The US and European economies are experiencing an historic avidity of consumption demand and record labor shortages, which have created high inflation as goods become scarce. The last thing we need is more Cow Bells of Fiscal and Monetary Stimulus that exacerbates inflation and job shortfalls. Unfortunately we will have more of both for months to come as the Government and Central Bank leaders pretend the economy is in contraction. The ongoing injections continue for the sole purpose of capitalizing on political desires rather than economic necessity. At least the pace of stimulus will slow in 2022, but enough artificial additions to the econony will continue to keep inflation sticky through at least the middle of next year. Once employment has returned to pre Covid levels, supply chain inflation will slow.
Finding workers in 2017 and 2018 with 7 Million job openings was extremely difficult. It’s hard to find the superlatives that justifies today’s 11 Million milestone. The modest infrastructure and massive social engineering bills that are likely to pass in coming months will only escalate the enormous disallocations here and around the world.
Manufacturers we survey have said they would add another 10% to their workforce if they could. As long as Orders and activity levels are averaging well over 60 as they are today basis the ISM Index (below), then wage rates will keep soaring along with a massive labor shortfall.
The good news is that corporate revenue and earnings have exploded higher this year to justify part of the extraordinary appreciation in stock prices these past 18 months. When this Government induced Bull market began during the heart of Covid in March 2020, it appeared that stocks had run too quickly, but perhaps the invisible hand of the stock market correctly anticipated the ongoing input of money printed out of thin air that would continue inflating asset prices by the Trillions until virus fears were mostly extinguished. The worry today is that earnings growth will slow despite growing demand as supply can’t keep up. Uncertainty has generated a 6% decline in the general stock market during September that correlates with the seasonal weakness and technical sell indications we had warned of. If the budget battles continue through October, as seems likely, there could be continued choppy price action until there is clarity over the degree of stimulus and taxation being proposed by the Biden administration. Small cap and reopening stocks are set up to outperform in the next leg higher and emerging markets will accelerate as virus treatments finally scale up in Asia. By late October the rally should be ready to start another run toward record highs.