Today is Fed Day, when we get a 75 bps hike that dramatically increases the likelihood of a recession. The main story is inflation, but the neglected subplot here is wages. I detailed the lagging nature of wages in America over the past decade — inflation in economic terms — and how that began to change in the pre-pandemic late 2010s.
Consider these columns going back to 2013 on the folly of taxpayer-subsidized corporate welfare queens (2013) and why median wages were rising (2016, 2017, 2018, 2018, 2019). Then came the pandemic, and a massive federal worker subsidy. Workers become skilled and start new businesses. The balance of power has shifted. After decades of wages being inflationary, they didn’t suddenly become deflationary.
The so-called “Great Resignation”—a very specific and uniquely American response to that complex reparations situation—is over The data showed it peaked more than a year ago, slowly returning to pre-pandemic levels.
Consider the chart above (it’s from a RWM client-only quarterly call). The FRED database shows both the percentage change rate and job openings in 1000s. By any measure, we still have a large number of unfilled positions. It’s just off the peak, but still extremely high by any measure. This proves the strength of the labor economy, recession or not. Yes, I realize how ridiculous that sentence is.
But also look at the year-over-year change in the clearance rate: it reached an all-time high in percentage terms in early 2021, before gradually (more or less) returning to flat over the next 12 months towards 2019. In other words, the Great Resignation mostly happened in 2021, but the after-effects are still being felt today, even after the rate of departure has normalized.
It’s easy to forget how it happened: not only did wage lags from the 1960s to the 2000s put the middle class under pressure, but they also helped set the stage for the Great Financial Crisis. No one wants to see their standard of living decline, but that’s what happened in the United States as the expansive post-war boom (1946-66) slowed, then stopped, then began to contract. It got worse in the 1970s, 80s, 90s. Instead of accepting their fate, Americans used the free money offered by the private unregulated banking system in the form of home sales, HELOCs and refinancing. It was the raw fuel of Wall Street, who fueled it for huge profits in securitized mortgages until it all went to hell. (I wrote a book on this topic).
The post-2008-09 era has seen wealth inequality, already substantial in the US, explode. The financial rescue plan of 2010 benefited anyone who owned capital assets: stocks, bonds and real estate. But the pandemic was a huge reset, with a huge financial stimulus, not just a financial one.
Now we have inflation. If you had to guess who would pay for it in blood, tears and dollars, who do you think would lose: capital or labor?
The Federal Reserve has little control over the supply-side issues that drive most of the inflation we see — fewer new homes, semiconductor-induced shortages in automobiles, I Russian war-driven energy and food surges. Without admitting this they are going to destroy demand by throwing 30-40 lakh people out of jobs.
Those responsible for showing inflation!
Today’s disastrous FOMC decision will be released at 2:00 pm
Millions of Americans Regret the Great Recession (Bloomberg, July 12, 2022)
Sahm: A Fed-induced recession is a drug worse than a disease (Financial Times)
in the past:
Who’s to Blame for Inflation, 1-15 (June 28, 2022)
$1.395 Trillion Peak Unemployment Insurance (March 4, 2022)
Elvis (your waiter) has left the building (July 9, 2021)
Wages in America