Paul Winkler: Okay, so big news this week was, well, of course, there was an announcement that Biden is actually nominating, to run another term, Powell. Fed Chairman.
And the talk in The Wall Street Journal was about that this week. It was “Biden Signs Up for Powell’s Inflation.”
And of course we’ve had lots of talk about inflation and the concern about, is it going to be transitory? Is it going to be long-term?
This has been a topic of conversation on the show quite a bit over the past several weeks.
“President Biden’s nominations Monday”—Monday before Thanksgiving—“for the leadership at the Federal Reserve are too much in character for his Administration.”
“By keeping … Powell in the chairmanship while elevating progressive favorite … Brainard to vice chair, Mr. Biden may think he’s deftly straddled the Democratic politics. Instead, he is buying into their monetary policy about inflation.”
And it goes on. And basically what they say here is that “The Fed chairman didn’t anticipate the inflationary burst and then spent months clinging to the view that it is ‘transitory.’ Now even he admits that there’s a problem, but the Fed is still moving at a glacial pace against it.”
And there has been talk. Is it a problem?
This is something—and I’ve talked about this here. That has been the stance for a long time from the Fed chair, which is that it’s transitory.
It’s going to be short-lived. Supply chain issues have been driving inflation, is the talk.
And then there’s also this issue of demand. And this is something I’ve brought up because there are other possibilities that are out there.
We Can’t Know Whether Inflation Issues Will Last
And really hard to know until enough time elapses to know really what is going to be long-lasting or not, whether it’s going to continue to stick around. But there is also the issue of demand increase for housing outside of big cities, because people were able to actually operate outside.
And that’s where a lot of people are talking about. You got all these people from California moving into Texas, moving into Tennessee, moving into Arizona, and moving all over the place and driving up the price of housing, which is an inflationary issue.
Evan Barnard: And they’re still working in California.
PW: And they’re still working in California. Exactly.
So you can have something that drives inflation, and that’s why it’s so hard to really put your finger on it. And that’s why it’s so hard for anybody to really say for sure.
You hear people that sound pretty dogmatic when you watch the TV shows.
“It’s definitely, this is it. This is absolutely. It’s just common sense. Amount of money grows.”
And it reminds me, back in the 1970s and early 1980s when I was doing Echo classes, and they were talking about what was going to happen.
And it was just—they were absolutely dogmatic interest rates were going to skyrocket because the government was going to be borrowing all the available money. And they were going to actually dry up all available funds.
And that would drive up interest rates because they were “crowding out,” is what the term was used. They were crowding out other borrowers.
And it never happened. It was because, well, we didn’t realize.
And that’s it. You don’t know.
I mean, I’ve talked about how long-term interest rates are fairly low. And the bond market responds by looking at, “Okay, are we likely to have inflation?”
If we’re going to have a lot of inflation, and it’s “No doubt, absolutely, we’re definitely going to have a bunch of it,” you’re not going to be sitting there on 30-year Treasuries at 2%. They’re going to go, “I’m going to demand more return for my money than that.”
So it’s still, regardless of even The Wall Street Journal, what they say, I would say it’s still not a done deal.
We don’t know for sure. It’s very, very, very hard.
Other Explanations for the Status of the Economy
Now there are other things. Issue of companies not ramping up production fast enough for the growing demand.
It’s kind of like what we talked about here on the show. We said that the 1918 plague, or the virus that happened in 1918, right?
And what did we say, is that a lot of people talking about that there’s going to be a Roaring Twenties that’s going to hit, after last year. And there’s been, to some extent, that.
They actually have terms for it. “Revenge spending” is what they call it.
You heard that, Evan?
EB: I have not.
PW: Okay. Yeah, so that’s one of the things that they’re calling it.
Revenge spending, like, “I was cooped up for this. I’m going to go spend money and you’re not going to stop me.”
And people are doing that, so they’ve come up—I love it. They come up with terms for everything, right?
And then you have reduction in oil output. Shutting down pipelines could have an inflationary impact, putting, making us more—
And then you have other people that say, “Well, no, no, no, no, no. What happened is we slowed down production, and we slowed down production because we didn’t think the economy would ramp up fast enough.”
So you hear people saying the things; they’re talking out of both sides of their mouth. They’re all over the place.
Overtime has to be paid because a lot of people are not getting back into the workforce. And because they’re not getting back into the workforce fast enough, we’re having to pay overtime, and that’s causing more inflation.
So you have that issue. And then you got people living off stimulus.
That’s another explanation that they have for it. There are a lot of little explanations.
How Have Labor Participation Rates Changed?
And you got to go, “Well, they all sound specious.” I mean, it all sounds good.
And then you got the Fed, said the article. Back to the article, it says, “The Fed has maintained the loosest monetary policy in history despite strong economic growth and [a] 4.6% jobless rate.”
I think one of the issues here is this, is labor participation rates. And I’ve been thinking about this.
So if you look at labor participation rates, ages 16 to 19, I looked up the data. And in 26 states, it’s up, and D.C.; and down in four.
Ages 20 through 64, it’s up in 26 states and D.C., down in three; 65 to 74, up in 25 states, down in two. And 75 and older, it’s up in 36 states, and down in none.
Now what happened is, last year, it dropped significantly. And of course, we had the virus early on in the year.
Of course, labor force participation is, how many people are actually looking for work and want to work, can work? That’s basically what that is.
You have unemployment, which is they’re looking for work and they can’t find it. How many are actually participating, actually going out there and actively looking?
So it’s something that is another part of the data. But what has been happening is, it started rising.
And I saw some really interesting data on this. I saw some interesting charts that were out there from the Bureau of Labor Statistics and different areas, and what has been happening—
And I was actually—it was really interesting that in most groups, what has happened is that you had this gradually rising labor participation rate and then the big drop. And then you’ve had this increase that has come about, but it hasn’t gotten back to pre-pandemic levels in any of the areas, is what they found.
And—except for one group, which surprised me. It was much younger people.
They actually had a fairly high—it was a pretty good growth rate. I would’ve thought that—because you hear this stuff, that so many of them are out of work.
And the reality of it was that their participation rates were actually pretty strong, which was kind of surprising to me.
EB: Now, have they gotten back to pre-pandemic levels yet? Or just, they’re growing faster than other groups?
PW: Yeah, they have. They have, and that was the one group that did.
The other groups did not. And it’s not a huge—they’re making a big mountain out of a molehill in some of the cases, if you look at the charts.
It’s not that much below what it was before, really, which was so surprising to me as well because you hear, typically, “The sky is falling,” and it was not necessarily that.
What Caused “The Great Resignation”?
But it dropped a lot last year. And what happened is you had this thing that they call it, “The Great Resignation,” which is that labor force participation rates dropped.
And what happened is that they haven’t come up to what they were before. But like I said, not quite as big as what people make it out to be.
But what they did is they asked this question, which I thought was interesting. The question is now, what happened that made people want to leave their current job or the workforce entirely?
And they had this guy, he was Dr. Russ Tremayne, and he was an associate professor emeritus and said, “The question is a tough one to answer.”
He said, “Kind of a psychology of we work too much, life is too short.” People took time off and were paid to take time off.
And then they decided maybe going back to work isn’t necessarily what I want to do because maybe there are things that are more important in life.
And you have, at the same time, concurrently, you have older people—baby boomers—that are getting to retirement age. And they are at that age to retire anyway.
And that’s part of the data right there. That’s part of what the equation is.
And another part of the equation is that mothers or mother figures who were forced to leave their jobs while their kids had to stay at home. So they’re not all back yet, because we’re not all in the clear, worldwide really.
And they said that in a survey. Seramount says one-third of all mothers have left the workforce since the pandemic began. And that’s roughly 8 million workers.
So there’s more to the picture than meets the eye.
Does Current Inflation Need to Be Fixed?
And then the Journal says, “Anointing the duo, Mr. Biden will now own future inflation.” Basically, he’ll own it.
Because they’re saying that Powell is an inflationary kind of guy, and that’s what they’re thinking of him.
“Perhaps there’s rough justice to having Mr. Powell stick around to fix the problem, but only if he does fix it.”
And I’m looking at it going, “You know, you look at the data, and I sorta see where he’s, ‘Eh, I don’t know whether to fix it or not because we’re not necessarily out of the woods in a lot of different ways.’ And there are a lot of things that still remain to be seen as how they’re going to play out.”
But anyway, they said, “One lesson from the long fandango over his reappointment is that Washington and Wall Street will apply intense pressure to keep the easy money running as long as possible. See Monday’s favorable stock-market reaction.”
Now, what does the stock market have to do with that? Well, stocks are protection against inflation, because what’s inflation? Prices going up.
You hear me say this a million times. You know where I’m going with this.
But that is why we stay diversified, because we really don’t know. And the stock market is this great voting machine that is voting on whether we’re going to have inflation or not.
And moves in the market have been tepid, really, when it gets down to it. So any comments, Evan?
EB: Well, just one point unrelated to inflation, but something that jumped out at me. It will be interesting to see how employers respond in hiring mothers going forward.
When you said a third of them are still at home, that’s going to probably continue to contribute to pay disparity and those kinds of things. That’ll be an interesting fallout down the road from this to see how that plays out.
PW: I guess we shall see. There are a lot of unknowns out there.
And when you’ve got an aging population, it may actually drive up the desire to hire.
If people are actually wanting to work, and they’re wanting to get back in the labor force, that fact that older people are leaving the workforce because they’re looking at it going, “Well, you know what? I’ve done this thing long enough. I want to do something else,” may drive that equation as well.
Want to talk with us directly?
Schedule a call here.
Ready to meet with us virtually or in person? Schedule a meeting here.
*Advisory services offered through Paul Winkler, Inc. (‘PWI’), an investment advisor registered with the State of Tennessee. PWI does not provide tax or legal advice: please consult your tax or legal advisor regarding your particular situation. This information is provided for informational purposes only and should not be construed to be a solicitation for the purchase of sale of any securities. Information we provide on our website, and in our publications and social media, does not constitute a solicitation or offer to sell securities or investment advisory services, or a solicitation to buy or an offer to sell a security to any person in any jurisdiction where such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction.