Blurts & Spasms

IMO the waters are very muddy right now. There are strong indicators of both fundamental strength and fundamental fragility in the U.S. economy (and the global economy as well). Currently, these strengths and fragilities balance each other out to some degree. And that caveat — “to some degree” — is important. Through economic, political, and military lenses, there is a high amount of volatility right now. The future is uncertain. I’ll throw out just a few variables so you can see what I mean:

1. China’s economy is currently tanking, even as they increase military saber-rattling over their geographical influence.

2. The U.S. bond yield curve is still inverted…and getting more pronounced.

3. U.S. labor force participation remains at a strong 62.6% (highest since March, 2020) and the U-6 unemployment rate has fractionally decreased. However, at the same time, the total number of new jobs created is slowly going down.

4. Credit is tightening — everywhere.

5. U.S. inflation is cooling (core inflation of 4.7% is the slowest gain in 20 months).

6. U.S. sovereign debt has been downgraded.

7. Half of the U.S. electorate remains in the thrall of a deluded con man, and their fundamental beliefs about all manner of things (including what policies will best protect democracy and preserve a strong economy moving forward) are totally at odds with reality.

8. In the U.S. and elsewhere, there has been an uptick in business investment (both public and private projects).

So…is it a complete wash? Well, in my humble opinion, it is for now. But any of these factors could easily be disrupted by current events. For example, what if Vladimir Putin — or Saudi’s MBS — decide to curtail oil production (and thereby spike gas prices) just to make Joe Biden look bad during the 2024 election? Such tactics are almost a given at this point, and these would add unwelcome pressure to the U.S. and global economies. With other factors like the ones described above still in play, what do you think will happen in terms of inflation controls and economic recovery? I don’t think the delicate balance of pros and cons would hold — there would be a major disruption, and possibly a crash.

This highly volatile situation is why it is simply not possible to look at just one metric — like employment — and come to any firm conclusions one way or another.

My 2 cents.