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Buckle Up

Updated: Jul 20, 2023

The Federal Reserve Bank of New York released its July 2022 Survey of Consumer Expectations on Monday. It reported that expectations for a decline in inflation were "largest among respondents with annual household incomes under $50k and respondents with no more than a high school education."


America’s unemployment rate in July fell to 3.5%, matching the half-century low hit just before covid-19, and nearly 530,000 jobs were created in the month-- more than twice as many as expected. It has been the Biden administration’s best opportunity in quite some time for a victory lap; the recovery of jobs since the unemployment highs of the pandemic has been amazing.

The trouble is that the jobs data reported by the Bureau of Labor Statistics show that there were 10.7 million job openings going into the month. In other words, there are many, many more available jobs than willing workers, and all of those jobs are sitting there open because no one wants them. The people who once filled jobs like that don’t want to work. The labor market is no longer able to supply labor; it is broken.

If production cannot increase because labor cannot fill the roles needed to produce, then gross domestic product (GDP) cannot increase, and if GDP actually goes down due to a labor shortage, you arrive at our current situation, which is a recession.

Judging by last week’s employment number, GDP seems extremely likely to continue to fall. If workers don’t return to work, the ratio of producers to consumers will remain seriously deficient, which means there will not be enough goods or services for all of us who want to consume them. That means inflation will likely continue due to scarcity.

Unfortunately, at this point, the only solution to high consumer prices is a severe multi-year depression-- this garden variety recession has done nothing to assuage pricing pressure. We started calling for a recession back in January that we expected would be relatively mild, but our view has evolved over the last couple of months to be far more dire.


At this point, we expect the Fed to increase the federal funds rate by several hundred additional basis points, and we expect mass defaults and bankruptcies before it’s done.

People in crowded rooms tend to shout; on the internet, that translates to hyperbole. This, however, is not our version of shouting. We get little mileage by being provocative, for readership of our Insights isn’t really what makes our business tick. What does is our candid advice to clients.

We take this sort of forecast very seriously. This isn’t fun to write or to read, which is why I have refrained from putting it out there so plainly until now.


We currently advise that investors near retirement address their personal financial plans and the assumptions therein to reflect a more bearish outlook. Assumed growth and inflation rates, in particular, should be reviewed. Current market conditions may require one to work a couple of years longer than previously planned, to find ways to put off Social Security a few years in order to get a larger annual pay-out, or to utilize more life insurance for estate planning.

As we suggested last week, markets may grind higher through September due to stock buybacks and other technical indicators and despite the all-around awful economic data, but we would tread lightly and would plan for a much worse worst-case scenario than what we were discussing just a few months ago.

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