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Biden About To Crash The Economy Further With Recession

The mood among Democrats is optimistic. In their internal monologue, they assure themselves they will retain control of the Senate come November. They might be able to hold on to the House with a little luck. For the time being, Democrats live in a dream world. 

In the eyes of some Democrats, the economic data released on Friday was surprisingly encouraging since it was consistent with a slowdown rather than a recession. The opposite is true. 

The biggest issue with this optimistic outlook is that it emphasises fairly robust job gains, slowing wage gains, and a rise in the labor force participation rate. A tight labor market is something the optimists seem to overlook. Deaths from the epidemic have reduced the workforce by 3.5 million people. There is almost no spare capacity in the workforce. Even while pay growth slowed for the month, it has risen at an annual rate of 3.7% over the past three months, which is above the Federal Reserve’s 2% inflation objective. 

The most current data on the labor cost index and the more reliable pay tracker from the Atlanta Federal Reserve make for grim reading for proponents of a soft landing scenario. Not surprisingly, given the extremely tight labor market, the median average wage rise over the past three months has approached 7% and shows no signs of slowing. The employment cost index is also rising, this time at a rate of over 7% per year. The Federal Reserve would like to see the employment cost index drop to 3.5%, which would align with stable inflation. National production increases by about one and one and a half percent per year on a secular basis. Wage levels drive inflation. 

Therefore, the Federal Reserve must keep raising rates aggressively, by at least another 150 basis points, if it wants to reach its target. Economists agree that embedded inflation is now hovering around 4.5 percent. Wage inflation can be tamed if the federal funds rate is raised above 4.5 percent. 

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Simply put, the Federal Reserve faces a steep uphill battle. Professor Larry Summers is only one example of someone who has advocated for more unemployment in order to slow wage growth to 3.5%. With unemployment at that rate, the economy would have a lot of spare capacity. 

The housing market warrants our attention, too. 

This industry is the driving force behind the global economy. Twenty percent of the gross domestic product goes into the construction, renovation, and maintenance of homes. However, the housing market is collapsing. A  chart from the St. Louis Federal Reserve Bank shows this. Consistent with previous years, this shows that the housing market is experiencing a downturn. Recessions in the housing market typically portend broader economic downturns.

Once again, though, the details matter most. Housing’s real price decline, after adjusting for inflation, now exceeds 10%. The market for brand new houses has dropped by 29.6 percent. A decline of 18.5% in single-family home construction is seen. There has been a 23% decline in mortgage application volume. The housing market is a leading indicator of economic downturns. If the Federal Reserve boosts interest rates, mortgage rates will follow suit. Property transactions slow down. Home inventory rises as more people look to buy. Contractors in the housing industry have slowed down their work and laid off some of their staff. Demand for long-lasting consumer goods drops. Producers of long-lasting goods decrease output and lay off workers. There is now a feedback loop working against us. 

The following are some warning signs that a recession may be upon us. Initial indicator: a monthly rate of employment creation lower than 50,000. There are currently more than 300,000 monthly employment additions thanks to the economy. Second, a return to the historical norm of a personal savings rate of 7% rather than the present rate of 5%. Third, the decline in real personal income has persisted for 18 months. Reduced use of services ranks fourth. Most of the economy runs on consumer spending. Services make up the bulk of individuals’ spending habits. Less demand for services means a harder landing for the economy and a higher unemployment rate.