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> Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables:

> Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales. Manufacturing and trade and industrial production? The supply chain's a disaster area right now. And real personal income is going to be down because inflation is up (the transfer payments we've been making are of course excluded). Employment numbers are steady, at least.

tdhz77 5y ago
Workers aren’t coming back. Corporations will need to start bending the knee to labor if we are to get out of inflation land.
- ageek123 5y ago
  It's actually the opposite -- if employers raise wages, we can easily get into a wage-price spiral with extreme inflation. The only way to avoid inflation is for employers to just wait until potential employees deplete their savings and extended unemployment benefits, and then hire them at uninflated wages.
  - MeinBlutIstBlau 5y ago
    Or the Fed could just crank up interest rates and stop allowing any schmuck to get a loan to finance everything. I distinctly remember this happening before...twice...
    - derekjdanserl 5y ago
      That in itself would require a communist revolution.
  - Afforess 5y ago
    This is only correct if labor is the largest component of the price of a good. If labor is not a large component, paying more for labor, at the expensive of competitors labor supply, is a good idea, and employers should do it.
    - sp332 5y ago
      Agreed, productivity has been going up faster than wages. Businesses can do less stock buybacks and C-suite bonuses instead of passing all the costs to customers.
  - _3u10 5y ago
    Maybe in the general economy but not in tech
  - mandelbrotwurst 5y ago
    There are effects in both directions. Increasing wages increases prices and not having labor available reduces production, which also leads to higher prices.
  - tehjoker 5y ago
    This is a crazy concept, it would seem to imply that any attempt to increase wages ever would destroy the economy, but what remains is barbarism and serfdom. There's a market in labor just as there is a market in goods (though the former is a market in human beings). If the supply of labor is low, then (under many economic conditions)* raising wages to increase the number of workers willing to do unpleasant jobs is part of the logic of markets. It's a two way street. * An example of a condition where it might not apply is if everyone were already perfectly sorted into their preferred jobs and there was no remaining pool to encourage new people to become workers from. Then raising wages wouldn't affect the sorting of the economy other than to transfer money from capital to labor (which is a good thing anyway in our age of inequality). I highly doubt we are there.
    - derekjdanserl 5y ago
      There are other options too. Land reform, for example, would not need to be any more violent than mass evictions.
    - candiodari 5y ago
      Not really. It just means that a plumber makes 1e-30 of the new money in a given economy (some small amount, point is, it is relative to the money supply). If he gets a raise (not one individually, obviously) that needs to be canceled out with the new money increasing. The problem being if you get into a circle raise -> more new money -> goto 1 it may be hard to slow it down. In reality nobody wants money. They want houses, food, education, children, ... each of those also represent a relatively constant fraction of the money supply of an economy. So you can only get a raise by actually doing more work, or in the case of the government jobs, having more hostages/threats (if you fire me X will happen, X being somewhere between a fight over who replaces you, to new elections, to I guess revolution in some extreme cases). This is not very visible because plumber wages DO change, for example with the number of plumbers available. House prices do change, for example with migration. But wages do not change, in real terms, because of inflation. A raise is a necessity, merely for you to maintain whatever position you have in society. It is not nice, in that it improves your position in society. A house, ownership, maybe stocks and of course innovation improves your position. Raises and inflation are a smokescreen. I use the term "new money" because "parked money" does not matter. Only money that was involved in some transaction in the recent past actually matters. We can argue about what measure is the best for this, and economists constantly do that, but other than that it's not simply total money, it is not necessary to have an answer for this point.
  - jonathankoren 5y ago
    That’s unlikely in 2021. Labor is nowhere nearly as strong as it was in the 1970s when unions negotiated automatic 6% automatic wage increases. Conversely real wages have been stagnate for decades.
  - imtringued 5y ago
    The fact that this is happening implies that the inflation story is bogus.
  - ladyattis 5y ago
    Most potential employees moved on to better jobs. You're not going to force someone who's moved to say Wyoming to be a windmill tech back into being a waiter at your restaurant like ever. This isn't the days of feudalism either so you have no legal leverage over the 'great reshuffling.' You either accept that you'll be working your existing labor pool harder or you will be paying more to get more labor. There's no third option.
  - Red_Leaves_Flyy 5y ago
    Not really. The working class country wide is awakening to the fact the reasons they don’t have a reliable car, decent home in a well funded community to raise their children in, and affordable healthcare is because of systemic rent seeking. People are saying no to dead end jobs that cannot afford the people working them a reasonable quality of living. The solution for the workers is to demand enough pay to realize a dignified lifestyle. The solution for the employer is to do whatever scummy things are necessary to fill the roles, long term consequences be dammed. The solution for government is to cool the housing market, implement single payer healthcare, and fix the systemic issues facing underserved communities with massive capital investments that also happen to be great jobs programs.
- b9a2cab5 5y ago
  As soon as COVID is over immigration will restart and wages will start flatlining again (unfortunately).
  - colecut 5y ago
    When do you think that will be?
    - 01100011 5y ago
      How much longer can we keep up the COVID protocols? The Atlantic just did a piece on this: https://www.theatlantic.com/health/archive/2021/11/what-americas-covid-goal-now/620572/ https://www.theatlantic.com/health/archive/2021/11/what-amer... We're going to have to transition to whatever the new normal is very soon. There is only so much money printing the fed can do to cover up structural problems in the economy. Given the inflation we're seeing, I think we're getting near the end of that rope. We're now, I think, seeing diminishing returns on the helicopter money and artificially suppressed interest rates.
robomartin 5y ago
> The supply chain's a disaster area right now. I would edit that to read "a scary disaster area". We devoted most of this year to designing an entirely new product line for a new startup I am launching. It got delayed due to the pandemic. We decided to restart it around March of this year. We have gone through many prototypes and are now ready to start manufacturing, with the aim of delivering products during Q1 (we have serious orders). Well, this week I am having meetings with component suppliers to figure out what we have to do in terms of design changes and ready-to-go variants in order to deal with supply chain issues. The variants have to be there in order to be able to deliver product if key components become unavailable. The approach is requiring us to design something like three versions of each product. Each of these has to go through full UL/TUV/CSA and other regulatory testing. That's why I say "disaster area" doesn't quite cover it. I have lived through massive manufacturing supply chain upsets in the past. This one is different in that it is far more widespread, with multiple product lines suffering shortages and delivery issues for different reasons. If this pandemic does not teach nations, governments and people why it is so important to have short local and capable supply chains, I don't know what will.
- MeinBlutIstBlau 5y ago
  >If this pandemic does not teach nations, governments and people why it is so important to have short local and capable supply chains, I don't know what will. I don't think a single billionaire or bureaucrat is gonna bat an eyelash. Inflation doesn't affect them. Deflation does. That's why they stripped every single mean from the lower classes being capable of doing so.
  - tehjoker 5y ago
    Not quite. Inflation makes the value of debts lessen. Most rich people are creditors, that's why the Fed is such an inflation hawk. However, the inflation in consumer products without wage increases just doubly screws the working class, though it could lead to widespread bankruptcy if it gets intense enough. That would affect rich people.
    - 5y ago
blorgle 5y ago
It's not the inflation component which is killing real personal income (ex transfer receipts)...it's the bad modelling which is used to generate current estimates that are subject to revisions. The revisions show the real picture, and it is not pretty. See https://alhambrapartners.com/2021/07/30/inflation-estimates-pce-totally-overshadowed-by-benchmark-income-revisions-and-the-deflationary-implications-of-them/ https://alhambrapartners.com/2021/07/30/inflation-estimates-...
- qPM9l3XJrF 5y ago
  Assuming this blog post is correct, what would a smart response be from an investor point of view?
  - imtringued 5y ago
    Most likely to get out of the US stock and housing market. Stop borrowing money, reduce leverage, etc. If you like risk then short the most bubbly companies around.
  - atlantageek 5y ago
    I would argue fixed rate debt is your best friend in a high inflation scenario. With the cash being reinvested in staples type stocks (food and basics)
- refurb 5y ago
  Am I the only one that can't read that blog post? It's seems stream of consciousness and odd grammar that throws me off. And the bio of the author doesn't engender much confidence: "He is not an economist, which is probably why he's been able to develop a working model of the global monetary system. His research is unique and informative in ways an economist would never consider."

tdhz77 5y ago

Workers aren’t coming back. Corporations will need to start bending the knee to labor if we are to get out of inflation land.

ageek123 5y ago
It's actually the opposite -- if employers raise wages, we can easily get into a wage-price spiral with extreme inflation. The only way to avoid inflation is for employers to just wait until potential employees deplete their savings and extended unemployment benefits, and then hire them at uninflated wages.
- MeinBlutIstBlau 5y ago
  Or the Fed could just crank up interest rates and stop allowing any schmuck to get a loan to finance everything. I distinctly remember this happening before...twice...
  - derekjdanserl 5y ago
    That in itself would require a communist revolution.
- Afforess 5y ago
  This is only correct if labor is the largest component of the price of a good. If labor is not a large component, paying more for labor, at the expensive of competitors labor supply, is a good idea, and employers should do it.
  - sp332 5y ago
    Agreed, productivity has been going up faster than wages. Businesses can do less stock buybacks and C-suite bonuses instead of passing all the costs to customers.
- _3u10 5y ago
  Maybe in the general economy but not in tech
- mandelbrotwurst 5y ago
  There are effects in both directions. Increasing wages increases prices and not having labor available reduces production, which also leads to higher prices.
- tehjoker 5y ago
  This is a crazy concept, it would seem to imply that any attempt to increase wages ever would destroy the economy, but what remains is barbarism and serfdom. There's a market in labor just as there is a market in goods (though the former is a market in human beings). If the supply of labor is low, then (under many economic conditions)* raising wages to increase the number of workers willing to do unpleasant jobs is part of the logic of markets. It's a two way street. * An example of a condition where it might not apply is if everyone were already perfectly sorted into their preferred jobs and there was no remaining pool to encourage new people to become workers from. Then raising wages wouldn't affect the sorting of the economy other than to transfer money from capital to labor (which is a good thing anyway in our age of inequality). I highly doubt we are there.
  - derekjdanserl 5y ago
    There are other options too. Land reform, for example, would not need to be any more violent than mass evictions.
  - candiodari 5y ago
    Not really. It just means that a plumber makes 1e-30 of the new money in a given economy (some small amount, point is, it is relative to the money supply). If he gets a raise (not one individually, obviously) that needs to be canceled out with the new money increasing. The problem being if you get into a circle raise -> more new money -> goto 1 it may be hard to slow it down. In reality nobody wants money. They want houses, food, education, children, ... each of those also represent a relatively constant fraction of the money supply of an economy. So you can only get a raise by actually doing more work, or in the case of the government jobs, having more hostages/threats (if you fire me X will happen, X being somewhere between a fight over who replaces you, to new elections, to I guess revolution in some extreme cases). This is not very visible because plumber wages DO change, for example with the number of plumbers available. House prices do change, for example with migration. But wages do not change, in real terms, because of inflation. A raise is a necessity, merely for you to maintain whatever position you have in society. It is not nice, in that it improves your position in society. A house, ownership, maybe stocks and of course innovation improves your position. Raises and inflation are a smokescreen. I use the term "new money" because "parked money" does not matter. Only money that was involved in some transaction in the recent past actually matters. We can argue about what measure is the best for this, and economists constantly do that, but other than that it's not simply total money, it is not necessary to have an answer for this point.
- jonathankoren 5y ago
  That’s unlikely in 2021. Labor is nowhere nearly as strong as it was in the 1970s when unions negotiated automatic 6% automatic wage increases. Conversely real wages have been stagnate for decades.
- imtringued 5y ago
  The fact that this is happening implies that the inflation story is bogus.
- ladyattis 5y ago
  Most potential employees moved on to better jobs. You're not going to force someone who's moved to say Wyoming to be a windmill tech back into being a waiter at your restaurant like ever. This isn't the days of feudalism either so you have no legal leverage over the 'great reshuffling.' You either accept that you'll be working your existing labor pool harder or you will be paying more to get more labor. There's no third option.
- Red_Leaves_Flyy 5y ago
  Not really. The working class country wide is awakening to the fact the reasons they don’t have a reliable car, decent home in a well funded community to raise their children in, and affordable healthcare is because of systemic rent seeking. People are saying no to dead end jobs that cannot afford the people working them a reasonable quality of living. The solution for the workers is to demand enough pay to realize a dignified lifestyle. The solution for the employer is to do whatever scummy things are necessary to fill the roles, long term consequences be dammed. The solution for government is to cool the housing market, implement single payer healthcare, and fix the systemic issues facing underserved communities with massive capital investments that also happen to be great jobs programs.
b9a2cab5 5y ago
As soon as COVID is over immigration will restart and wages will start flatlining again (unfortunately).
- colecut 5y ago
  When do you think that will be?
  - 01100011 5y ago
    How much longer can we keep up the COVID protocols? The Atlantic just did a piece on this: https://www.theatlantic.com/health/archive/2021/11/what-americas-covid-goal-now/620572/ https://www.theatlantic.com/health/archive/2021/11/what-amer... We're going to have to transition to whatever the new normal is very soon. There is only so much money printing the fed can do to cover up structural problems in the economy. Given the inflation we're seeing, I think we're getting near the end of that rope. We're now, I think, seeing diminishing returns on the helicopter money and artificially suppressed interest rates.

robomartin 5y ago

> The supply chain's a disaster area right now. I would edit that to read "a scary disaster area". We devoted most of this year to designing an entirely new product line for a new startup I am launching. It got delayed due to the pandemic. We decided to restart it around March of this year. We have gone through many prototypes and are now ready to start manufacturing, with the aim of delivering products during Q1 (we have serious orders). Well, this week I am having meetings with component suppliers to figure out what we have to do in terms of design changes and ready-to-go variants in order to deal with supply chain issues. The variants have to be there in order to be able to deliver product if key components become unavailable. The approach is requiring us to design something like three versions of each product. Each of these has to go through full UL/TUV/CSA and other regulatory testing. That's why I say "disaster area" doesn't quite cover it. I have lived through massive manufacturing supply chain upsets in the past. This one is different in that it is far more widespread, with multiple product lines suffering shortages and delivery issues for different reasons. If this pandemic does not teach nations, governments and people why it is so important to have short local and capable supply chains, I don't know what will.

MeinBlutIstBlau 5y ago
>If this pandemic does not teach nations, governments and people why it is so important to have short local and capable supply chains, I don't know what will. I don't think a single billionaire or bureaucrat is gonna bat an eyelash. Inflation doesn't affect them. Deflation does. That's why they stripped every single mean from the lower classes being capable of doing so.
- tehjoker 5y ago
  Not quite. Inflation makes the value of debts lessen. Most rich people are creditors, that's why the Fed is such an inflation hawk. However, the inflation in consumer products without wage increases just doubly screws the working class, though it could lead to widespread bankruptcy if it gets intense enough. That would affect rich people.
  - 5y ago

blorgle 5y ago

It's not the inflation component which is killing real personal income (ex transfer receipts)...it's the bad modelling which is used to generate current estimates that are subject to revisions. The revisions show the real picture, and it is not pretty. See https://alhambrapartners.com/2021/07/30/inflation-estimates-pce-totally-overshadowed-by-benchmark-income-revisions-and-the-deflationary-implications-of-them/ https://alhambrapartners.com/2021/07/30/inflation-estimates-...

qPM9l3XJrF 5y ago
Assuming this blog post is correct, what would a smart response be from an investor point of view?
- imtringued 5y ago
  Most likely to get out of the US stock and housing market. Stop borrowing money, reduce leverage, etc. If you like risk then short the most bubbly companies around.
- atlantageek 5y ago
  I would argue fixed rate debt is your best friend in a high inflation scenario. With the cash being reinvested in staples type stocks (food and basics)
refurb 5y ago
Am I the only one that can't read that blog post? It's seems stream of consciousness and odd grammar that throws me off. And the bio of the author doesn't engender much confidence: "He is not an economist, which is probably why he's been able to develop a working model of the global monetary system. His research is unique and informative in ways an economist would never consider."