation rate had shrunk and companies had 11 million jobs they couldn’t fill. Last month, nearly 200,000 people dropped out of the job market.

No wonder that the Job Creators Network says that small-business optimism has seldom been lower than today. When you treat profitable companies like villains, the owners go into protection mode.

Why invest when the politicians in Washington are threatening to tax away your earnings in the name of paying your “fair share?” Businesses that make profits are now demonized as enemies of the people in this new liberal anti-growth crusade. They keep forgetting that without employers, there are no jobs.

The income redistributionists who seem to be driving the Democratic Party agenda will soon learn that their pixie dust economic doctrine called modern monetary theory, which posits that Congress can spend and borrow ad infinitum, is a giant hoax. When the political class begins to plunder company profits indiscriminately in the name of “fairness,” the profits and the businesses start to disappear.

So, if Congress and the White House are afraid of the forces of stagflation, as they should be, what should they do?

The first and most urgent step to contain stagnation is to defeat Biden’s $4 trillion spend, tax, borrow, and print money scheme.

This week’s GDP report is a five-alarm siren warning that the Biden debt binge has to stop now. Hopefully, temporary stagflation doesn’t turn into runaway stagflation.” END QUOTE

Very best regards,

Gary D. Halbert

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