CAMS Weekly View from the Corner – Week ending 10/29/21
November 1, 2021
In recent editions we have shared what has developed culturally in recent weeks-to-months summed up with the word striketober. Striketober, in a word, represents the building momentum of large swaths of employee bases choosing to walk off rather than accept seemingly fair pay increase offers. When strikes are involved we immediately think of Union representation whereby there is a specific group collectively choosing to reject a particular employment package. In truth this is a mere representation of a much larger story unfolding in the United States. An impetus of this larger story, be it Union or non-Union, is the societal backdrop of ever escalating consumer price increases. The well recognized Consumer Price Index (CPI) has been running consistently in the 4-5 plus percent range since the early spring season. That’s the broad range of prices with its calculation failing to fully capture current actual price increases throughout society. Just one example of the “failing to fully capture” the escalating price issue is within the housing market. While the most recent National Home Price Index increased 20% compared to this time last year the CPI’s primary input of home price inflation (known as Owners’ Equivalent Rent) increased by 2.9%. Those numbers are not typos. Even worse, in 2021, the lowest year-over-year increase of the National Home Price Index was 11% with it quickly and consistently escalating to the current 20% level with each passing month. All-the-while, back to the government’s housing input within the CPI report, the lowest in 2021 was 2% with it consistently rising to a relative paltry level of 2.9%. To say there is a tremendous disparity between citizen’s current daily price increase experiences from that of the official government CPI calculation is a true understatement. This in particular when it comes to housing. Imagine if CPI were reflecting the current home price escalation that the citizenry is actually experiencing. Using housing only as an example, we can see a bit clearer how a 5% area pay increase offer can be scoffed at by you-name-it collective Union or even non-Union individuals as they live the actual societal price increases compared to a much more tame CPI input price increase number such as Owner’s Equivalent Rent. Enter the Citizenry’s “Striketober” Indicator
Click For Larger View: https://fred.stlouisfed.org/graph/?g=HGUS
Above is a two decade chart of what is known as the Quit Rate within the Private Sector employment market. Historically this measure gives a psychological read within the employment market. That is, when employees feel emboldened that their labor services are in strong demand they are encouraged to jump to proverbial greener pastures. We can also think of this as a form of citizens choosing to become their own personal Labor Unions under the striketober canopy. We share this perspective after various non-Union employment entities, upon viewing the striketober societal storyline, looked at it as a non-factor for them being they are a non-Union entity. The above Private Sector employment market indicator underlines for all entities that striketober is but a euphemism for employees choosing to “strike” and walk regardless if affiliated with a Union. When price inflation is rampant and collective negotiating via an official Union affiliation is not present employees simply take their services to the next higher bidder. With this, an upward spiral is created in the Quit Rate while employers compete against one another for employees via increased wage rates. If this process continues long enough citizens and companies get poorer as price inflation continues to eat away at wages and company profits. Interestingly, the sitting Treasury Secretary – Janet Yellen – informed us late week while hanging out in Rome for the G-20 meeting that if we can pass the multi-trillion spending package (think more debt more money printing) that it will play a notable role in reducing price inflation. Her general tone was this package would be an “anti-inflationary” package to quote her. In addition, she re-emphasized that “transitory” is still an applicable word to use when discussing price inflation in the United States. For the record we are a couple of calendar seasons into the “transitory inflation” narrative. Think what you will with this dear reader. As an aside, why does the Treasury Department consistently address views on the price inflation backdrop in our nation? Price inflation concerns and actions are under the purview of the Federal Reserve as authorized by Congress. Historically, the Treasury would always distance itself and deflect such questions to the Federal Reserve until this year 2021. It is as though the Federal Reserve and the Treasury Department are interchangeable. Historically, by design, there was a solid divide between them in order to underline the Federal Reserve’s autonomy in fulfilling one of their primary mandates of price inflation control via their monetary policy actions. This is an interesting aside – it has developed into a consistent storyline. Speaking of the Federal Reserve, they are expected to give further guidance in coming days on their view of the price inflation backdrop and their agreed upon plan to deal with it. To this point in time we have only heard words shared from them such as the long-standing “transitory” and they will be doing something “soon.” We shall see if we have arrived at them taking action, well, soon. I wish you well…
Director, Market Research & Portfolio Analysis
H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP). This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”. A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.
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