For about a year, I’ve been trying to define the “recovery economy.” It all stems from Jared Bernstein, a member of the White House Council of Economic Advisors, referring to the “new jobs” created by the Biden administration when I’ve hosted him on “AgriTalk” after the jobs report. After one particularly robust jump in non-farm payrolls, I challenged Bernstein to classify “new,” arguing these were simply jobs that had restarted as the U.S. recovers from a pandemic-driven economic collapse. That’s when I coined the term “recovery economy,” which is a fascinating mix of conflicting economic indicators:
The job market is strong. There are more jobs available (9.5 million and trending lower) than there are workers (about 6 million). That normally drives earnings and consumer spending higher to drive economic growth.
The economy is slowly growing. It started in 2022 with back-to-back quarters of negative gross domestic product (GDP – normally considered a recession, but many claim the jobs market was too strong to be an official recession). The initial read on first quarter 2023 GDP of 1.1% suggests stagflation. Normally, the Federal Reserve would take measures, such as lowering interest rates, to spur economic growth.
Instead, the Fed is raising interest rates to fight inflation unleashed by pent-up demand and a flood of federal money into consumers’ hands. The goal is annual inflation of 2% — that level was cleared in March 2021 and the rate peaked at 9.1% in June 2022. Even as inflation erased the benefits of rising wages, Fed policy turned restrictive. Annual core inflation was 5% in March 2023 just under the Fed’s interest rate of 5.25%.
Some Complicating Issues
- The U.S. energy sector was growing the U.S. economy by way of high-paying domestic jobs and exports. Both are still growth factors but at a much slower rate.
- Several global dynamics are at play. Topping the list are: the falling dominoes of Russia’s war in Ukraine, Iran’s coziness with Russia, China picking Russia in the global isolation game, Saudi Arabia picking China in energy trade, and China picking Brazil for more oilseeds and increasing imports of Brazilian corn.
- Chinese data processing chips are just one supply chain problem. Job-hopping workers in the U.S. make it difficult for U.S. manufacturers to plan to increase output while environmental, social and governance policies limit investment.
- There was a record 10.5 million small business applications in the first two years of the Biden administration. What was a “side hustle” is now the primary income source for single-employee businesses.
All of this makes investors defensive. Money that was invested in equities and commodities (even in grains via long-only index funds) is moving to “high” interest investments. That does not mean downtrends in grain prices, but the reduced flow of money to the markets makes the path of least resistance to the downside.
