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Diane Swonk

@DianeSwonk

Jun 22

Soft landing or not…many point to the 1994 hiking cycle, which culminated with a once unheard of .75% bump in the fed funds rate at one meeting as a model for soft landing.

I remember it differently. Former Chairman Greenspan was focused on checklist…

…of things he believed caused inflation. They spanned unemployment to factory utilization. As we crossed those thresholds, he started to GRADUALLY raise rates. The gradualism was his thing.

Then the economy cratered. We had two months in a row of red ink in employment in 1995 & the Fed cut.

Those employment losses were later revised away and the Fed stopped cutting. A recession was avoided but not without consequences. The ultra low rates of that followed were accompanied by two major financial crises in 1997 and 1998 and culminated with the eventual bursting of the internet bubble.

Read 11 tweets

Diane Swonk

@DianeSwonk

May 30

Real GDP revised down to 1.3% in 1Q from an initial report of 1.6%. The trade
deficit widened & shaved 0.9% from growth alone. Another 0.5% was lost to a drop in inventories; those losses should provide a tailwind for manufacturing. The largest downward revision was consumer spending.

An acceleration in spending on services, where inflation remains hottest, was tempered by a ⬇️ in spending on goods. This echos challenges retailers cite. Big ticket durable goods, which require financing, contracts the most. Credit card usage flatline, as subprime & young borrowers hit limits.

Housing activity accelerated at a double-digit pace on the heels of the easing of financial conditions, as financial markets front-run the Federal Reserve on rate cuts. That exposed dry tinder in the housing market and home values accelerated in response to pent-up demand.

Read 9 tweets

Diane Swonk

@DianeSwonk

May 22

More on the break between economic data & perceptions.

New Harris Guardian Poll reveals that majority of Americans believe we are in a recession. This despite other measures which show greater personal job security, with desire & confidence increasing in ability to switch jobs.

Here is the link to the poll results and story

theguardian.com/us-news/ng-int…

I have written a lot about differences in perceptions vs aggregate data. They are odd but I do think it is importantly to acknowledge that this has been an extraordinary time. Problems that were simmering pre pandemic came to a boil with pandemic.

It is not one thing or one administration but a series of unfortunate events that are important to take a step back and acknowledge, notably for the largest share of those in the labor force - millennials.

Read 24 tweets

Diane Swonk

@DianeSwonk

May 15

Ok. Sorry for confusion. Here is a corrected & hopefully more straight forward version.

The inflation data on CPI was a relief because it was not as bad as many feared after a hot read on the producer price index (PPI).

What matters is where inflation is & is not.

Shelter costs moderated on a drop in hotel room rates. The shelter component is expected to roll over more “convincingly” for the Fed as we move into Spring and Summer. However, Fed is a bit worried that improvements in rents and owner’s equivalent rent might stall.

Home values have moved up again and rents are beginning to firm. The moves are uneven across regions but want to watch as shelter is already in short supply and expensive.

A larger issue is what happens to service sector inflation outside of shelter, which is a big expenditure category.

Read 11 tweets

Diane Swonk

@DianeSwonk

Apr 27

Data & perspective

Inflation peaked in June 2022

The deceleration we have seen since is the fastest in 50 years,
w/o brutal rise in unemployment.

The length of time that prices accelerated was short in historically but the first such acceleration in decades. Still painful.

Wages have outpaced inflation since mid 2023, but we need to do more than regain what was lost to inflation - consumers want to feel improvements in living standards above and beyond 2019 levels. Hard to do when costs of essential such as shelter and vehicle to get to jobs so high. Between 2019 & 2023, home prices up 50%, rents up 30% and wages up ~ 18%.

Everything is no longer rising all at once but disinflation does not equate to price cuts across the board.

Low-wage workers who went from invisible to essential saw their wages leveled up, moved from the shadows into the sun, only to be burned by inflation.

Wealth increased at the fastest inflation-adjusted 3-year pace on record - ⬆️37% - from 2019 to 2022; the gains were across income strata. However, inequality worsened and the ranks of those in poverty increased.

Relativity mattes as does keeping up with the Joneses.

We saw a 4-decade deceleration in inflation, which also triggered semi-permanent job losses due to globalization, esp among men.

Prime-age labor force participation (24-54) has exceeded pre-recession peak for first time this century. Women drove gains. However, they were concentrated in college-educated women with children under 3. Women with less than high school did not do as well. Childcare crisis is playing large role. Women lost an hour of work a week since 2019, largely due to care problems.

Read 6 tweets

Diane Swonk

@DianeSwonk

Apr 25

Momentum & heat

Real GDP rose at a 1.8% pace in the first quarter, a sharp slowdown from the 3.4% pace of the fourth quarter. Much of that slowdown could be attributed to a widening of the trade deficit, a DROP in federal spending and a further liquidation of inventories. The latter two will be reversed in the second quarter. Underlying demand remained solid.

Consumer spending grew at a 2.5% pace with spending on services offsetting a drop on spending on big ticket goods that need be financed, notably vehicles. People are catching up on their medical care, having families and struggling with long COVID. Others are stepping out, traveling and reengaging with large in-person group events.

What is supporting such strong gains in consumer spending? Payroll employment was rising 30% faster than it was at the end of the first quarter than it was at the end of the fourth quarter of 2023. That is a lot of new paycheck. Add a drawdown in saving, with a cushion of wealth and some accumulation of debt and we keep on spending.

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