Inflation where it matters: Close to 50 percent of Americans indicate spending more on groceries and fuel this summer. Nearly one third indicate more spending on rent and mortgage payments.
The stock market continues to move upwards ambivalent to economic indicators and the reality that inflation is permeating throughout our economy. The Fed continues to point at CPI as evidence that inflation remains subdued and this gives them the motivation to move forward with monetary policies that we have never embarked upon. We are already getting a taste of the bigger consequences including a growing low wage labor force. A recent Gallup survey found that Americans are spending more money on items that actually matter and items that consume a large portion of a household’s budget. This is key here in understanding the nature of inflation. Items like housing, healthcare, food, and energy make up a large portion of spending. Yet the Fed looks at other items that consume a small part of a household’s budget and balance out the overall picture. What you get is a massive understating of inflation and a stock market heavily juiced on easy money. Large pools of money are chasing real assets and crowding out regular Americans from the market.
We are absolutely in a stock market bubble: corporate equity valuations now higher than peak reached in 2007. Crestmont P/E of 26.3 is 90 percent above its average of 13.9.
Once again the stock market is in full bubble mode. The internet chat forums are full of people pumping up stocks and you also have penny stocks surging in light of people looking for the next free lunch. The stock market is a poor indicator of the overall economy but it does show how those with disposable income to invest are thinking. Even on more conservative investing boards, those that advocate dollar cost averaging into broad based mutual funds or stocks, you have people throwing caution to the wind and trying to time the market or go all in on stocks fully ignoring bonds as a part of a balanced portfolio. The market was already overvalued earlier this year and the froth continues to build. The Crestmont P/E of 26.3 is now 90 percent above its average of 13.9. Valuations are off the chart and euphoria is setting in. You even have penny stocks going up in rocket rides up which was very common during the tech boom of the 1990s. At the same time, you have inflation eroding the purchasing power of regular Americans not participating in this casino. All the signs are there: massive speculation, unexplainable valuations, and blind optimism. All signs of a bubble top when the fundamentals don’t make any sense.
How the US is creating a low wage workforce: Foreign born workers earn 79.9 percent compared to native born workers.
Over the last decade the U.S. has entered into a low wage economic trend impacting the overall economy. The result has been for many once middle class familiesto fall one or two rungs lower on the economic ladder. Many corporations have boosted their bottom line by using slack in the labor force to cut wages, slash benefits, and ultimately filter more profits away from workers. This is how you achieve a record level in the stock market yet wages have been stagnant for well over a generation adjusting for that pesky background “noise” of inflation. Another way that wages get depressed is by examining our foreign born workforce. There is data showing that foreign born workers earn 20.1 percent less than native born workers (79.9 percent the pay of native born workers) in the U.S. Even when we look at college education, we find that foreign born workers simply add more pressure on current workers giving companies an excuse to undercut wages and in many cases slash benefits. For example, this is very common in the tech sector where companies will bring in foreign born workers via H1-B visas and pay workers reduced wages and typically these workers received paired down benefit packages. This is simply another example of how we are entering a low wage workforce.
The Red Queen’s Race in pay raises: Record number of employed US workers report no change in wages or salary. Stagnant wages and inflation eating away at purchasing power.
A record number of Americans currently working are reporting no wage increases over the last year. What is important to note in this recent report from the Federal Reserve is that this is for those working and staying in their current job. As we know, we have a growing army of people in the “not in the labor force category” and we can assume, that they are not receiving any pay raises. If the economy were booming (assuming the stock market is a good barometer) we should see a healthy increase in wages as demand for labor increases. That is simply not the case and this report only adds more fuel to the fire that we are entering a phase of low wage America. Pricing power is in the hands of corporations and banks have created an entire nation fully dependent on debt to have any sort of middle class life. Only a generation ago, a careful saver putting away the earnings of their labor could enjoy a middle class lifestyle. That is out of the question today. You think you can pay $30,000 a year in tuition to go to college out of savings? Or what about buying the typical $200,000 house? Your average new car now costs $30,000. Good luck doing that when the per capita wage in the US is $26,000. The fact that a record number of currently employed workers are receiving no pay raises should give you a hint as to how healthy this recovery is.
Feeling poorer through the power of inflation: Since January of 2000 college tuition is up 68 percent, new car costs are up 55 percent, your typical home is up 50 percent, and wages are simply not keeping up.
You have to love how the Federal Reserve downplays inflation when they are the primary source of it with other central bankers for this monetary phenomenon. They continue to play inflation down because it gives them the power to continue to use policies that seem to only aid their banking allies while making working Americans poorer by the day. Inflation has a slow eroding power that is not readily visible since it usually takes time to work through a system. Looking at a broader timeframe however it becomes readily apparent that inflation is hitting our system hard and most working families don’t need an advanced degree in economics to understand this. According to the CPI, the overall rate of inflation since January of 2000 has been 39 percent. The Fed prefers to use the PCE Deflator measure and this only has inflation running at a 31 percent rate. But when we actually look at the cost of goods and services across the spending spectrum we realize that inflation is very much alive and well with us.
Being young increases your odds of being unemployed in the US: 40 percent of unemployed workers are Millennials. The long-term impact of young unemployment.
Young Americans continue to carry a heavy burden brought on by the Great Recession. A recent analysis conducted on US Census data found that 40 percent of unemployed workers are Millennials. Many young workers are simply trying to start their careers and each year that passes is a year where retirement planning is delayed, savings are put on the shelf, and the machinery of spending is put on ice. Young Americans are a key spending demographic. Many will look to purchase their first home. Many are out in the market to purchase cars. Vacations and spending are common characteristics of this group assuming they have the money to spend. Unfortunately with such a large portion of our unemployed coming from the young, we are seeing new demographic trends hitting the market. The housing market is seeing a smaller number of first time home buyers in spite of very low mortgage interest rates. Many are saddled with back breaking levels of student debt and default rates are highest among this debt class. In the US, being young increases your odds of being unemployed.
Part-time working nation: The number of people working part-time for economic reasons jumped by 275,000 in the latest month of data. 6.1 million Americans not in the labor but want a job now.
The jobs report always comes out like a Black Box of economic data. While we added 288,000 jobs on the surface, digging deeper into the report we find that part-time work for economic reasons increased by 275,000 in the same month. Year-over-year inflation is eating away at purchasing power. The employment report was actually weak but on the surface one of the stronger reports we have had since the Great Recession ended. What is more troubling however, is the report is showing that the nation is settling into a comfortable zone where low wage jobs are becoming a more common part of economy. What also isn’t mentioned is that we have over 6.1 million Americans not in the labor force but that want a job right now. We’ve discussed the “not in the labor force” category before but this subset is very specific and shows that finding a job in the economy today isn’t all that easy, especially one that pays a livable wage. The stock market of course makes a record while other indicators like food stamp usage remain near peaks as well. Working part-time is becoming a much bigger part of our workforce.