The data continue to confound the ruling class speculators and their ideologists and media propagandists, as well as frustrating the catastrophists, who had foretold of a post pandemic slump, as the latest instalment of their permanent crisis theory, in which the next recession is always at hand.
The US non-farm payrolls, for last month, as previously noted, soared by more than half a million. But, week after week, the number of US initial jobless claims, also continues to come in at less than 200,000, and often below the estimates too. Indeed, the trend for jobless claims has been steadily downward, rather than upwards, dashing the hopes of the speculators, and those like Larry Summers, who hope that the rate hikes introduced by the Federal Reserve would cause firms to slow down, and start sacking workers, so that pressure on wages and interest rates would abate, so that asset prices could be inflated again.
US wages are also rising at over 5%, which with the increased number of workers, increased number of hours, and all of the liquidity sitting in bank accounts, left over from lockdowns, means that the US consumer is still spending too. The figures for US Retail sales (ex autos), published last week, showed it rising by 2.3%, month on month, in January, and that is the largest increase since March 2021. Retail sales are now back above the trend from before lockdowns.
As all of this liquidity continues to flow out into the real economy, its clear that employment is a leading indicator in current conditions, whereas the sentiment indicators, have become increasingly divorced from the real economy. The sentiment indicators, suggesting declining activity, have been repeatedly shown wrong, because those that contribute to them are simply reflecting impressions taken from a doom laden media that has been forecasting recession and slow down for months.
And, the latest US producer prices data, also, shows that with employment rising, wages rising, sales rising, and economic activity increasing, it continues to pass through into the demands for inputs, and now, second or third round effects on producer prices begin to feed through, even before we get the main effects of rising primary product prices, as China comes out of lockdowns, and its economy gets into full swing. US Producer Prices rose by 0.7%, month on month in January, the most in seven months, and nearly double the estimate of 0.4%. Producer prices mostly affects goods inflation, which has been declining in recent months, whilst services inflation continues to increase.
This spike in producer prices suggests that, what has been said before about waves of inflation, is playing out, as the ground is being set for a new wave of goods price inflation, in coming months.
Meanwhile, for consumer price inflation, the data showed that it remains far higher and stubborn than had been predicted. Estimates were for it to drop to 6.2% year on year, but if fell only from 6.5% to 6.4%, and month on month, it rose by 0.5%, compared to just 0.1% the previous month. And, core inflation appears to be even more sticky.
That is tricky for the Federal Reserve, which had been looking to step down the level at which it was hiking rates, having moved from 75, to 50 basis point hikes in recent months, and down to just 25 basis points in February, with speculators hoping it might have been the last, and even that it might cut rates later this year. That looks impossible, with even thought that it might have to go back to a 50 point hike at the next meeting, and certainly that it will continue hiking for longer, and reach a higher terminal level.
But, even that is still being underpriced. Stock markets have basically gone nowhere in recent weeks, despite the potential for continued higher rates. The speculators continue to hope that firms will lay off workers, wage pressures will be reduced, and so the pressure on profits will be reduced. But, there is no indication of that happening, and the reality is that material conditions have changed fundamentally. In the US, Biden has used the power of the state to impose terrible wage deals on rail workers, and has sought to do the same with dockworkers, but US workers, like workers across the globe have had enough, and sense firmer ground beneath their feet, as economies expand, and relative labour shortages have developed. As firms see sales continuing to grow, especially in service industry, they continue to need additional workers, and are having to pay up to get them.
Those rising wages impose on profits, but, so far, firms have been able to utilise the excess liquidity that central banks have created to simply raise prices. Rising prices of materials and energy has led to a tie-up of capital, which appears to be a slower growth of profits, because a portion of surplus value is used, now, to replace consumed constant capital, at these higher prices, rather than appearing as realised profit, or dividends/interest and so on. With prices rising faster than hourly wages, even as total wages rise, therefore, a part of this tie-up of capital is covered by an increase in the rate of surplus value. But, much as happened in the early 1960's, a comparable period to that we are now in, workers will begin to close that gap, and then go beyond it.
As noted a few weeks ago, Rolls Royce workers in Britain won a 16.9% pay rise, and London bus workers at Abiello, have won an 18% pay rise. The struggle of US dock and rail workers is not over, despite the attempts of Biden and the Democrats to suppress them, and across the US, large numbers of workers are unionising in areas they have previously been unorganised, and are demanding pay rises to compensate for the high levels of inflation. As US workers, like those in other countries win these pay rises, squeezing profits, firms will again, seek to compensate by raising prices, and the central bank will accommodate them by increasing liquidity further, causing inflation to rise in yet another wave.
Only if they temper the increase increase in liquidity, will they be able to prevent a price-wage spiral, but that will mean, as happened in the 1960's, and into the 1970's, that profits will be squeezed. That squeeze on profits, at a time when firms continue to have to accumulate capital as rising demand for wage goods, pushes the economy forward, means that the demand for money-capital rises relative to its supply, pushing interest rates higher. It means that asset prices have much further to fall, despite the current complacency. In fact, already, with 10% inflation, asset prices are already 10% lower, in real terms than their nominal prices suggest. As in the 1960's, and 70's, those asset prices will fall, both as a result of actual falls in nominal terms, via a series of crashes, and steep declines, and as a result of a prolonged fall in real terms, extending over a couple of decades.
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