Strong Views Lightly Held

So we have strong GDP growth, rising real rates, and falling inflation.  What is the SIMPLEST explanation for that?

High real rates = “strong expected demand for financing” = “strong expected economic growth (driving demand for capital, labor, etc…).”  I’m not quite sure I believe this myself, but that is the Occams Razor answer.

GDP and Inflation

The Atlanta Fed’s “GDPNow” forecast for the quarter ended September 30 is still at 5.4%.  The “Blue Chip” consensus forecasts are at 3.4% and have been rising towards the (eerily stable) Atlanta Fed’s forecast.  This far into October, the Atlanta Fed is usually pretty on track…

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2023 is 5.4 percent on October 18, unchanged from October 17 after rounding.

This comes as the 10 year bond’s interest rate is zooming up to 5%.  Thats reflect higher Real rates, not higher inflation.   Inflation expectations are fading and actual inflation is trending down to the 2%-3% range the Fed was targeting pre-COVID (ignoring of the lagging “shelter” series with accounts for 40% of CPI).

But What About the Deficit!!! [clutching pearls and fanning self furiously]

What about the counter argument?  “THE FEDERAL DEFICIT IS DRIVING UP RATES!!!!!!!  WE MUST CUT SPENDING!!!

The economics suggest otherwise.  If federal borrowing were truly expected crowding out private sector borrowing, that would drive real rate DOWN and expected inflation UP.

• …expectations for future real economic growth would fall AND…
• …expectations for future inflation would go UP (as deficit spending by a reserve currency issuer will show up via inflation not a debt default…)

Federal borrowing is part of the picture, but the moving part in the rates equation is more likely to be expectations for private sector borrowing.  Strong private sector demand for capital would push up real rates with minimal effect on inflation expectations. 

We have real rates going up and expected inflation going down = private sector demand. 

If your macro diet is currently filled with doom-laden warnings about the deficit, you are consuming politics not economics.

This logic above is a great quality test for the rigor, motives and honesty of your favored economic commentator(s).  Are they working from the facts?  Or are they pushing an agenda?

The deficit narrative is mostly politics dressed up to sound like economics.  Very few people selling the “deficit” story are actually serious about the deficit.

• the real (political) agenda here is “lets cut spending!“
• “spending cuts” is also a fantasy.  It is a political fig-leaf over the real agenda
• “I want more tax cuts => further increasing the deficit.“

Everyone is entitled to their personal agenda and politics.  But lets not pretend there is serious economics behind it.  Moreover, you should never invest based on your politics.  Its like betting on your favorite sports team vs “the team that is actually going to win this game.”

Although the your typical investor tends to lean right.  So investing in right-leaning political agendas can work over the short-to-medium term.  As Keynes said, the market can stay wrong for longer than you can stay solvent…

The grinding and creaking of structural metal fatigue just keep getting louder behind the Chinese facade.  This 2021 post (by a respected econ blogger) has aged very well. Worth a read.  Beyond “what he said” I’d add…

1. There is an instinctive appeal in the image of the decisive autocrat.  Especially for people who subscribe to the “hero CEO” narrative of MBA case studies and the business press.  Back in 2021, I remember a lot of “serious businesspeople” were still clinging to their man-crush on China’s CCP and Xi as the facts turned against them.  They really wanted to believe in an “other” more effective and decisive than the weak, woke, befuddled USA.  This piece is a great antidote.
2. More generally, the US right wing really fell for autocracy over the past decade.  Victor Orban, Putin, Xi, and (of course) Trump.  As the contrary evidence piles up, I see/hear a lot of people doubling down on that “strong man” faith.  Everyone likes that clever “when the facts change, I change my mind” quote, but not so many people like to practice it. I wonder what breaks the fever?
3. What is the real China risk at the many companies who do high volume business there – Apple, Tesla, Volkswagen, BASF, Airbus…  Is that intelligently priced in given the tendencies above? 

Here’s the summary quote but worth a skim in full

But other than turning a bureaucratic oligarchy into a personalistic dictatorship, what are Xi’s accomplishments, exactly? In my experience, people tend to assume that Xi is hyper-competent because:

1. There’s a general impression that the Chinese government is hyper-competent, and Xi has made himself synonymous with the Chinese government, and
2. Under Xi’s watch, China has arguably become the world’s most powerful country.

But this doesn’t mean Xi actually deserves his reputation as a one-man engine of Chinese greatness. Much of his apparent success was actually inherited from his predecessors. He has taken absolute control of the apparatus built by people such as Deng Xiaoping, Jiang Zemin, and Hu Jintao, but I think it’s hard to argue that he has added much to that apparatus.

In fact, I think there are multiple signs that Xi has actually weakened the capabilities of the Chinese juggernaut. So far, China’s power and general effectiveness are so great that these signs seem to have gone largely unnoticed, but I think they’re there. The three big ones are: Slowing growth, an international backlash against China, and missteps related to the Covid pandemic.

It’s time to consider the possibility that for all his self-aggrandizement, Xi Jinping is just not that competent of a leader.

https://www.noahpinion.blog/p/what-if-xi-jinping-just-isnt-that

Is this why the stock market refuses to go down? Also why the economy is seemingly so indifferent to the Fed’s rate-raising campaign? It is probably at least part of the puzzle.

Paper is a very quick read – by Economists from Stanford, Northwestern, and Harvard.

conventional wisdom… [argues] the effect of excess savings will dissipate in a few quarters. By contrast, our benchmark scenario suggests that these effects will stick around for roughly 5 years. These numbers are larger if MPCs [Marginal Propensity to Consume] are lower, and are robust to plausible alternative calibrations.

• Rational expectations about the future boom make the response much larger on impact due to current spending out of anticipated income, which turns out to speed up the trickling up process.
• Tight monetary policy, on the other hand, also speeds up trickling up, but it does so by mitigating the effects of excess savings on demand.

In either case, however, the duration of excess savings and output remains more than twice as long as the conventional wisdom suggests.

FYI the paper (and the draft post) is from March – so a little late but…

Click to access tricklingup.pdf

Thoughts on Ukraine.

WTF was going on with Prigozhin and the whole Wagner coup/mutiny/whatever-it-was?  I’ve avoided writing about this because I simply could not figure it out. Nor could anyone else.*

We do know this – Prygozhin suffered a “catastrophic success.”** He never expected to find himself 175 miles from Moscow facing no organized opposition.  He had no plan to proceed because he never expected to be in that position…

That is the best explanation for the weird “never mind, back to regular programming” response from both Putin and Prygozhin.  Whatever the real game was, no-one expected it to come to that combination of pieces on (or signally failing to show up on) the board.  The main (non)-event was the stunning absence of any organized resistance to Wagner.  You get a feeling a whole lot of people-in-power dropped their phones in a toilet and simply disappeared for a few days.

That non-response undermines the Putin system in ways that cannot be undone.  Showing how deep the rot goes.  But we already knew that after 12 months of Russia losing this war.  Maybe Putin also now understands that?  “Catastrophic Success” is a bad outcome for all parties involved… 

• ** “Catastrophic Success” – I wish I’d come up with that framing myself and I don’t remember who did.
• *Why did the coup discussion fade so fast?  People hate to talk about complicated things where they feel more uncertain than clever and confident…  (like people avoid talking about the magical Fed’s real-world powers and role in the economy… but I digress :-p).

Why are people still avoiding the obvious?  The Russians lost big about 6-12 months ago.  The remaining question is does Ukraine win big or win small?

I’m keep running into people and commentators who just keep re-narrating the conflict and moving the goalposts in order to avoid admitting they were…. wrong.  (Kind’ve like people keep re-narrating the “just follow the Fed – the yield curve is infallible” narrative, but I digress :-p).  In real-world terms, Russia is a massively weaker than 18 months ago.  In terms of global perception, Russia, has kicked itself out of the “great power” league and might well be heading to “failed petro-state” with no stop in the “middling power” game.

• Great Foreign Affairs article here on the Western Analysts failures before the war and (less forgivable) doubling down on their (wrong) analysis since.  Written by a guy who did get it right…  (Kind’ve like many analysts have just doubled down on their prior Fed-centric narratives, but I digress… :-p )

Will Ukraine win big or small?  Napoleon apocryphally wanted generals who were lucky more than he wanted generals who were smart.  In the counteroffensive, Ukraine is so far guilty of “not getting lucky.”

So they are slugging away at artillery pieces and ammo dumps and hoping to break the line somewhere.  That hopefully sparks a localized collapse that hopefully converts into a general collapse.  What we saw around Kharkiv and Lyman/Izium.  Ukraine do seem to be managing steady progress without awful casualties.  They’ve got at least 3-4 months of decent weather to keep plugging away.  So there’s hope. Hope and luck is all you’ll ever get…

• I ran into a good description of Ukraine’s current strategy – Send a small infantry attack.  Look to see what artillery and other fire-support gets activated to repel it.  Rapidly prioritize those locations and blast them before they can move to new cover.  The pinprick infantry attacks are just to flush out the Russian artillery out of cover.  Which is a really grim insight into how non-armchair, non-Hollywood wars actually proceed.  Ugh.

So we wait…

Working on a Ukraine rant, but noting a few “Fed” source pieces here from people more qualified than I am.  They also keep looking in vain for fact-based evidence to support the dominant Fed/markets/inflation/liquidity narrative.

They don’t replace that simple, “one-factor trade” narrative with anything but complexity and nuance.  But that’s kind’ve the point, no?  Maybe this is why faith in the Fed is so resistant to facts?  People like simple stories with no loose ends…

• Paul Krugman goes looking for evidence of the Federal Reserve’s rate changes “bringing down inflation” and comes up with…. not much.  Placebo effect from talking/acting tough?  Yes.  Real measurable impacts in the data?  No.  Note that Krugman has no political angle on this – just noting that the Emperor’s New Clothes are pretty skimpy when you look at the facts…

stories about “recombobulation” — the fading away of pandemic-era distortions — driving disinflation are clearly supported by the data. Claims that Fed tightening drove it are sketchier and much more speculative.

Another claim I’ve been seeing is that inflation would be much worse right now if the Fed hadn’t raised rates. This might well be true, but it’s also something of an evasion — it’s offering a counterfactual rather than answering the question of how we’ve achieved disinflation so far.”

• This guy does a very good job of explaining why Real Interest rate effects are pretty minimal when the marginal borrower is the US Government…  The government doesn’t care about real rates.  So real rates don’t have much impact…
• People love to assume causation and/or correlation from “two lines on a chart” simplifications (most famously relating skirt’s hemlines to stock prices back when that was a thing)…  Worth a read in full – one of the simplest explanations I’ve seen of a complex subject.  Here’s a tidy summary of the fact-based case (bank reserves don’t leak ,much if at all) against the faith-based idea that “liquidity” is a one-factor trade (or even a thing).

A simple linear regression exercise tells us ‘’liquidity’’ is pretty bad at predicting stock market returns: as shown by the R2 data, in the last 15 years US liquidity only explained 3-4% (!) of the variation of SPX returns.

So, yes: both series trended up over time and plotting them on a dual-axis chart looks great but stocks go up over time because earnings grow and not because Central Banks pump ”money” in the ”system”.

Money in this case means bank reserves, and banks can’t and won’t use reserves to buy stocks – the direct relationship and simple narrative suggested by mainstream macro commentators…

…simply doesn’t exist.

Two Fed Charts to ponder.  Does today’s data rhyme with the…

• …(cue scary music here) terrible horrible 70’s when inflationary blight stalked the land?
• …(cue “I want my MTV…”) the 1990’s ?   The 1990’s were a pretty good decade.

Today’s data kinda maybe rhyme with the 90’s?:

• inflation running at 3%-4% (or 4%-5% depending on the data series) and trending down.  10 Year inflation expectations are now at… 1.8%.
• Low unemployment.  Strong wage growth.
• Solid GDP growth.
• anticipating major technology-led growth (Cloud and AI)

OK, inflation isn’t at the Fed’s (arbitrary) 2% target.  But expectations are pointing us that way.  We also weren’t at 2% in the 1990’s either.  Was that so horrible?

Not making a prediction here.  But worth giving the non-doom scenario some thought…

1981 to 2004 – PCE Inflation, Unemployment, and GDP growth Rates.  Inflation trending down.

1960 to present:  The doomsayers have been arguing we are replaying 1965-1970.  But what if we’re in 1983 or 1989?  OR 1996?  Inflation expectations are well-anchored.  The supply shocks that drove inflation are (mostly) fading.

Also re-posting a link to my last piece here – a pasted chart in my last e-mail went out as a string of gobbledyook.  Here’s the (hopefully) Wclean version.

Where’s the Wage-Price Spiral in This Chart? Maybe a Price-Wage Spiral? Or Just Not Much Linkage At All…

If the data suggest price increases are driving inflation, the inflation “debate” ought to center on… prices not wages.  Especially if the data also suggest wages are not driving inflation (very much).  The one thing we should NOT do?  Pretend the world is behaving in line with our pre-baked mental models when the data suggest otherwise…

On that note, lets have a look at wage and price growth over the last few years.

Very tidy chart.  Where is the “wage price spiral” in the above?  Definitely-not-left-wing economists Ben Bernanke and Olivier Blanchard, also don’t see wages as a driver of the recent inflation.  Even though the business press writes as if wages are enemy #1…

While the initial worry was that the main channel would be through tensions in the labor market and resulting wage pressure, most of the movements in headline inflation have come from the goods markets, from price shocks, i.e. large increases in some prices given wages.

Yet we are still served up commentary like this in John Auther’s (Bloomberg) latest piece

The question, she poses, is whether the economy can break inflation in wages — or even the dreaded wage-price spiral — without a incurring a significant increase in job losses? How would that impact consumer confidence? “Yes, job losses have ticked up a little bit, but once people lose their jobs, they can find another job quite quickly,” she said. “And wage gains, though they’ve slowed, have not gotten negative.”

If anything, the chart might argue for a price-wage spiral? Price growth had been… (ahem)… robust.  For example, Pepsi said they had raised prices 15% YoY per their last earnings call.

But a price-wage spiral looks pretty iffy too.  Strip out the big YoY dip in 2021 (echo of the 2020 spike) and wage growth looks pretty flat at 4%.

Admittedly, Blanchard did nod in the direction of a possible future wage-price spiral, writing in May ’23.  But this had a pro forma feel even 2 months ago.  It also hasn’t aged well.

Looking forward, as price shocks are likely to fade, the focus will return to the labor market; wage inflation is too high, reflecting overheating and some increase in expectations. We argue that this requires a substantial decrease in the ratio of vacancies to unemployment

Yet Authers and a recent Economist Opinion piece keep looking for that wage-price spiral.  The Economist ridicules the (admittedly unfortunate) term “greedflation” because, you see, price increases most certainly have NOTHING to do with companies pushing their price envelope under the cover of a crisis.  The Economist, however, gets oddly vague about how else to describe the price data above.  “The first rule of Fight Club is… never talk about Fight Club.”

Another hint at what might have driven recent inflation in this Fed chart:

NB:  The big 2020 spike (and the 2021 echo dip) in earnings “growth” in the wage/price chart above is COVID.  So many low wage workers were laid off that average hourly earnings went way up – only high earners were left in the “average earnings” calculation.  That mostly tells you that ALL the data of the last few years is non-trending and suspect.

In Sunday School Macroeconomics 101, they tell a story about the Fed.

When Uncle Fed cuts rates, it stimulates investment and the economy goes boom!  When Uncle Fed raises rates, investment struggles and the economy goes bust.  So if you just watch Uncle Fed, you don’t need to bother with all those other complicated macro variables.  Isn’t that lovely?

You’ll read versions of this in The Economist, newspapers, investment research, etc. etc.  The Fed drives investment, which drives the economy.  Simple, tidy, obvious…

The story is not, however, supported by actual data on investment – Net, Gross, or Real Investment as a percent of GDP.  I’m not sure exactly what the data below DO say.  But they definitely DO NOT say “the Fed Funds rate clearly drives real economy investment behavior.”  The two other data series at the end give us different charts telling the same non-story.

Net Business Investment as a Percent of GDP (Left Axis) and Effective Fed Funds Rate (Right Axis)

If the Fed were as powerful as many believe, Big shifts in the Fed Funds rates should drive visible shifts in the investment rate.

1. …the last two decades of ever-lower low interest rates should have produced an investment boom. Companies should have been throwing dollars at all sorts of low-return project with rates nearly at zero and Real inflation-adjusted Rates below zero.
2. …the 1980’s, should have seen investment struggle in the face of the Volker’s bold rate rises.  Those huge rate hikes should have sparked a huge fall-off in investment.
3. …the 1990’s should have seen a spike up in investment when rate were were low early in the decade and declining investment as the Fed raised rates later on.

None of these things happened.  These patterns just aren’t there.  Even if you assume all sorts of lag effects, the two trend lines don’t really connect.  If there is any pattern, it would be the Fed Funds rate chasing investment downwards.  Or vice versa…? 

If low rates really drove behavior as much as the Fed fans believe, how do you explain what we DO know.

• The Fed WAS powerless under ZIRP before COVID. That’s why they came up with side show distractions like QE.  The Fed was at the zero lower bound and struggling to re-start the economy.
• A lot of people have forgotten that sluggish, “pushing on a string” pre-COVID economy.  We had a decade of super low rates in the 2010s AND also a decade of super low private capital and public infrastructure investment.
• COVID gave us all a sharp lesson in just how powerful fiscal policy is.  Shocking the economy into higher inflation and super-strong employment after a decade of monetary policy “pushing on a string.”
• Investment today has not, so far, responded to higher rates by going down.  Anecdotally, its been going UP (boosted by Government policy and lot of other  “its complicated” cross-currents.
• Studies showing corporate investment “hurdle rates” don’t change (much) in response to interest rate changes.

I’m not sure how to explain the above myself.  Maybe the free market out there in the real economy is driving real long term rates drives rates more than people want to believe? Maybe the Fed rate and investment aren’t really linked at all?  There are a lot of other drivers out there (e.g. Software isn’t counted as “investment” in these data series).

What we DO  know is “investment” is a lot more complicated than a single number emerging from Washington DC.  So we know we don’t have a simple, one-factor trade…

Faced with the complexity above above, I see/read/hear a lot of people doubling down on simplicity.  If the Fed can’t cause a recession with hikes to 5%, then it dang-gummy must keep raising to 7%!  Because we must have a recession!  Because… why?

Maybe the real impulse is just so “we” can keep clinging to our prior beliefs? Simple rules that comfortably explain a complicated world.  A craving for certainty…

Maybe a recession is the price some think we “must” pay simply to keep our world-view intact?  Doubling down on the same experiment until the results support the belief…

Maybe abandoning that narrative would mean giving up belief in God Santa Claus? Losing the monotheistic comforts of a benevolent Holy Father Fed.  Fearing a polytheistic world of multiple, erratic, uncontrolled Gods indifferent to the petty struggles of humankind.

I’m not sure.  Its complicated…

I try to live in the complicated middle ground between “the Fed is powerless“and “the Fed is a one-factor driver of the economy and all you need to follow.”

That middle ground is neither simple nor tidy nor obvious.   “The Fed is a powerful actor, but not nearly as powerful as some people think.  The real economy runs the show. The Fed is just well-intentioned humans feeling their way along like the rest of us.  Their tools are limited and the effects unclear.  If the data are confounding, they are as stumped as we are.”

I got to that middle ground in the last decade.  The Fed was pretty obviously powerless pre-COVID.  Even The Economist had to admit that.  The last 18 months hammered that relative impotence home.  After 5 points of rate rises we can pretty confidently conclude “the Fed ain’t nearly as powerful as some people wanted to believe in early 2022 or, really, since about 1990 when the “Volker myth” was created (with remarkably little empirical support).”  If the 2010’s didn’t convince you, the last 18 months should have been evidence enough. 

“No-one” expected rates would rise this far.  The few that did were forecasting rapidly rising unemployment and a huge recession.  I certainly didn’t get it right myself.  So the right response is to accept that your prior, simple mental models were wrong.  Take a step back and look at the bigger, more complicated picture.  Even if it doesn’t make tidy sense.

Gross Business Investment as a Percent of GDP (Left Axis) and Effective Fed Funds Rate (Right Axis)

Real Business Investment as a Percent of GDP (Left Axis) and Effective Fed Funds Rate (Right Axis)

Why are so many people howling for a recession?  To quote Bloomberg columnist John Authers…

Bringing inflation to heel is urgent. That could imply that the Fed has no choice but to execute the landing soon — as the alternative would involve zooming ahead and an eventual crash.

But that really the only choice?  A semi-controlled crash now or a [spooky music] “eventual crash” later on?  The lady doth protest too much, methinks…

After 18 months of drama, we have a pretty good handle on what’s behind the headline inflation numbers.

1. Supply shock driven – post-COVID demand and the Ukraine war.  Note that energy prices have gone down a lot lately…
2. Fiscal-policy driven. Fed-fetishizers really hate to admit how powerful those COVID checks proved to be.  As a Real Economy guy, I totally under-estimated them too.
3. NOT particularly wage-driven – real wages are just not galloping ahead.  If you torture the data you can get to a more convenient conclusion, but…
4. At least partly driven by “excess profit” – see the chart link before accusing me of playing politics.  “Excess” means “higher than it usual historical average” – an economics term not a moral or political judgement.  For more, see this paper by Isabella Weber and other economists chiming in on her twitter feed.  She got written up in the New Yorker, but goes oddly unmentioned in the WSJ or FT 🙂

So where are we today?  Does this really solve for “we must engineer a recession as soon as possible!!!!”?  Maybe it solves better for “take a step back and let the free market sort itself out?”

1. Supply shocks are gone (NY Fed).
2. Fiscal policy effects are fading.
3. Real wage growth isn’t ringing alarm bells – at least not in the US.  Wages have gone up a lot for the bottom quartile, but top quartile has seen reduced purchasing power (Atlanta Fed).
4. Profit margins are still high, but that’s not something Fed policy can change directly.  Either you believe the free market will eventually do its work, or the FTC and DoJ are the relevant agencies…
5. Inflation expectations are heading down and look super duper well anchored (Cleveland Fed). 
6. Alternate, pretty clearly more accurate measures of inflation are well out of the Red Zone.  The NY Fed is not a left-wing think tank and 3.5% is not a crisis.
7. Real (Inflation Adjusted) interest rates are positive after a rapid +500bp adjustment.

Could there be another agenda behind all the brave talk of belt-tightening and necessary sacrifice?  Maybe people don’t want to re-price existing assets for a world with rates running in the 3%-5% range.  Today, they are sitting on paper losses.  If this all goes on too long, however, time will convert those into real losses.

To avoid those losses, those people need rates to return (quickly) to the low levels we had pre-COVID in the 2010’s.  The post-GFC era of soggy, deflationary growth.  If it takes a crushing recession to bring those low rates back, that is (for them) the lesser of two evils.  Sluggish growth will cost them less than the mark-to-market losses.

The above may sound “political,” but “politics” is what happens when a social group pursues its own self-interest.  The politics lie in pretending otherwise – hiding a political agenda behind a smokescreen of (remarkably unsupported – really!) econo-babble.  If there is anything “political” here, it is in that deception.

What we do know is this:  Pretty soon the headline inflation numbers and the political calendar are going to make it awkward to press too hard or too loud for a recession.   Per the NY Fed’s clearly-more-realistic-for-the-present-moment data series, 3.5% is not a crisis.  Perhaps that time growing short better explains the urgency some people feel for a bum rush into a recession…?

Note that, last year, I also expected a return to ” slow, deflationary growth.”  I didn’t expect a mega-recession, but I also didn’t expect the Real Economy to be this resilient. Partly because I figured the “get back to low rates” political agenda would prevail.  The real economy thought otherwise…

When the facts change, you should try to change your mind.  So now I’m considering other scenarios.

• Maybe we are going back to the 1990’s (boom years), not the 2010’s (soggy slog)?
• Or, maybe we do get a recession if the yield curve turns out to be right after all?  Although the real economy is not really cooperating so far.

Right now, however, I have no strong views and they are even more lightly held than usual…

This just in:  I’m going to paste in a verbatim quote from the Indeed job site’s analysis of today’s jobs data.  Is 3.5% inflation maybe not so bad if it also gets us this?  And who thinks otherwise?

The US labor market wrapped up the first half of 2023 in a position of strength, and it will take something dramatic happening to derail it anytime soon.

Don’t dismiss job growth of 209,000 per month. Yes, this pace is notably slower than what we’ve seen in recent years. However, given the slowing growth of the US population, we’d need job gains of somewhere between 60,000 and 80,000 per month to keep up with labor force growth. So gains in excess of 200,000 are more than double the pace needed to keep the labor market tight.

The results of this continued strong hiring can be seen in the growth of the prime-age labor force. The share of workers ages 25 to 54 in the labor force rose again to 83.5%, the highest rate since May 2002. Women saw another strong rise over the month, continuing their more rapid post-pandemic bounceback. The participation rate for prime-age women is not only above its 2019 level, but it also set an all-time high for the third straight month.

The sources of the job gains have some surprises in both positive and negative directions. Construction continues to be notably resilient, adding 23,000 jobs in June, with almost half of those gains coming from residential specialty trade contractors. On the flip side, accommodation and food services job gains, a constant source of jobs in the post-pandemic recovery, dropped dramatically to under 5,000 a month, a steep decline from the roughly 60,000 a month on average it added in the year prior.

The labor market is slowing down, but it’s doing so from a position of strength. This report is just another proof point that the labor market is going through a welcome moderation. Demand for workers is high but slowing, and the supply of workers is growing. Nothing is guaranteed, but the US labor market continues to point toward a slower, but more sustainable pace of economic growth.

Who is the “Change” candidate in a Biden vs Trump re-match.?  My gut says neither.

But US voters have pretty reliably voted for “change” since the GFC and Iraq war gutted elite credibility.   So do they force a “change” candidate onto the ballot?  Do they stay home in droves?  Overturn the apple cart in some other way?  I don’t have a good answer.  Just asking the questions…

The twin blows of the Iraq War’s lies and the GFC’s naked self-dealing collapsed elite credibility under George II.  Since then, “Change” has been the best predictor of election outcomes.  The specifics vary by election, but the underlying theme has remained constant.

• Obama in 2008 – the original “change” candidate – bounced Hillary out in the primaries
• Trump in 2016 – Presented with the uniquely unappealing non-choice of Hillary and Jeb Bush, voters grabbed the wheel to (eventually) vote in Trump and (nearly) Bernie Sanders.  People forget just how far and fast that election went off the rails on both sides.
• Biden in 2020 – a bit more complicated, but voters definitely voted for a “change” from Trump.

Democrat:  Biden definitely isn’t the “change” candidate in 2024.  It doesn’t look like we’ll get a real alternative to Biden in the Democratic primaries.

Republican

• Trump was the 2016 “change” candidate, but that fresh feeling is gone.
• Could DeSantis end up the “change” candidate?  Maybe, except that he’s not running on “change” as much as “I’ll be a more ruthless and disciplined version of Trump.” He could escalate the anti-elitism to full-throated “populist class war” levels, but his (highly concentrated) financial backers would yank his funding.
• Could one of the other Republican candidates emerge as the “change” candidate?  That seems more plausible in theory.

But what’s the “change” message that still wins over the MAGA voters?  The best bet likely is “full-throated populist class war…”  But that seems a stretch for most of the people running.  It would definitely send the big dollars back over to Biden.

So how do US voters express that desire for “change?”  The frustration with stale politics is still pretty obviously there.  A Biden v Trump re-match isn’t going to scratch that itch.

Do they go down one level and throw out Congressional incumbents?  Or just stay home?  Or mount a more serious insurrection?

No clue.  But my guess is that frustration will find an outlet somewhere…