The landing strip’s narrow for Jerome Powell.
That was one (familiar) message from JPMorgan analysts led by Marko Kolanovic on Monday.
Last week’s macro data out of the world’s largest economy walked a fine line. The inflation updates (CPI and PPI) pointed to slower price growth, jobless claims jumped to the highest since August and consumer sentiment printed a six-month low.
Slower inflation’s unequivocally good. What about claims and sentiment? Isn’t it bad when people apply for unemployment benefits? And should we really be happy that consumers are unhappy? Yes. No. Maybe.
The poorer and more miserable you are, the less likely you’ll be to spend money. Your spending’s my problem. If you’d stop (spending), inflation would come down. I’m paying $50 for a haircut because… well, because I tip 100% on haircuts, but also because you can’t stop yourself from eating out and buying shoes. When you do that, it forces restaurants to compete for scarce line cooks and shoe stores to compete for scarce Al Bundys, who then get paid more, driving up the price of bad steaks, shoes and, ultimately, haircuts. The solution to this (obviously) is for a lawyer-turned investment banker-turned technocrat to raise the price of money so high that you go broke, become miserable, lose your job or, ideally, all three. Because then you’ll stop spending. And the price of my haircut will stop rising so fast. Or something. This is how we set policy. Demand destruction’s the best idea we’ve come up with after more than a century of policymaking.
Anyway, if you ask JPMorgan, the favorable US CPI inflection could prove — forgive me — transitory. “Given the May US CPI/PPI surprises were largely driven by a few components such as air fares and car insurance, our bias is to view these inflation surprises as one-offs,” the bank said Monday. “Outside these components, US services inflation remains elevated and in the goods space the continued rise in global shipping costs is likely to [exert] upward pressure over the coming months.”
So there’s that. As for growth, Kolanovic pointed to “conflicting messages” from the US labor market, where that’s obviously a reference to the disparity between the establishment survey in the monthly jobs report and everything else, including the household survey, JOLTS, ADP and claims, all of which suggest the market’s softening.
For now, JPMorgan’s bias “is to put more weight on payroll[s],” but the bank’s nevertheless “concerned” by rising claims. “If weekly claims fail to go back down below the 230,000 mark, US recession fears will likely re-emerge unsettling risk markets,” the bank said.
The figure above’s familiar. It’s recession odds as priced by various assets. “Very little recession risk is currently priced,” the bank dryly noted.
What does it all mean?! My God, somebody tell me what it all means! (I’m in a satirical mood this week.)
For Kolanovic, it’s straightforward. “This shows how narrow the soft landing scenario is,” he wrote. “While last week’s benign US inflation prints reinforce the soft landing scenario, if a significant softening of US labor markets is taking place at the same time, the combination could quickly see market participants becoming concerned about a near-term US recession.”
The discretionary spending of the “poorest and most miserable” is, I think, of rather limited economic impact. Bottom income quintile has only about 3% of total household income and their discretionary spend is say 10% of that (they spend almost all their income on non-discretionary, housing being the largest part), so if they cut discretionary spend by a third it’s only about 0.1% of total household income lost to spending. Yes, I was taken aback at these numbers, and they could be off by a factor of two.
I’m just waiting on someone to laugh at the Al Bundy reference. That’s all I was hoping for here.
You mean the guy who once scored 4 touchdowns in a single game for Polk High?
Legend.
I laughed at that, certainly the best joke in this article.
I believe your Ralph Wiggum allusion also deserves respect.
That one was epic. I didn’t expect anybody to catch it, which is why I put a link in there.
“The solution to this (obviously) is for a lawyer-turned investment banker-turned technocrat to raise the price of money so high that you go broke, become miserable, lose your job or, ideally, all three.”
Laugh out loud and it reminds Robo bank’s someone said “Isn’t the banker’s job is to steal the money while not being caught” in a letter to investors (something like that).
Dark humor aside, what a sad world.
Damn, I missed the Al Bundy reference
I read this shit too fast, it literally said Al Bundy
Every week brings more evidence that Americans no longer honor our nation’s heroes. It’s tragic: https://x.com/HOMAGE/status/1460976164755886080?lang=en
If it makes you feel better, I consider myself an old school Simpsons aficionado and I can’t seem to find the Ralph Wiggum reference.
I must not be buying enough shoes because my instant impression was that it was a brand I did not know about,
Sadly, perhaps, I’ve never seen an episode of the Simpsons, but my only nephew and his wife have both helped create it for over a decade.