Are We Heading For a Recession?

[Aseahawkfan]

Seems the stock market may be predicting a Republican win of both the House and the Senate. If Republicans win both the House and Senate, then Biden's agenda is all done and he's likely to be under investigation. Tax increases will be off the agenda and tax cuts likely back on as the Republicans do everything to make Biden look bad and take back the White House. I guess we'll find out in a few days.

[curmudgeon]

Biden’s Blue Wave is gonna roll! He woke the masses!!……

[RiverDog]

Seems the stock market may be predicting a Republican win of both the House and the Senate. If Republicans win both the House and Senate, then Biden's agenda is all done and he's likely to be under investigation. Tax increases will be off the agenda and tax cuts likely back on as the Republicans do everything to make Biden look bad and take back the White House. I guess we'll find out in a few days.

Yeah, I saw that, too. I'm heading to Vegas tomorrow, and although I don't plan on betting on the election results, it will be interesting to see what their line is.

Biden himself admits that if the R's re-take the House, that it's quite possible that he could be impeached. This country went over 200 years and had just one impeachment, and now there's the prospect that we'll have 4 in the past 25 years.

[Aseahawkfan]

Yeah, I saw that, too. I'm heading to Vegas tomorrow, and although I don't plan on betting on the election results, it will be interesting to see what their line is.

Biden himself admits that if the R's re-take the House, that it's quite possible that he could be impeached. This country went over 200 years and had just one impeachment, and now there's the prospect that we'll have 4 in the past 25 years.

This country has gone really stupid in recent years. I never thought we would be arguing over what a woman is, but that's a debate in the modern day. So multiple impeachments, a reality TV start causing massive division, Dr. Oz running for the Senate, all par for the course in Bizarro World.

I'm waiting for my taxpayer dollars to be used on giving heroin addicts free drugs, while we defund the police so that my tax dollars can be further used for amoral activities because some liberal believes that complete surrender in the drug war is any better than the drug war.

[RiverDog]

The jobs report for November is out this morning, and it was a much stronger job market than expected with a healthy increase in job openings. Plus, wages are up, another indication that the jobs market is still red hot. That sounds like good news, but what it means is that people still have lots of money to spend, and that's going to cause demand and prices to remain high. Indeed, consumer savings are down, meaning that people are still spending in spite of high interest rates meant to discourage spending. Inflation is going to be with us for some time to come.

There was speculation that the Fed wouldn't hike interest rates the full 3/4 point maximum, that it had seen enough signs that inflation was cooling, but this jobs report might change their minds. The Fed meets again on 12/14.

Fortunately, in a rare act of bipartisanship, Congress and the POTUS agreed to end the potential railroad strike, which would have been a huge blow to the economy. Not exactly the act of a person that promised in his campaign to be "the most pro union President you've ever seen." But there won't be the same outrage that there once was when another POTUS said "Read my lips: No new taxes!" Biden will get a pass.

[Aseahawkfan]

The jobs report for November is out this morning, and it was a much stronger job market than expected with a healthy increase in job openings. Plus, wages are up, another indication that the jobs market is still red hot. That sounds like good news, but what it means is that people still have lots of money to spend, and that's going to cause demand and prices to remain high. Indeed, consumer savings are down, meaning that people are still spending in spite of high interest rates meant to discourage spending. Inflation is going to be with us for some time to come.

There was speculation that the Fed wouldn't hike interest rates the full 3/4 point maximum, that it had seen enough signs that inflation was cooling, but this jobs report might change their minds. The Fed meets again on 12/14.

Fortunately, in a rare act of bipartisanship, Congress and the POTUS agreed to end the potential railroad strike, which would have been a huge blow to the economy. Not exactly the act of a person that promised in his campaign to be "the most pro union President you've ever seen." But there won't be the same outrage that there once was when another POTUS said "Read my lips: No new taxes!" Biden will get a pass.

Layoffs are just starting. But it seems more like it will be a labor shift. I see prices dropping all over the place. Gas under 5 dollars a gallon in Washington State. The Housing market is cooling off substantially. Even the normal ground beef I buy has gone back to pre-Covid sale prices. Chicken breast is still up. Eggs and milk have come down quite a bit.

Fed is indicating it plans to slow pace of rate hikes and the next one is looking to be .50 rather than .75.

Definitely some mixed signals, but inflation seems to be coming down.

[RiverDog]

Layoffs are just starting. But it seems more like it will be a labor shift. I see prices dropping all over the place. Gas under 5 dollars a gallon in Washington State. The Housing market is cooling off substantially. Even the normal ground beef I buy has gone back to pre-Covid sale prices. Chicken breast is still up. Eggs and milk have come down quite a bit.

Fed is indicating it plans to slow pace of rate hikes and the next one is looking to be .50 rather than .75.

Definitely some mixed signals, but inflation seems to be coming down.

The Fed has been raising interest rates for 9 months yet the job market remains as strong as it's ever been. I can't see anything that would suggest that things will change in the next few months. A labor shift, yes. But unemployment will remain where it has all along, around 3.5-4.0%. It doesn't matter where or how people get their money, the fact is that they are, and as long as they are making money, they will continue to spend it. I don't see prices coming down much if at all.

It's hard to gauge inflation by groceries and gas prices because they're too volatile. That's why they factor out those things out of the core inflation rate, the stat that most economists put their faith in to judge if inflation is under control or not. We'll have to wait another week or so for that information along with the consumer price index to be released to get a better idea what inflation is doing.

The housing market has cooled off and new car sales decreased 4% from the previous month, but that was to be expected as those industries are very interest rate sensitive.

[Aseahawkfan]

The Fed has been raising interest rates for 9 months yet the job market remains as strong as it's ever been. I can't see anything that would suggest that things will change in the next few months. A labor shift, yes. But unemployment will remain where it has all along, around 3.5-4.0%. It doesn't matter where or how people get their money, the fact is that they are, and as long as they are making money, they will continue to spend it. I don't see prices coming down much if at all.

It's hard to gauge inflation by groceries and gas prices because they're too volatile. That's why they factor out those things out of the core inflation rate, the stat that most economists put their faith in to judge if inflation is under control or not. We'll have to wait another week or so for that information along with the consumer price index to be released to get a better idea what inflation is doing.

The housing market has cooled off and new car sales decreased 4% from the previous month, but that was to be expected as those industries are very interest rate sensitive.

You don't undo the damage done by nearly two years of stuffing stimulus and printing money in a year, so it won't change much in a few months. The process of lowering interest rates by reversing policy from a few years of the biggest economic stimulus in history doesn't get fixed in a few months or even a year. This is a multi-year process and I'm saying there are signs it is working and things are starting to come down. We're a year or more from anything like we were pre-stimulus and re-opening.

[RiverDog]

You don't undo the damage done by nearly two years of stuffing stimulus and printing money in a year, so it won't change much in a few months. The process of lowering interest rates by reversing policy from a few years of the biggest economic stimulus in history doesn't get fixed in a few months or even a year. This is a multi-year process and I'm saying there are signs it is working and things are starting to come down. We're a year or more from anything like we were pre-stimulus and re-opening.

I agree with most of that.

One of the problems in that jobs report is the rise in wages. They're up 5.1%, an increase in the 4.9% rise in October. That means that prices aren't likely to come down anytime soon as employers will have to raise prices to cover the added labor expense. It's the same vicious cycle from the 70's-80's. You get a good raise only to see it eaten up entirely by inflation. I'm not sure how this is all going to end since the economy would really have to tank in order to put a dent into employment and force people to quit spending.

[Aseahawkfan]

I agree with most of that.

One of the problems in that jobs report is the rise in wages. They're up 5.1%, an increase in the 4.9% rise in October. That means that prices aren't likely to come down anytime soon as employers will have to raise prices to cover the added labor expense. It's the same vicious cycle from the 70's-80's. You get a good raise only to see it eaten up entirely by inflation. I'm not sure how this is all going to end since the economy would really have to tank in order to put a dent into employment and force people to quit spending.

Prices are coming down. You can see the gas prices coming way down. Wages will affect certain industries more than others. We'll get another inflation reading soon and see how fast it comes down. The Fed right now plans to slow rate increases, which means they must be seeing a serious drop in inflation.

I'm thinkin another year or two to get things under control with a new higher equilibrium point by which we judge the inflation rate. Some depends on if we get a real recession, but it's real hard to have a real recession with employment this strong.

[RiverDog]

Prices are coming down. You can see the gas prices coming way down. Wages will affect certain industries more than others. We'll get another inflation reading soon and see how fast it comes down. The Fed right now plans to slow rate increases, which means they must be seeing a serious drop in inflation.

I'm thinkin another year or two to get things under control with a new higher equilibrium point by which we judge the inflation rate. Some depends on if we get a real recession, but it's real hard to have a real recession with employment this strong.

You can't use gas prices as an indicator for overall prices because they're too volatile. Same with grocery prices. They are necessities where demand doesn't change very much because people need to use them for their everyday life. They are not a good measure of overall inflation, at least not on a month-to-month basis.

“Core inflation is considered an indicator of underlying long-term inflation”— Paul Ebeling

Food and Fuel prices are exempt from this calculation because their prices can be too volatile or fluctuate wildly. Food and Fuel are necessary staples, meaning demand for them doesn’t change much even as prices rise.

For example, gasoline prices may rise with the price of Crude Oil, but you will still need to fill up the tank in order to drive your car. Similarly, you will not be pushing off buying your groceries just because prices are rising at the markets.

Also, Crude Oil, Nat Gas and gasoline are commodities traded on exchanges where traders can buy and sell them. Food too is traded including wheat, corn, beef and pork.

The speculation of energy and food commodities leads to volatility in their prices, causing wild swings in the inflation figures.

https://www.livetradingnews.com/what-is ... 11633.html

I could go on, but I'm sure that you get the point. But I do agree with you that it's going to be many months before we get this thing under control. That's one of the reasons why I'm pessimistic about Biden's re-election chances and hope to hell that Trump isn't his opponent in 2024. Whether it's fair or not, people blame the party in power for their economic woes, and it's quite possible, if not probable, that we'll be saddled by inflation and rising prices even by then.

[Aseahawkfan]

You can't use gas prices as an indicator for overall prices because they're too volatile. Same with grocery prices. They are necessities where demand doesn't change very much because people need to use them for their everyday life. They are not a good measure of overall inflation, at least not on a month-to-month basis.

“Core inflation is considered an indicator of underlying long-term inflation”— Paul Ebeling

Food and Fuel prices are exempt from this calculation because their prices can be too volatile or fluctuate wildly. Food and Fuel are necessary staples, meaning demand for them doesn’t change much even as prices rise.

For example, gasoline prices may rise with the price of Crude Oil, but you will still need to fill up the tank in order to drive your car. Similarly, you will not be pushing off buying your groceries just because prices are rising at the markets.

Also, Crude Oil, Nat Gas and gasoline are commodities traded on exchanges where traders can buy and sell them. Food too is traded including wheat, corn, beef and pork.

The speculation of energy and food commodities leads to volatility in their prices, causing wild swings in the inflation figures.

https://www.livetradingnews.com/what-is ... 11633.html

I could go on, but I'm sure that you get the point. But I do agree with you that it's going to be many months before we get this thing under control. That's one of the reasons why I'm pessimistic about Biden's re-election chances and hope to hell that Trump isn't his opponent in 2024. Whether it's fair or not, people blame the party in power for their economic woes, and it's quite possible, if not probable, that we'll be saddled by inflation and rising prices even by then.

Oil prices are tied to gas prices, power, transportation, and manufacturing of a variety of petroleum products. Oil prices are one of the biggest factors in inflation and are carefully monitored for just this reason as they have a multiplicative effect across an economy. You do most assuredly watch the price of oil-based products as they adjust with the price of oil and impact the entire economy. The main source of 70s Stagflation was Saudi Arabia and Iran playing games with the oil supply. You will see prices drop substantially and inflation cool quite a bit from a moderating of the price of oil. That is why it is so closely watched. Rising oil prices are considered a tax on an economy by investors.

From your article, Food and Fuel prices are exempt from this calculation because their prices can be too volatile or fluctuate wildly. Food and Fuel are necessary staples, meaning demand for them doesn’t change much even as prices rise.

You've taken business and economics. So you understand why the above is very, very bad. Food and fuel are heavily watched indicators because of their lack of demand elasticity. Thus if food and fuel prices are rising, they are eating up disposable income that prevents consumers from spending money on items other than food and fuel. That means businesses that rely on disposable income are hit harder when food and fuel prices are rising. That is why recessions are driven by inflation in fuel and food and those items must be brought under control or they will have a dramatic effect on disposable income that will have a dramatic impact on the economy.

So when I as an investor see fuel and food prices moderating, I know The Fed can back off on interest rate increases and the overall economy will be in much better shape with food and fuel stable allowing a better assessment of disposable income and the ability of the consumer to spend money on items that aren't food or fuel with inelastic demand.

Food and fuel are two of the most watched inflation indicators. We can have inflation in a lot of other areas and have a very healthy and growing economy as long as food and fuel are relatively stable. It also helps to have rents and property stable. If you have 10% inflation in electronics, who cares as that is not a necessity and has very elastic demand which means people can move their money somewhere else or save it if they aren't spending it on electronics.

When I as an investor see food and fuel prices stabilizing or coming down, I breathe a sigh of relief and start to plan where to put my money because nothing destroys an economy faster than people having to spend their money on food to eat and gas to get to work or the grocery store. Other types of inflation are manageable and survivable. Food and fuel inflation is the kind of thing you see in nations about to collapse like Germany pre-World War 2 when you had to bring a wheel barrel of cash to buy bread.

If you live in a nation where food and fuel inflation or deflation is a problem the economy and government can't get under control, stock up buddy because you're in for a very bad economic time and get your money to as safe a place as possible. You want to see food and fuel prices within a stable range with minimal growth beyond what the economy can comfortably grow with.

Suffice it to say I am very happy to see food and fuel prices moderating as those two inflationary items out of control lead to the worst types of economies. Hell, food deflation caused The Great Depression. Property is another area you want to see well-managed as well because out of control property prices can also screw up your economy. Other types of inflation can be managed.

[RiverDog]

What you say is true for the long run. But you can't just drive by the gas pump and note that the prices have dropped and hence, inflation will drop because the main cost component, crude oil, is traded on the worldwide market and can fluctuate wildly while demand remains constant. Same with food. Coming from the potato industry, I understand how seasonal food costs can be, that they are much cheaper in the summer and fall during harvest when we can manufacture product direct from the field, get higher recoveries, and don't have to pay for storage, double handling, and product degradation during storage like we do with products we produce in April and May. The same is true with most other agricultural products. And like the article says, a lot of food products are traded as commodities where speculation can drive up prices.

Here's an article with a graph that shows why gas prices are not a good way to measure short term inflation:

The Federal Reserve carefully reviews and analyzes the available inflation measures to monitor how well it is achieving its price stability goal. One common way economists use inflation data is by looking at “core inflation,” which is generally defined as a chosen measure of inflation (e.g., the Consumer Price Index or CPI, the Personal Consumption Expenditures Price Index or PCEPI, or the Gross Domestic Product Deflator) that excludes the more volatile categories of food and energy prices.

Why are food and energy prices typically more volatile than other prices?

To understand why the categories of food and energy are more sensitive to price changes, consider environmental factors that can ravage a year’s crops, or fluctuations in the oil supply from the OPEC cartel. Each is an example of a supply shock that may affect the prices for that product. However, although the prices of those goods may frequently increase or decrease at rapid rates, the price disturbances may not be related to a trend change in the economy’s overall price level. Instead, changes in food and energy prices often are more likely related to temporary factors that may reverse themselves later.

https://www.frbsf.org/education/publica ... -headline/

The graph in that article can explain better than I can why gas prices aren't used in core inflation calculations.

[Aseahawkfan]

What you say is true for the long run. But you can't just drive by the gas pump and note that the prices have dropped and hence, inflation will drop because the main cost component, crude oil, is traded on the worldwide market and can fluctuate wildly while demand remains constant. Same with food. Coming from the potato industry, I understand how seasonal food costs can be, that they are much cheaper in the summer and fall during harvest when we can manufacture product direct from the field, get higher recoveries, and don't have to pay for storage, double handling, and product degradation during storage like we do with products we produce in April and May. The same is true with most other agricultural products. And like the article says, a lot of food products are traded as commodities where speculation can drive up prices.

Here's an article with a graph that shows why gas prices are not a good way to measure short term inflation:

The Federal Reserve carefully reviews and analyzes the available inflation measures to monitor how well it is achieving its price stability goal. One common way economists use inflation data is by looking at “core inflation,” which is generally defined as a chosen measure of inflation (e.g., the Consumer Price Index or CPI, the Personal Consumption Expenditures Price Index or PCEPI, or the Gross Domestic Product Deflator) that excludes the more volatile categories of food and energy prices.

Why are food and energy prices typically more volatile than other prices?

To understand why the categories of food and energy are more sensitive to price changes, consider environmental factors that can ravage a year’s crops, or fluctuations in the oil supply from the OPEC cartel. Each is an example of a supply shock that may affect the prices for that product. However, although the prices of those goods may frequently increase or decrease at rapid rates, the price disturbances may not be related to a trend change in the economy’s overall price level. Instead, changes in food and energy prices often are more likely related to temporary factors that may reverse themselves later.

https://www.frbsf.org/education/publica ... -headline/

The graph in that article can explain better than I can why gas prices aren't used in core inflation calculations.

I understand why they take food and fuel out of core CPI, but investors watch it closely because food and fuel inflation lead to some of the biggest problems. You need to think about it in practical terms. If you have 10 bucks and you spend 5 bucks on food, gas, and housing (rent/mortgage), then you have 5 dollars to spend on other items like electronics, vacations, cable, football games, and the like. If your food, gas, and rent suddenly cost 7 bucks and your income stays 10 bucks, now you only have 3 dollars to spend on non-necessities.

Wages can rise at a rate relative to inflation and we'll be ok. If wages rise faster than inflation, then we're in a real golden spot for workers. If wages rise slower than inflation, then we're in a bad spot. So wages are a factor in inflation, but rising wages don't usually hurt as bad as stagnant wages with insane fuel and food inflation.

If oil triples like it did in the 70s, we are screwed. Can you imagine oil from 80 to 240 a barrel? Terrifying.

I been watching the oil prices, food, and housing for a while. Increased interest rates should reduce housing demand, though it might push more people into rentals increasing rents until more rental housing is built. I get the feeling that the government through zoning is pushing for more rental building as it allows a higher level of taxation and a smaller imprint on the landscape than a housing zoned block. There is some discussion that the 1% with the blessing of the government intend to turn America into a land of renters where they are the landlords. Given how slow government is to allow home building, I get the feeling that is partly the plan. People are going to have to push back to force the government to build more houses at a faster rate or allow more houses to be built. With interest rates high, going to be downward pressure on building since most home and property developers rely on loans. Then again the government may be planning for the mass death of the boomer generation which will free up a lot of housing and assets that must be absorbed.

We should see next year if we get a bad recession. Then we'll have some good info to talk about, RD.

[RiverDog]

I understand why they take food and fuel out of core CPI, but investors watch it closely because food and fuel inflation lead to some of the biggest problems. You need to think about it in practical terms. If you have 10 bucks and you spend 5 bucks on food, gas, and housing (rent/mortgage), then you have 5 dollars to spend on other items like electronics, vacations, cable, football games, and the like. If your food, gas, and rent suddenly cost 7 bucks and your income stays 10 bucks, now you only have 3 dollars to spend on non-necessities.

What you say is true. All I'm saying is that you cannot look at gas and food prices on a short term, month-to-month basis to judge what overall prices are doing. Both are seasonal. Food is cheaper in the summer during harvest and gas is more expensive because it's vacation season. But the demand remains relatively the same from one year to the next. They are necessities that can't be cut back on when the price is high, aren't bought in excess quantity when they're low.

Wages can rise at a rate relative to inflation and we'll be ok. If wages rise faster than inflation, then we're in a real golden spot for workers. If wages rise slower than inflation, then we're in a bad spot. So wages are a factor in inflation, but rising wages don't usually hurt as bad as stagnant wages with insane fuel and food inflation.

Wages need to be frozen at a relatively constant rate. One of the main drivers of inflation in the 70's and 80's was the COLA (cost of living adjustment) clauses that existed in union contracts. If the cost of living went up, everyone got a raise and the company had to raise prices to cover it. If they have a fixed raise not based on inflation, then companies know how much they're going to spend on labor and can plan for it without having deal with unpredictable raises inherent with COLA clauses.

If oil triples like it did in the 70s, we are screwed. Can you imagine oil from 80 to 240 a barrel? Terrifying.

Agreed. Hopefully Russia's war with Ukraine ends soon and the markets can relax a little bit.

I been watching the oil prices, food, and housing for a while. Increased interest rates should reduce housing demand, though it might push more people into rentals increasing rents until more rental housing is built. I get the feeling that the government through zoning is pushing for more rental building as it allows a higher level of taxation and a smaller imprint on the landscape than a housing zoned block. There is some discussion that the 1% with the blessing of the government intend to turn America into a land of renters where they are the landlords. Given how slow government is to allow home building, I get the feeling that is partly the plan. People are going to have to push back to force the government to build more houses at a faster rate or allow more houses to be built. With interest rates high, going to be downward pressure on building since most home and property developers rely on loans. Then again the government may be planning for the mass death of the boomer generation which will free up a lot of housing and assets that must be absorbed.

One of the other things that's driving the housing crunch is that the Baby Boomer generation isn't heading into nursing homes like everyone expected. We are a healthier generation with a longer life expectancy, didn't grow up smoking 3 packs of cigarettes a day like my old man did. And we're not moving in with the kids. We are wealthier and can pay for a nurse and a house cleaner to come by once a week or so. Plus the cost of nursing homes, assisted living, and adult apartments have skyrocketed, making in home care a more viable option. All of that keeps the number of resales low.

We should see next year if we get a bad recession. Then we'll have some good info to talk about, RD.

I honestly don't know how this is all going to turn out. The recession/inflation I went through in the late 70's-early 80's may not be applicable because unemployment is not a factor. Back then, unemployment was near 10% and jobs were hard to come by. But now, with unemployment at 3.5-4.0% and such a robust job market, who knows if we can get it under control or not.

I'm actually hoping that the Fed raises interest rates the full 3/4 of a point here in a week or so. Inflation is a genie that you don't want to let out of the bottle, and for a senior like me living on a fixed income, inflation is the one thing that can ruin a retirement plan.

[Aseahawkfan]

Inflation dropped to 6 percent this reading absent food and energy. So continuing good signs of a slowdown. Interest rate increase likely .50 next boost.

[RiverDog]

Inflation dropped to 6 percent this reading absent food and energy. So continuing good signs of a slowdown. Interest rate increase likely .50 next boost.

Yeah, finally some good news. But the jobs situation is still concerning. Wages need to stabilize before we can get a good grip on this monster.

https://www.forbes.com/sites/qai/2022/1 ... 45097e7bf9