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A Softening Economy Will Be Buffeted By Stimulus Withdrawal And Delta-Variant Surge – Forbes



While the story of the week was the big “miss” in Nonfarm Payrolls, most of the incoming data continue to be much softer than the markets or financial media let on, as they continue to ignore the implications. The chart above shows U.S. vehicle sales beginning in 2015.  Note the steady sales levels until the pandemic, the climb out to just above normal, and now a renewed falloff.  Sales in August were -11% lower than in July, as they fell to a 13.5 million annual rate. They were nearly 19 million in April. Could it possibly be that the helicopter money pulled demand forward? Lack of semi-conductors, you say! If so, why are used car sales also falling?

Now, look at the chart of the NY Fed’s Weekly Economic Index. Like autos, note the big rise in April and the tail-off since. From this chart, it appears that the “growth” all occurred in April, causing Q2’s GDP to rise 6.6%. But this index has been falling since, implying that “growth” has slowed since then, leading us to conclude that Q3’s growth will be weaker than Q2’s, and Q4’s worse yet.


In past blogs, we discussed the potential impact of the Delta-variant. The impacts from it are continuing. Restaurant reservations are falling, hotels are experiencing cancellations and a lower number of room nights, and a significant number of major corporations have delayed a return to the office. The latest employment data show job losses in the retail, hospitality, and restaurant sectors.

Here is a partial list of weakening incoming data:

  • Mortgage Applications: -2.4% W/W (last week of August) and -11.6% YTD.
  • All five Fed Manufacturing Surveys declined in August (e.g., Dallas 9.0 August vs 27.3 July (consensus: 23.0; way off the mark).
  • TSA screenings: August 31 – the fewest since May 11,
  • Pending Home Sales: -1.8% M/M (July) (consensus: +0.4%). This is on top of -2.0% in June. Sales have been down in three of the last four months and in five of the last seven. On a Y/Y basis, sales were -9.5% lower, and July was -12.4% below December.
  • The Atlanta Fed GDP Nowcast for Q3 stands at +5.1%; it was +6.4% a month ago. The NY Fed’s GDP model is down to +3.8% for Q3. It was +4.2% in July.
  • Johnson Redbook’s latest report showed a -0.6% drop in same store sales of major retailers.
  • China’s economy is slowing (perhaps even contracting). The Caixin Manufacturing PMI Index for August was 49.2 vs. 50.3 in July (consensus: 50.1) (50 is the demarcation between expansion and contraction). The Services PMI was even worse: 46.7 (August) vs. 54.9 (July) (consensus: 52.0). The consensus forecast missed big on both.

Labor Markets

The Payroll Survey: Friday’s Nonfarm Payrolls at +235K (Seasonally Adjusted (SA)) also disappointed the consensus view (+733K), yet another big miss on the part of the business forecasters. There wasn’t much impact on the equity markets (September 3: DOW: -74.7, S&P 500: -1.5; Nasdaq

: +32.3). The Not Seasonally Adjusted (NSA) number was +312K. Our view has been, and continues to be, that the pandemic and its nuances (Delta-variant) aren’t seasonally adjustable. From a strictly statistical point of view, the pandemic data haven’t been around long enough to display seasonality and using seasonal factors from pre-pandemic data makes no sense because today’s data is profoundly influenced by the pandemic (i.e., re-opening, mask mandates, supply-chain issues, government supplemental payments, school re-opening issues …). Nevertheless, the August +312K NSA number appears close enough to the +235K SA one – so what’s the issue for us?

The people with jobs are the ones that get paid. Over the last two months, BLS has told us that 1.288 million (SA) jobs were created (1.053 million in July (revised) and 235K in August). The NSA numbers (these are the actual job counts) for both months combined was 278K (312K for August and -34K for July). 278K new payrolls is a far cry from 1.288 million. Perhaps this is why the August business surveys show employment softness! Noteworthy: the NSA data shows -64K in the retail sector, -74K in leisure/hospitality, -50K in accommodation (hotels) and -52K in restaurants. This data strongly implies that the Delta-variant has had a dramatic economic impact. We think this impact will continue at least for another few months.

Weekly Initial Claims (ICs): The weekly data are both encouraging and discouraging. Encouraging because ICs in the state programs fell from 299K to 288k (NSA) the week of August 28. ICs represent new layoffs, and they continue to inch their way toward the 200K/week level that was the pre-pandemic “normal.” 

But it is discouraging to realize that there will be a negative economic impact in early September when millions of unemployed lose those benefits. Small business owners are payors into the state systems for their employees, but the owners, themselves, are not eligible for state unemployment benefits (only their employees). The Pandemic Unemployment Assistance (PUA) programs were established early in the pandemic for these business owners. As you can see from the PUA Initial Claims chart (data from April through August), the PUA programs have struggled of late (Delta-variant?) and the weekly new claims have remained above 100K.

The PUA programs end the first week of September, so their demise is imminent. 

Continuing Claims (CCs): While the 100K/week ICs are worrisome, the real issue is the imminent cessation of benefits for the 9.2 million Continuous Claimants (those getting benefits for more than one week) in the PUA programs.

If such recipients have only been receiving benefits of $500/week, they are facing a reduction of $45 billion/month in household income (that’s about 3% of such income). Expect a significant impact on consumption at least for the remainder of the year.

Opt-Outs vs. Opt-Ins: The tables below continue to show that the Opt-Out states (those not paying the federal $300/week supplement) have continued to outpace the Opt-Ins as far as reducing the unemployment rolls. From May 15 through August 21, Opt-Out state unemployment has fallen by more than 41% vs. under 20% for the Op-Ins.

Looking more granularly (table below), using the final data for August 14, Opt-Outs (representing 25% of the total CCs) reduced unemployment by -40K, while unemployment increased in the Opt-In states by +42K!

The preliminary data for August 21 show somewhat better performance of the Opt-Ins, as their CC count decreased only slightly more slowly than the Opt-Outs. As we have said in past blogs, we think the Opt-Ins will “catch-up” when the PUA programs end. And, once again, it is our belief that once those programs end, there will be a rush to find employment.

However, filling available job slots isn’t an instantaneous process. There is an appointment needed, then an interview, a background check, and finally, an offer and acceptance. So, even if the majority of the 9.2 million CCs begin to look for work, it may take several months for a semblance of “normality” to return. And the economic implication is that there is likely to be a noticeable consumption slowdown, with retail falling at an even faster pace than we are seeing in the current emerging data.


Markets continue to ignore the signs of economic slowdown, as does the financial media. Of course, the equity markets love easy money, and slower economic growth means the Fed will stay easy longer. The bond market, on the other hand, appears to see the softness, and rates have reacted to the downside after some “inflation” indigestion last quarter.

Besides the existing softening signs, the rapidly approaching end of the special unemployment programs means no weekly checks for more than nine million current recipients. That is bound to have a negative impact on consumption, implying continued economic weakness in Q4.

(Joshua Barone contributed to this blog)

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Powell meets a changed economy: Fewer workers, higher prices – 95.7 News



WASHINGTON (AP) — Restaurant and hotel owners struggling to fill jobs. Supply-chain delays forcing up prices for small businesses. Unemployed Americans unable to find work even with job openings at a record high.

Those and other disruptions to the U.S. economy — consequences of the viral pandemic that erupted 18 months ago — appear likely to endure, a group of business owners and nonprofit executives told Federal Reserve Chair Jerome Powell on Friday.

The business challenges, described during a “Fed Listens” virtual roundtable, underscore the ways that the COVID-19 outbreak and its delta variant are continuing to transform the U.S. economy. Some participants in the event said their business plans were still evolving. Others complained of sluggish sales and fluctuating fortunes after the pandemic eased this summer and then intensified in the past two months.

“We are really living in unique times,” Powell said at the end of the discussion. “I’ve never seen these kinds of supply-chain issues, never seen an economy that combines drastic labor shortages with lots of unemployed people. … So, it’s a very fast changing economy. It’s going to be quite different from the one (before).”

The Fed chair asked Cheetie Kumar, a restaurant owner in Raleigh, North Carolina, why she has had such trouble finding workers. Powell’s question goes to the heart of the Fed’s mandate of maximizing employment, because many people who were working before the pandemic lost jobs and are no longer looking for one. When — or whether — these people resume their job hunts will help determine when the Fed can conclude that the economy has achieved maximum employment.

Kumar told Powell that many of her former employees have decided to permanently leave the restaurant industry.

“I think a lot of people wanted to make life changes, and we lost a lot of people to different industries,” she said. “I think half of our folks decided to go back to school.”

Kumar said her restaurant now pays a minimum of $18 an hour, and she added that higher wages are likely a long-term change for the restaurant industry.

“We cannot get by and pay people $13 an hour and expect them to stay with us for years and years,” Kumar said. “It’s just not going to happen.”

Loren Nalewanski, a vice president at Marriott Select Brands, said his company is losing housekeepers to other jobs that have recently raised pay. Even the recent cutoff of a $300-a-week federal unemployment supplement, he said, hasn’t led to an increase in job applicants.

“People have left the industry and unfortunately they’re finding other things to do,” Nalewanski said. “Other industries that didn’t pay as much perhaps … are (now) paying a lot more.”

Christopher Rugaber, The Associated Press

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Dialogue NB Seeks To Rebuild An Inclusive Economy Through Conversation – Huddle – Huddle Today



MONCTON – Dialogue NB CEO Nadine Duguay-Lemay says the business community has an integral place in a conversation about building a more equal and just New Brunswick.

That very conversation will take place on September 27 in Moncton with Dialogue Day 2021.

“When we talk about anti-racism, notions of equality, diversity, acceptance and inclusion and all those notions we celebrate, it’s not something we can do on our own,” said Duguay-Lemay.

“The business community actively needs to participate, if anything, because those topics concern them. That’s why you see so many business support the event.”

The volunteer-led non-profit organization plans to host an inclusive conversation on Monday at Moncton’s Crowne Plaza and virtually, online.

Dedicated to building social cohesion in New Brunswick, the sold-out event will feature discussions about racial justice in the workplace, rethinking the economy as it recovers from the pandemic and how to be a better ally to Indigenous people.

The event, which has sold out of in-person seats, will feature Jeremy Dutcher, a Wolastoq singer, songwriter, composer, musicologist and activist from Tobique First Nation, as its keynote speaker.

The mandate of the discussions is to ensure everyone feels heard, valued and that they belong, making diversity an asset – something Duguay-Lemay considers imperative to a functional economy.

“What I’ve found is that people don’t like to go into uncomfortable discussions. Some people want to embrace social cohesion but don’t know where to start, or are afraid of saying the wrong thing. This is our expertise – we’re good at the art of dialogue and multiple viewpoints at one table,” she said.

“We need a lot of different voices and perspectives at the table to rethink the system for the wellbeing of all. These discussions shouldn’t be happening in isolation.”

Duguay-Lemay said New Brunswick faces many economic challenges, noting a diverse workforce will help recover from those challenges.

She stressed that the business community needs to work toward a goal of truth and reconciliation, and in a call with Huddle, rebutted the metaphor of everyone being on the same boat during the pandemic.

“I’d argue we’re all facing the same storm, but not in the same boat. Some people are in yachts and some are in little boats about to capsize,” she said.

Other voices are emerging – female and Indigenous, for example – looking to address poverty and wage inequality and unfairness, employment access, systemic racism and environmental degradation, noted Duguay-Lemay, adding that the province’s 4,418 non-profits need more recognition as an economic partner.

“Inclusion is embedded in our DNA as Canadians. We’re already a country and province that abides by those laws, so it’s important to look at inclusion,” she said.

The conversations will also focus on racial justice in the workplace, how the pandemic hurt Indigenous and black Canadian employment, versus non-minorities, access to employment – and the social barriers that exist for racialized workers.

“I invite all organizations, employers, public and non-profits to look at their practices in place and ask if they walk the talk for truth and reconciliation. We’re all treaty people – how do we uphold this?” said Duguay-Lemay.

“We want to at least demonstrate to Indigenous people in New Brunswick that we hear their plight and are serious about truth and reconciliation.”

Greater social cohesion is the best step forward, Duguay-Lemay noted, adding that real dialogue can build an economy that works for everyone.

She said matters of racial justice in the workplace – and specific matters, such as owners objecting to the declaration of September 30 as a statutory holiday, contending that they can’t afford it – will be among the economic issues for which solutions will be sought.

The conversation will also focus on how the province’s recovery from the pandemic has exposed inequalities in the economy.

Duguay-Lemay stressed the need to learn from the way the pandemic exposed inequalities, and rethink a system that works for everyone.

“We need to think differently and it really shouldn’t be based on the interests of the privileged,” said Duguay-Lemay.

“As employers are looking to attract and retain talent, we hear about skill shortages all the time. This becomes a matter of attracting talent, whether from newcomers or tapping into Indigenous communities, how can we make our workplaces more equitable and inclusive?

The event will feature an “eclectic” round table of specialists, artists, activists and experts from numerous sectors, and identities in New Brunswick, with opportunities for networking, inspiration for change with concrete examples and skills to help become a social leader.

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With the economy, we may be heading back to the 1970s – The Globe and Mail



Kenneth Rogoff, a former chief economist of the International Monetary Fund, is professor of economics and public policy at Harvard University.

With the disastrous U.S. exit from Afghanistan, the parallels between the 2020s and the 1970s just keep growing. Has a sustained period of high inflation just become much more likely? Until recently, I would have said the odds were clearly against it. Now, I am not so sure, especially looking ahead a few years.

Many economists seem to view inflation as a purely technocratic problem, and most central bankers would like to believe that. In fact, the roots of sustained inflation mainly stem from political economy problems, and here the long list of similarities between the 1970s and today is unsettling.

In the United States, following a period in which the president challenges institutional norms (Richard Nixon was the 1970s version), a thoroughly decent person takes office (back then, Jimmy Carter). Abroad, the U.S. suffers a humiliating defeat at the hands of a much weaker, but much more determined adversary (North Vietnam in the 1970s, the Taliban today).

On the economic front, the global economy suffers a lingering productivity slowdown. According to the Northwestern University economist Robert Gordon’s magisterial account of innovation and growth, The Rise and Fall of American Growth, the 1970s marks a turning point in U.S. economic history, thanks to a sharp slowdown in meaningful economic innovation. Today, even if productivity pessimists grossly underestimate the phenomenal gains the next generation of biotech and artificial intelligence will bring, a large body of work finds that productivity growth has been slowing in the twenty-first century, and now the pandemic looks to be inflicting another heavy blow.

The global economy suffered a massive supply shock in the 1970s, as Middle East countries massively hiked the price of oil they charged the rest of the world. Today, protectionism and a retreat from global supply chains constitute an equally consequential negative supply shock.

Low-income Canadian households will suffer the most from soaring inflation

The Bank of Canada isn’t losing sleep over inflation, and neither should you – yet

Finally, in the late 1960s and 1970s, huge increases in government spending were not matched by higher taxes on the wealthy. The spending increases stemmed in part from president Lyndon Johnson’s “Great Society” programs in the 1960s, later amplified by the soaring cost of the Vietnam War. In recent years, first the Trump tax cuts, then pandemic-related catastrophe relief, and now progressive plans to expand the social safety net have hit the federal budget hard. Plans to fund these costs by raising taxes only on the rich will likely fall far short.

It is true that despite all these similarities, today’s independent central banks stand as a bulwark against inflation, ready to raise interest rates if inflation pressures seem to be getting out of hand. In the 1970s, only a few countries had independent central banks, and in the case of the U.S., it did not act like one, fuelling inflation with massive monetary expansion. Today, relatively independent central banks are the norm across much of the world. It is also true that today’s ultralow global real interest rates provide rich-country governments a lot more room to run deficits than they had in the 1970s.

On the other hand, the challenges of providing for aging populations has become vastly more difficult over the past five decades (at least in advanced economies and China). Underfunded public pension schemes arguably are a much larger threat quantitatively to government budget solvency than debt. At the same time, social pressures to increase government spending and transfers have exploded across the world, as inequality becomes more politically salient for many countries, and improving growth less so. And confronting climate change and other environmental threats will almost certainly put additional pressure on budgets and slow growth.

Sharply rising government debts will inevitably make it more politically painful for central banks to raise nominal interest rates if global real rates start turning upward. High debts are already a reason why some central banks today will hesitate to raise interest rates if and when postpandemic normalization occurs. Private debt, which has also soared during the pandemic, is perhaps an even bigger problem. Widespread private defaults would eventually have a huge fiscal impact via lower tax collection and higher social safety net costs.

Today’s economic challenges are certainly solvable, and there is no reason why inflation should have to spike. Leading central bankers today such as Jay Powell of the U.S. Federal Reserve and Christine Lagarde of the European Central Bank are a far cry from pliable Fed Chair Arthur Burns in the 1970s. They both have superb staffs to support them. Yet all central banks still face constant pressures, and it is hard for them to stand alone indefinitely, especially if politicians become weak and desperate.

America’s humbling defeat in Afghanistan is a big step toward recreating the perfect storm that led to slow growth and very high inflation of the 1970s. A few weeks ago, a little inflation seemed like a manageable problem. Now, the risks and the stakes are higher.

Copyright: Project Syndicate, 2021.

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