The mavens and savants are struggling with lots of economic numbers coming in that do not conform to popular wisdom.
We have a very tight labor market right now, but the wage increases are merely bubbling up at a 2% per year pace.
I have to admit this number does surprise me because Amazon just raised everybody at least a buck an hour, and the minimum wage law, which used to be an issue for the angry liberals, is now a forgotten artifact in a competitive economy.
People in the food-serving business do have to pay more or they will have nobody to flip the burgers, but in the industrial economy I have been surprised that the wage push appears to be subdued. People are just getting by with fewer people than they used to, because hiring is so difficult. A lot of people who are joining the production workforce are fresh faces at lower wages than the retirees who are exiting.
Investment by middle-sized business is softer than one would expect with 3-4% GDP growth in the economy.
Bigger companies, particularly a lot of foreign firms, are investing major money in factories, equipment and training but not small and mid-sized firms. For independent business people the scars of 2008-2009 are still palpable. I think many older business folks are still in a “recovery” state and very cautious about acquiring debt to expand. Also, the tax law favors Type “C” corporations over “S” corporations which are common for small businesses.
Big companies, whose managers are mandated to grow their companies without having to spend their own cash, are putting up new factories and buying others. Small and midsize firms find it harder to borrow and are inclined toward conservatism.
For those wanting to sell out, they need to build “EBITDA” to command a decent price, and often the willing buyers are private equity firms that want to milk the acquisitions to quickly pay down debt then flip them to the next willing group.
The stock market is sliding down. This should not be terribly baffling after nine years of buoyancy. When the Dow was over 26,000 I found myself checking my retirement account every day. For me this was a sure sign that we were headed for a plunge.
Looking at it coldly, the Fed has been whacking the market incessantly with rate raises. The short-term rates go directly at my lending line, making me wince quarterly. Interestingly, the 10-year bond which dictates mortgage rates has been relatively kind to us because zillions have poured into that bond from around the world. Nevertheless, mortgage rates have moved up faster than the 10-year has, and the new and used home markets are sluggish. I think that many people, correctly or not, view the home market to be out of reach for what they want and expect. One significant reason for this is the choice by many owners to rent their homes by the day, the month or the year because CD rates are paltry and demand for rental housing is robust. The amount of owner-occupied housing is falling in America, a phenomenon few predicted 5 or 10 years ago.
We are in a period when automotive is stagnant, housing is mediocre, rates are rising, wage growth is modest, stocks are falling, yet small business confidence is at record levels and much of the Press says America is a mess. Pretty weird.
I’ll take another shot at explaining what is going on.
The U.S. economy is running on borrowed money. The tax cut made for bigger deficits, but the happy fact is that all the borrowing is well within our means – if the economy keeps growing and folks are confident.
The big jump in military spending has given us more extra juice. Will the glee over defense splurging go on forever? Doubtful, but for now it is a plus.
Business owners, especially small business owners, like Donald Trump, tax cuts and lighter regulation. The New York Times and CNN hate this fact, but it is true for now. I think the stock market drop is a hedge by Wall Street against a Democratic victory in the midterms. If the Republicans get to 55-45 in the Senate I think we’ll quickly see stocks jump 5-10%.
If you’ve read this far you have absorbed 600 words of Lloyd Graff’s opinions. Do you agree? Are you confident or pessimistic? Are you making more money and saving it or buying a new F-150? Have the higher interest rates soured you or do you ignore them? Sock it to me.
Question: Is your confidence in the U.S. economy rising or falling?
We are 2 weeks away from having complete bids for a year long design and build expansion project to double our manufacturing space which may be canceled because of a softer 4th quarter, rising interest rates, unpredictable trade war changes and rising steel prices (it’s a steel building). We are wondering if a big slow down is around the corner? Does it make sense to do this right now or wait a year for potentially huge cost savings? If it is big enough we may not need the room yet. Of course the best time to have done this project would have been 2009 but I would have been laughed out of the boardroom if I proposed this back then…
I am very optimistic and anxiously await the results of Nov. 6th. Plus I did just buy an F150.
I’m saving saving saving. It’s a turbulent time — religious extremism, political craziness and ideological extremists on both sides, crazy money hungry (not truth hungry) media, the age of AI and incomprehensible tech. Who can tell what’s true any more? Not me. I’ve turned inward toward my family and friends, my little sphere of influence, and shut myself off from the craziness so I don’t get depressed. I think the world appears to be going mad when seen from afar, but in day to day life and in face to face interactions, we’re the same as we always were. Strange times.
I don’t have much to add but a very though provoking comment. Thank you, Emily.
On second thought, an article I read this morning about seem to tie in well with your thoughts:
Tech pioneer Jaron Lanier: Social media is destroying Democracy
I’ll read it, thanks.
Good afternoon Lloyd. You ask about the Economy at Large. My response is focused on our little piece of it. Not a lengthy recitation of considered facts, just a synopsis in eleven words. (It is a technique that I share with my students to help them focus.) Here is my answer:
Regulatory threats- reduced
Economic Patriotism- finally legitimate
I see no existential threats worth modifying our behaviors for. Certainly we as a nation have much fiscal housekeeping to muddle through, and expectations to manage, but never have I seen our precision machining shops be as competitive, productive, sustainable, and capable as they are currently.
Your question suggests that perhaps we should not bet on this horse. I ask, on which other horse should we be betting?
” the minimum wage law, which used to be an issue for the angry liberals,”
Why does supporting a larger minimum wage make a person an angry liberal?
Do you write your articles while wearing your Red M.A.G.A. hat ?
I have known Lloyd for at least 20 years, and he is the least likely of all my friends to be considered a MAGA Hat wearing member of the Trump Club. But as you caught him in a very rare moment where even HE recognizes the harm of the Government enforced minimum wage law’s harm to workers, punishment of employers, and ultimate loss to the economy, your mischaracterization is understandable.
I’ll just leave you with our experience on the wage synopsis you started with. We have raised wages to our machinist’s by 15% this year alone. A typical year would be 3%
We still pay 100% of the employee health care premiums, and 3-4% 401k match. We still have machines and jobs not running because of the lack of personnel.
In a lousy economy the minimum wage law forced people out of the workforce because the value of their work did not reach the value of the wage. They did not get a chance to learn skills or establish credentials or learn the discipline of work. It set an artificial floor on wages that hurt poor people more than it helped. Today, in a better economy, $11 to $15 has become the real minimum wage at least in metropolitan areas.
Equipment is still cheap, buying same new brand CNC Lathes with upgraded capabilities at same prices as we did in 2001 from same manufacturer. For us we have bought heavy over the last three years and are continuing to grow in that area. Running out of room and looking for ways to shift storage to out buildings to free up floor space. In California we have been dealing with escalating minimum wages and as Lloyd commented it impacts badly those “new comers” where as we observe it takes 10 to find one with capability to move beyond a remedial level of analysis. But at $15/hr you can’t go thru them fast enough or keep them long enough to decide if they are the 1 with the potential. Investment is easy, people with work ethic and potential are the real challenges.
Honestly I think the only that can slow things down is a negative attitude. Just keep listenings to the Dems.
We are a 50 year old Screw machine house and in August we had the best sales for the month that we have ever had.
This month we beat that month by 35%. We have invested in 3 expensive machines. Mainly because we received 3 LTA’s.
I have never seen this kind of economy or had this much work.
We have our neck stuck out a long way but it is because we remain optimistic.
“Just keep listening to the Dems.” This kind of comment betrays the fact that if the Dems held the presidency right now, it’d be the Republicans who’d have the “negative attitude.” Both parties are incredibly sick right now. It can lead to nowhere good.
WINNING SO MUCH, I ALMOST CAN’T TAKE IT!!!