Fed Chairman Powell had two days of hearings before the House Finance Committee last week. His comments on the job front were very interesting. While the employment numbers are good, he does not consider them outstanding. One quote-“if something is hot, you should feel some heat.” Powell is looking at the wage numbers and the lack of any wage push inflation, feels that the market is not overheated in any way. Part of the issue is firms investing in new technology over the past few years which has allowed them to curtail a certain level of hiring. The churn in the retail segment is pumping new workers into other industries, i.e. service, technology and manufacturing. However the issue there is training. We also have a level of labor participation that is historically low so there should be adequate numbers to draw from, again, if they were trained for the industries. Chairman Powell also indicated that Monetary Policy is limited in its impact. Monetary Policy is essentially changing interest rates and the money supply to boost economic activity. He is absolutely correct. A change in rates at this point is needed but will not boost much in the way of economic activity. Powell was pretty direct that Congress needs to look at Fiscal Policy, essentially government spending, to push the economic activity higher than it is. A infrastructure program would help. This flip side of this is the growing national debt and total deficit. Powell did warn that as a country we need to spend only what we need and not push the bill on to future generations. We are thus between a rock and a hard place. If we want the economy to grow we need to spend. Spending increases the debt and deficit unless corresponding cuts are made to spending. Depending on where the cuts in spending come from they may just offset the spending increase. However, not all spending is economically benefical. Over the last 50 years a lot of talk about wasteful spending and targeted spending has occurred. As long as it is spending that is cut that does not impact you or your constituency it seems ok, however in the end spending cuts always impacts someone so they never really get done.
Inflation continues to be low, 1.7% annually right now. This is below the Fed target level. Powell indicated they want the level at 2% and will do what they can to get it there. Back in the 1980’s and 1990’s I doubt anyone would have expected it to be this hard to put inflation into our economy. The Fed actions to date have been consistently unable to budge inflation higher. As the economy continues to slow it is hard to figure out how the Fed will move to get the inflation level up to its target. The expectations are for a rate cut at the end of this month, however that will not be sufficient to raise inflation.
The Redbook indicator, the level of same store sales month over month, was at -2.2%. This was a slight improvement from June when it was -2.4%. Retail malls are becoming ghost towns with little traffic inside and more areas vacant. The consumer is still buying from every indication I come across, it is just they are either buying on line or being highly selective in what they are purchasing. Grocery stores are the only retail places I see with lines any more. One growing market right now are Select Shoppers. Buyers go on line to a specific store like Target, Walmart or a grocery store, place their shopping list and have the store staff fulfill the order. The goods can either be delivered to the home or picked up. This is new to MN, it may have been underway in other markets and now only sweeping across MN. As people become busier or are working longer hours, the convenience of this type of shopping will grow. With Prime Day starting this Monday, retail sales for July should take a big boost in the next report in August. However, unless a retailer has a on line presence, it is unlikely they will feel any effect from Prime Day. Last year Target experienced its best sales day during Prime Day.
Govt regulations which may have good intentions seem to run amok in practice. We have seen this in Banking with the new Beneficial Ownership documentation. In the trucking industry a recent regulation that Congress thought would make the roads safer, limiting the hours a trucker could drive, has actually appeared to make the roads less safe. While the reg attempted to remove drowsy drivers from the road, what is occurring is that truckers are having to drive faster and make riskier choices to get the loads completed on time. As wages rise and diesel prices remain high, margins are being reduced and creating the issue of unsafe choices in driving. Nationwide big rig accidents are on the rise. Possibly related to the cost structure hitting the industry, locally we lost LME Trucking. One of the largest local trucking firms shut down after falling well behind in paying its staff. LME, the survivor of the original Lakeville Motor Express had 30 locations across the nation with 382 power units, 1,228 trailers and 424 drivers. The company was estimated to have had at least 600 employees overall. The loss of LME makes an already difficult delivery system even worse.
Have a great week.