There is an economic boom going on in recession predictions.
Since COVID-19 hit in early 2020, the brilliant economists and professional pessimists have been predicting misery for the American economy.
We actually did have a recession in 2020. It started in February and ended two months later according to a group of economists who are in charge of making an “official” designation of such happenings, the shortest downturn on record.
For the last three years, the recession lobby has been pummeling us with continual harping about recession that is just around the corner, yet unemployment remains at 3.5%, the lowest in 50 years.
If you are in business or simply work for a living, how do you keep your spirits up in the face of this almost endless negativity? First, you could totally ignore every economist, banker, and business person who has the same stature in navigating the economy. The head of JPMorgan Chase, Jamie Diamond, steers more money around than just about any person in the world. He continues to preach an ugly drop in business, while he harvests more profits as the Fed raises interest rates.
I discount everything Diamond spins to the press because he profits when interest rates go higher from the terrible threat of runaway inflation. The fact is, the Federal
Government and the Fed have pumped an enormous amount of money into the economy in recent years, yet it was only in the past year because of several unusual occurrences, which were bound to self-correct, that we got real inflation that is proving to be temporary.
First, the COVID pandemic soaked almost everybody. Big business and its clairvoyant economists panicked, not understanding that vaccines and the eventual herd immunity would mute its impact. One huge error that big manufacturing firms like auto companies made was drastically cutting the number of semiconductor chip orders.
Then COVID subsided, but the artificial chip shortage caused production to be way behind demand. That pushed up prices. Then we had the shortage of residential real estate. For many years, demand and supply have been fairly balanced, but Wall Street firms, speculators, and individuals all saw the market as undervalued with the Fed keeping interest rates at unprecedented low levels for several years. Stocks looked expensive after a big bounce up, bonds appeared ugly, while residential real estate was an opportunistic buy. Money poured in, the Fed raised rates significantly to levels that used to be normal, and the market is now correcting.
Then a year ago, Russia started the war in Ukraine and used its fossil fuels as a weapon. Vladimir Putin had shrewdly played the Germans for fools by making them dependent on Russia for oil and gas. But again, after a temporary run-up, the market corrected. Liquid natural gas was rerouted to Europe. The United States ramped up production. Oil, which the Russians figured would go to $150 a barrel, settled under $80. Ukraine battled the Russians to a stalemate, China stayed out of the war, and economies have held up.
Another unusual factor in this is the supply of workers in America has not expanded greatly. We only have gone up, especially for workers in the lower end of the market, to help stay even in buying power. The tech industry, which over-hired over several years, has trimmed a small percentage of their workers.
The net effect of all of these temporary factors is that we have moderating inflation without recession.
Why have so many smart people gotten it wrong? My assessment is that they have a strong vested interest in being negative. It gets them noticed in the media. The feeling is that if you are wrong in predicting doom, people will forget, but if you hit it right, you are brilliant.
But if you are in business and you are continually pessimistic, you will never grow because you are so wary of risk.
One day, the nattering negativists will be correct. One day, we will all be dead. I prefer to bet on life.
Question: How has your business reacted to the boom in recession predictions?
We get up in the morning and spend another day at work – doing what we do best. For the most part we turn off the audio and visual parade of “experts” and pay attention to what is around us and deal as best we can with the hand we have been dealt. Our basic premise is that we have to treat our employees and customers well, they are the reason we are in business. We are in our 76th year of fair, firm and friendly treatment of those around us and we don’t always get it perfect but we give it our best effort.
3.5% unemployment is a bogus number. Federal Govt. uses this number to show how strong they have made the economy. The percentage of people eligible to work that are actually working is only 62%, ie: the actual unemployment rate is actually 38%. The 3.5% is only the people trying to work. Most would rather stay home and collect money from other “sources”. There’s the negative for you. Companies are wondering why they can’t find workers?
So – the 3.5% is a calculated number. Has that calculation changed over the years? If not, (and it hasn’t in a long time) the methodology shows changes in unemployment, year to year. In 2016, the number was 4.8%. So – Who defines “eligible to work”? At age 75, I can walk around, so am I eligible to work? Yeah, but I will stay home and collect money from other sources, like Social Security and a pension. I realize that some statistics can be “fudged” to make someone look better – or look worse. That is why continuity is needed. It’s always worth qualifying the numbers. and the “unemployment rate” is well defined.
Hello again Misterchipster,
We are in our 82nd year. We attempt to be intelligent risktakers in the machine tool arena. I wish I knew what “fair” meant. It is one of those airy words that I find elusive in making decisions. I do try to be generous and considerate in my dealings yet I am competitive, too.
Readers, what does “ fair “ mean to you? Is there a place for it in your personal business or is it too elusive.
“Fair.” Of course that’s the word that sticks out at me as well.
Definitely a good blog or podcast for either of us!
I think it is a word that can be verboten and also be used with innocent intentions.
I think ‘fair’ has a lot to do with the entirety of the relationship. I higher price is ‘fair’ if a higher quality of service is provided in conjunction with the actual goods. Is it a buyer beware situation from an auction or reputable seller that will makes things right? In short fair isn’t as simple as the sale price.