The rolling recession still needs to broaden.

What a surprise! "Consumers are downshifting" in the face of being made poorer by the higher cost of living brought on by inflation. Who woulda thunk?
The unanswered question in the article...who are the villains who caused that?

Remember HD...rolling recessions are transitory.

The Richcession Keeps Rolling

The pandemic-triggered unwinding of inequality continues


WSJ
The chances that the U.S. will plunge into a recession this year are slipping. But the richcession? It’s still rolling.

The economy keeps chugging along, adding jobs and growing despite still-high inflation and Federal Reserve rate increases. But for many richer Americans, it probably feels like a recession has already begun.

The Commerce Department last Thursday revised higher its assessment of first-quarter gross domestic product—it now says GDP grew at a 2% annual rate, versus its previous estimate of 1.3%. Economists meanwhile are busy moving up their estimates for second-quarter GDP growth.

Yet while the better-off are, by definition, better off than the poor, they have been hit harder by layoffs, have been less able to secure wage increases that keep up with rising prices and have been more affected by the slump in profits that began to take hold last year. In other words, it is still looking like a richcession, where amid economic uncertainty, the rich feel more of the sting. And this, in turn, is beginning to have knock-on effects, with richer Americans reining in their spending relative to others.

Layoffs are still making headlines, and they are still disproportionately affecting higher-earning workers. By the count of outplacement company Challenger, Gray and Christmas, about one-third of layoffs announced by companies this year have come from tech firms such as Facebook parent Meta Platforms, where the median employee made $296,320 in 2022. Job cuts elsewhere have been aimed at higher-paid workers, such as at Ford Motor, where planned layoffs are concentrated in the engineering ranks. Meanwhile, overall layoffs have remained low. Labor Department figures showing that even though the number of people in the workforce is higher than before the pandemic, fewer people are receiving unemployment benefits.

In a recent analysis, economists at Bank of America Institute found that in the 30 states that directly deposit unemployment benefits into laid-off workers’ accounts, the number of benefit-recipients in households earning $125,000 a year or more was up 40% in April from a year earlier. This was more than five times the increase in households earning less than $50,000. Moreover, the 30-state sample might understate the increase in high-wage earners receiving unemployment benefits because it didn’t include California (which issues benefits via prepaid debit cards), home to many of the tech companies where layoffs have been concentrated.

A tight labor market and in-demand skills mean that many well-off workers who lose their jobs can probably find new jobs fairly quickly—but maybe not at the same level of pay. Meanwhile, labor demand from industries that employ lower-paid workers remains elevated, and that is helping drive wage gains. A wage tracker developed by the Federal Reserve Bank of Atlanta shows that the 12-month moving average of annualized monthly wage growth for workers in the bottom quartile by income was 6.8% as of May, compared with 5.6% for workers in the top quartile. Economists David Autor, Arindrajit Dube and Annie McGrew estimate low-wage workers’ ability to switch into higher-paying jobs has unwound one-quarter of the wage inequality between top and bottom earners that built up in the four decades before the pandemic.

Wages aren’t the only way the rich make money, of course. Higher-paid workers often receive hefty bonuses, and in many cases these, too, have fallen. New York state reported that the average bonus paid to New York City securities-industry employees in 2022 was $176,700—still more than enough to buy an orchestra’s-worth of tiny violins, but down 26% from a year earlier, and after adjusting for inflation, below prepandemic levels.

Consider also variations in different kinds of income. In the first quarter, Commerce Department figures show that the overall level of compensation paid to U.S. employees was up 20.4% from the fourth quarter of 2019, driven by rising wages and employment. Transfer receipts—payments for Social Security, Medicare and the like—were up 28%, a reflection of baby-boomer-generation retirements plus many of these benefits’ cost-of-living adjustments to keep up with inflation. But proprietors’ income, which goes to sole business owners and partnerships such as law firms, was up a smaller 17%, while personal-income receipts on assets, such as dividends, were up just 9%. Of course, poor workers are more reliant on wages for income than richer ones, and poorer retirees are more reliant on Social Security payments than richer ones.

Constraints on the rich appear to be driving shifts in behavior. Bank of America Institute found that credit- and debit-card spending on discretionary items by higher-income households in April was below year-earlier levels, while spending for other households was up. That is consistent with reports from Walmart, which says it has been gaining market share among high-income customers, while spending on luxury goods by so-called aspirational shoppers has reportedly slowed. One reason this matters, points out Bank of America Institute senior economist David Tinsley, is that households in the top 40% of income account for more than 60% of spending.

A full-blown recession might or might not arrive. But the richcession could still place a drag on the overall economy in the meantime.

Dude, Where's My Recession?

Almost everyone thought we’d get one, and yet here we are


WSJ by Paul Krugman
Almost a year has passed since the Bureau of Economic Analysis, which estimates gross domestic product, announced that real G.D.P. had declined over the previous two quarters — a phenomenon that is widely, although incorrectly, described as the official definition of a recession.

Right-wingers had a field day, crowing about the “Biden recession.” But it wasn’t just a partisan thing. Even forecasters who knew that recessions are defined by multiple indicators, and that America wasn’t in a recession yet, began predicting one in the near future. As Mark Zandi of Moody’s Analytics, one of the few prominent recession skeptics, put it: “Every person on TV says recession. Every economist says recession. I’ve never seen anything like it.”

By late 2022, members of the Federal Reserve committee that sets monetary policy were predicting an unemployment rate of 4.6 percent by late 2023; private forecasters were predicting 4.4 percent. Either of these forecasts would have implied at least a mild recession.

To be fair, we don’t know for sure that these predictions will be falsified. But with unemployment in June just 3.6 percent, the same as it was a year ago, and job growth still chugging away, the economy would have to fall off a steep cliff very soon to make them right, and there’s little hint in the data of that happening.

So it sure looks as if economists made a bad recession call. Why were they wrong?

One answer might be to ask why anyone would expect them to get it right. A few years ago the International Monetary Fund did a systematic study of the ability of economists to call recessions in advance, and basically found that they never succeed. As the authors noted wryly, there was little to choose between private and official forecasts: “Both are equally good at missing recessions.”

In a way, however, the I.M.F. study isn’t that relevant to what we’ve just seen. The authors found many examples of recessions that happened but that forecasters failed to predict; what we’re seeing now is a recession that forecasters predicted but failed to happen. So where did this almost unanimous but, as it turns out, unwarranted pessimism come from?

I know that at least some forecasters were looking at a certain financial indicator: the spread between short-term and long-term bonds. An inverted yield curve, in which long-term bonds pay lower interest than short-term, has historically predicted recessions, as becomes clear if you note the years in which that happened in the following chart:

But the meaning of an inverted yield curve is widely misunderstood. It doesn’t cause a recession. It is instead an implicit prediction about future Fed policy — namely, that the Fed will cut rates sharply in the future, presumably to fight a deepening recession. So the inverted yield curve wasn’t really independent evidence, just a market reflection of the same “recession is coming” consensus you were hearing on cable TV.

So where did that consensus come from? Leaving aside all the “Biden’s socialism will tank the economy” takes, I think it’s fair to say that most economists bought into the view that we were seeing a replay of the early 1980s. What happened then was that, faced with high inflation, the Fed sharply hiked interest rates, causing a recession; this recession brought inflation down, and the Fed then reversed course, cutting rates again:

Indeed, the Fed has, once again, raised rates sharply to fight inflation. But events since then have failed to follow the script in two distinct ways.

First, those rate hikes have so far failed to produce a recession. Instead, the economy has been remarkably resilient. Mortgage interest rates — arguably the most important place where the rubber of monetary policy meets the road — have soared over the past year and a half:

Yet unemployment hasn’t meaningfully gone up at all, which isn’t what most economists, myself included, would have predicted. Why not?

Part of the answer may be that housing demand surged in 2021-22, largely as a result of the rise in remote work, and that this increase in demand has muted the usual negative impact of higher rates. This is especially true for multifamily housing, where high rents have given developers an incentive to keep building despite higher borrowing costs.
Another part of the answer may be that the Biden administration’s industrial policies — in effect, subsidies for semiconductors and green energy — have led to a boom in nonresidential investment, especially manufacturing. The numbers here are truly startling:

There may be other factors as well, like all the “revenge travel” Americans have been doing as fear of Covid-19 fades. Whatever the reasons, the economy has shrugged off higher interest rates to an extent few expected.

Now, you might think that this means that the Fed will have to push interest rates even higher. After all, don’t we need a recession to curb inflation? But here’s the other place where things have gone off script: Despite steady job growth and continuing low unemployment, inflation has in fact subsided. This is true even if you look at measures that try to exclude transitory factors. My preferred measure these days is “supercore,” which excludes food, energy, used cars and shelter (because official measures of housing costs still reflect a rent surge that ended a year ago.):

This is the measure I’ll be looking at when new inflation numbers come in tomorrow. (P.S.: The Fed has a different measure of supercore — non-housing services — but when you look at the details of that indicator, it’s a dog’s breakfast of poorly measured components that I find hard to take seriously.)

[h]In any case, something really strange has happened. I can’t think of another example in which there was such a universal consensus that recession was imminent, yet the predicted recession failed to arrive.

CPI Report Shows Inflation Eased to 3% in June

Fed officials are still likely to raise interest rates when they meet later this month


WSJ
U.S. inflation eased last month to its slowest pace in more than two years as underlying price pressures moderated more than expected.

The consumer-price index climbed 3% in June from a year earlier, the Labor Department said Wednesday, sharply lower than the recent peak of 9.1% in June 2022 and down from 4% in May. Inflation was last close to 3% in March 2021.

Still, inflation remains above the Federal Reserve’s 2% target. Fed officials have signaled that they are likely to raise interest rates to a 22-year high at their July 25-26 meeting, following recent signs of stronger-than-anticipated economic activity. Wednesday’s inflation report isn’t expected to change that outcome.

Last month officials kept their benchmark federal-funds rate in a range between 5% and 5.25%. That was their first pause after 10 consecutive increases since March 2022, when they raised it from near zero. Most of them in the June meeting penciled in two more hikes this year.

So-called core consumer prices, which exclude volatile food and energy categories, rose 4.8% in June from a year earlier, the slowest pace since October 2021 and down from 5.3% in May. Economists had estimated that core prices rose 5%.

Overall consumer prices increased a seasonally adjusted 0.2% in June from the prior month, compared with May’s 0.1% gain. Core consumer prices climbed 0.2%, the smallest one-month increase since August 2021, suggesting underlying price pressures are gradually easing. Prices for used cars and airfare fell sharply, while prices for car insurance and recreation rose. Rent increased in June, though at the slowest one-month pace since early 2022.

Fed officials are focused on cooling stubbornly high core inflation, and see core prices as a better predictor of future inflation than the overall inflation rate.

The Labor Department report could help strengthen the case of Fed officials who say the central bank has done enough for now to contain price pressures and that they should allow the effects of their cumulative increases to work their way through the economy.

Officials have two additional months of inflation data before their September policy meeting, providing time to see if Wednesday’s figures are the start of a meaningful trend in lower inflation.

Earlier increases in car prices, strong demand for labor-intensive services and an earlier surge in housing-rental prices have contributed to core inflation.

“Where inflation is proving sticky is in services—getting haircuts, getting your car repaired, buying car insurance,” said Leo Feler, chief economist at Numerator.

The U.S. economy has remained resilient this year, defying predictions of an economic downturn. Hiring slowed in June but was still strong, though consumer spending cooled in May compared with the prior month. U.S. economic output rose at a 2.3% annual rate during the recently ended second quarter, according to the Atlanta Fed’s most recent estimate.

While inflation is lower than a year ago, it continues to take a toll on many consumers.

Ali Salim, 34 years old, said rising prices for rent and gasoline have squeezed his budget. His landlord raised the rent 24% last year on his one-bedroom apartment in a Seattle suburb, then another 10% this year, he said.

Salim said he decided to move to a new, smaller apartment, which has fewer amenities and is 8 miles further away from the office where he works as a solutions architect at a tech company.

“I’m going to have to drive further and spend a bit more on gas, which is another pain point,” he said. Washington state has the highest gasoline prices in the nation at an average of $4.96 a gallon of regular unleaded, according to OPIS, an energy-data and analytics provider, well above the national average of $3.54 a gallon.

Salim said increased expenses leave him saving about 40% of his salary, compared with about 60% before the rent increase last year.

“My goal was to own a home within the next five years,” he said. “With me saving so much less, I don’t know if I’ll be able to do that.”

Krugman! The old loner LEFT-WING NEO-KEYNESIAN SEER sits in his Manhattan apartment reading the tea leaves, detached from the real world that the little people experience every day. He probably doesn't even own a car.

Krugman completely missed that we have been in a rolling recession for a year.

I expect as much from him. Just glad to see he has still managed to stay employed.

He’s old guard and hasn’t got popped in any of the woke traps, it’s based off of attrition not knowledge. He’s not right like a broken clock, he’s more like right as much as a clock with a bad battery. A shade better than twice a day.

Big-Bank Earnings Show Signs of Soft Landing

Profits from JPMorgan, Wells Fargo make it easy to forget there was a banking crisis this year



WSJ
The biggest U.S. banks presented a picture of a resilient economy on Friday, with consumers and businesses continuing to spend and borrow even after a lightning-fast rise in interest rates.

JPMorgan Chase’s profit soared 67% in the second quarter from a year earlier and Wells Fargo’s WFC -0.34%decrease; red down pointing triangle jumped 57%, lifted by the income they earned lending out money at higher rates. Citigroup’s C -4.05%decrease; red down pointing triangle net interest income was a bright spot, though profit fell 36%. All three banks beat analysts’ expectations for profit and revenue.

The three banks collectively grew their loan books from a year earlier, thanks partly to an increase in credit-card balances, which padded revenues. The banks lifted their forecasts for their 2023 lending profits, proof they don’t expect to see a major shift in borrowing or deposits.

Analysts and investors largely agree that the economy has been slowing since the Federal Reserve began lifting rates last year. Still, Friday’s results made it easy to forget there was a banking crisis this year.

The higher interest rates that pushed Silicon Valley Bank, Signature Bank and First Republic Bank to failure have largely been a benefit for the megabanks, which all attracted customers reaching for safety. JPMorgan’s purchase of First Republic, with government aid, boosted its consumer and commercial businesses and gave the bank an immediate $2.7 billion gain.

When JPMorgan Chase bought First Republic Bank in May, all eyes were on its CEO, Jamie Dimon. Here’s how the executive’s strategy for managing risk propelled him to the top of the banking world. Photo illustration: John McColgan
The picture could be less rosy for smaller and midsize lenders, which will start reporting results next week. While banks of all sizes are paying more in interest to keep yield-hungry customers from yanking their deposits, the extra expense can be hard on smaller banks.

Bank stocks have diverged this year. JPMorgan, Wells Fargo and Citi are all up in 2023. Friday, JPMorgan rose 0.6%, while Wells Fargo fell 0.3% and Citigroup dropped 4%. The broader KBW Nasdaq Bank Index is down 18% for the year and fell Friday, a sign that investors are worried about smaller banks’ deposit costs.

Some regional banks have lowered their second-quarter earnings forecasts in recent weeks, saying they underestimated how much they would have to shell out on deposits.

While executives at all three big banks said they continue to believe the economy is strong, especially when looking at U.S. consumers, they all cautioned there is too much uncertainty to be sure of the future.

Borrowing from banks is picking up steam from its pandemic lull. WSJ’s Telis Demos explains why it’s coming just in time to offset some of the pinch banks are feeling from higher interest rates. Photo: Angus Mordant/Bloomberg
“I don’t know whether it’s going to be a soft landing, a mild recession or a hard recession,” JPMorgan Chief Executive Jamie Dimon told reporters.

Loan defaults increased slightly but remain historically low. The big banks set aside some money for potential future defaults, particularly in commercial real estate, but the charges weren’t as large as what they took when anticipating steep economic declines.

Bankers and regulators say that the March crisis has receded, and recent economic data has spurred hopes the worst-case economic scenarios they feared won’t materialize.

The optimism is showing up in markets too, with investors embracing risk-on trades they had avoided for much of 2022. Megacap tech stocks are up, with the Nasdaq Composite just wrapping up its best first half to a year since the 1980s. Bitcoin rose more than 80% in the first half of the year, even though regulators sued the biggest crypto exchanges.

“The U.S. economy continues to perform better than many expected and although there will likely be continued economic slowing and uncertainty remains, it is quite possible the range of scenarios will narrow over the next few quarters,” Wells Fargo CEO Charlie Scharf said on a call with analysts.

JPMorgan, Wells Fargo and Citi together earned $49 billion in net interest income last quarter, up 31% from a year earlier, as loans increased and they charged more for them.

Americans Are Borrowing Again, Which Is Great News for Big Lenders
Customers at all three banks spent more on their credit cards, and more borrowers carried over balances each month. Loans to businesses were up at JPMorgan and Wells Fargo.

Even mortgage originations, which are heavily impacted by rates, increased from earlier in the year at Wells and JPMorgan, though they remained down sharply from a year ago.

“Overall, I’d say we are seeing a more cautious consumer, but not necessarily a recessionary one,” Citi CEO Jane Fraser said.

But the going is getting tougher even for the big banks.

All three banks had to pay more to depositors to keep them from moving money into higher-yielding money-market funds, after years of paying next to nothing on consumer checking accounts.

And customers still pulled money. Deposits fell 3% from a year earlier at JPMorgan and 6% at Wells Fargo. They were roughly flat at Citi.

Those results spooked investors across the banking sector, where smaller and less-diversified banks have a harder time offsetting those costs. Regional banks slumped Friday and custody banks State Street and Bank of New York Mellon dropped sharply.

Meanwhile, loans might sour as well if higher rates take a bigger toll on consumers and businesses.

“We’re still very early in the cycle. This is going to play out over an extended period,” said Mike Santomassimo, Wells Fargo’s chief financial officer, on a call with reporters. The bank set aside nearly $1 billion to cover expected bad loans, largely in commercial real estate.

JPMorgan executives characterized the slight increase in loan defaults as more historically normal, not a concerning deterioration.

Banks also are becoming more selective about the loans they make. “The economy has slowed, and we’ve taken some credit tightening actions,” Scharf said on the analyst call.

Wall Street businesses remained in the doldrums. Investment banking, which includes fees from mergers and selling corporate stock and debt, fell 6% from a year earlier at JPMorgan and 24% at Citi. Trading declined 10% at JPMorgan and 13% at Citi.

“People should feel that the economy is on a pretty solid footing, which is surprising given the pace of interest rate hikes,” said Jean Rosenbaum, senior portfolio manager at GYL Financial Synergies.

You guys make no distinction between: reported known facts; wide spread consensus or formula conclusions based on fact; fact based opinion and pure opinion. Who amongst you even has a real background or education in social or bossiness economics??

Well being on the front line of the supply chain I think I know a thing or two about economics. I know that fright rates suck. In fact, we are in a period of all time low spot transportation rates. In addition, store shelves have many more empty spots than this time a few years ago.

Then consider the fact that many meat packing plants are running behind. I go to about 8-10 Tyson pork processing plants. I also haul from few IBP and Cargill beef plants as well as a number of Sanderson Farms chicken plants. These are some of the largest meat packing plants in the US. Since Christmas of 2021 I have yet to leave on time. In fact, I’m still waiting on a load of chicken that was supposed to be ready day before yesterday.

From this one can draw a few conclusions. First, unemployment numbers are based off claims made. Unfortunately, it does not measure the true number of unemployed because it doesn’t take into account those that stopped filing for unemployment benefits regardless of the reason. So that particular stat has to be taken with a grain of salt.

The supply chain has shrunk. That is evidenced by the fact that a) store shelves have less product; b) those shelves are lighter because product isn’t being shipped at a rate fast enough to replenish and c) freight rates are down because there are fewer loads because there is fewer product to move. But, before one goes thinking that the reason rates are down is be a there are more trucks on the road than last year it would be wise to consider that there are 11,000 fewer active operating authorities (ie CMV federal registrations) than at this time last year.

What are you complaining about?

You don't need to be a rocket surgeon to know that prices have soared, sizes have decreased and wages haven't risen...Pedo Joe mumbles and stumbles about his great recovery. Telling people to go back to jobs that they were locked out of isn't "job creation". Those numbers have been cooked so many times that all you have to do is employ common sense and see the people suffering out and about.

Paul Krugman is an idiot. Touting his failed policies and articles is propaganda. The Federal Reserve is a swindle.

Bidenomics won't save us, it won't “restore the American Dream”, it's not "saving the soul of America".

Bidenomics is anti-free market top-down meddling in the economy by politicians, bureaucrats, banksters and other cronies who only care about stuffing their pockets with loot and sticking it to the rest of us.

Bidenomics is nothing more than barfing up more socialism and fascism as its means to its Utopian ends.

You don't have to be an economist to smell the stench, to see the cracks, you can fudge all the numbers you want and pretty them up, we've seen this movie before, we know how it ends.

You've got to be dumb as Bidenomics to believe government can run like a business, and run the economy.

I still remember vividly the supposed facts, and wide spread consensus by the experts that "the economy is strong" just before the 2008 crash.


Bidenomics Is Yet Another Version of Failed Industrial Policy

07/12/2023 Connor O'Keeffe

Sometimes economic measurements of the economy can be irrelevant, other times relevant. And then, sometimes, estimates which obviously aren't precise- are merely relied upon as indicators, not scientific gospel. "unemployment claims" is a good example of the latter.

It is just one of many measurements that has been long-defined and used. Change it (just because it doesn't measure everything you want it to the way you want it to) and you start comparing only "apples to oranges."

Instead, it would be best to define, develop and use, more than one type of measure of unemployment- and compare them against themselves historically; and against one another -to determine which analytics fit any given scenario/or time period the best. No such thing as perfect.

Social economics is not a precise science. But, one good measure of the job market would entail looking at job openings compared to the unemployed potential labor pool.

I pretty much think anyone who wants to work now can find a job. But, there seem to be a true shortages of labor in the economy, regardless how one measures unemployment.

I look at multiple sources that come from different perspectives and look for trends within them to make guestimates about the future of the economy. It is a little "crystal-ball" like because nothing in economic history guarantees what will happen in the future.

That reminds me I should have gotten my degree in bloviating then I could be an accepted speaker……at least on a discount cigar forum.

You are not qualified.

Damn it!!

Z, you will never be another Paul Krugman. 😟 😞

I barely made it out of the 6th grade.

Oops! Sorry Jammie.

Here is what I wa ht I was thinking when I posted above: “You can’t handle the truth. You can’t handle the sad but historic reality.”


Jack Nicholson- A few Good Men)