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That was fast. Two weeks ago the Goldilocks Economy was being feted (again) from one end of Wall Street to the other. Today, however, January’s in-coming data brought a 6.7% annualized CPI rate and a negative 3.1% annualized retail sales print.
Can you say stagflation!
The robo machines certainly did when the Dow futures reversed by more than 400 points hard upon the 8:30 AM releases.
Indeed, even if you don’t cotton to the seasonally maladjusted monthly data prints, which we definitely do not, it’s hard to see the case for goldilocks even on a year over year basis.
To wit, nominal retail sales in January were up just 3.0% on a Y/Y basis, while the CPI gained 2.1%. So if consumers are the be-all and end-all of Keynesian prosperity, where’s the beef?
Certainly the measly 0.9% gain in real consumer spending since January 2017 ain’t it.
Needless to say, the underlying trends do not remotely fit the goldilocks narrative anyway. As we mentioned a few days ago, hourly wage growth for the 80% of the work force considered to be “production and non-supervisory employees” was up just 2.4% in January while the CPI has now come in at 2.1%.
So with the household savings rate having now plunged to just 2.4%, which is virtually an all-time low, how do you get a consumer spending boom out of 0.3% annual wage growth?
Indeed, how do you possibly justify the new Fed Chair’s claim that the Yellen Fed (and Bernanke too) did a splendid job of restoring full-employment prosperity, and that these policies need to be continued full speed ahead?
As Powell said at his swearing-in ceremony:
Since then, monetary policy has continued to support a full recovery in labor markets and a return to our inflation target; we have made great progress in moving much closer to those statutory objectives…..Since then, monetary policy has continued to support a full recovery in labor markets and a return to our inflation target…..
While the challenges we face are always evolving, the Fed’s approach will remain the same. Today, the global economy is recovering strongly for the first time in a decade. We are in the process of gradually normalizing both interest rate policy and our balance sheet with a view to extending the recovery and sustaining the pursuit of our objectives.
The chart below obviously douses this entire self-serving narrative with a bath of cold water. During the last 17 years, real average weekly earnings of the core work force— men 25 years and over—have not increased by a single dime (they’re actually down from $407 to $406 per week in constant 1982 dollars).
Even as the Fed’s balance sheet has soared by 10X and the value of household financial assets has nearly tripled since the year 1997, therefore, worker paychecks have been dead in the water.
So we are not inclined to call the picture below a Goldilocks Economy or a measure of central bank success. Instead, it points to the rotting foundation of a once thriving capitalist economy that has been strip-mined by financialization and speculation—–the only real product of Keynesian central banking.
