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The Logical Follow-on to Negative Wages

CAMS Weekly View from the Corner – Week ending 10/28/2022

October 31, 2022

Strewn throughout numerous editions we have shared the storyline of collective household wage earners falling behind the price inflation backdrop as their wages grow less than the on-going price inflation month after month. Up to and including the most recent employment report for September we have seen household wage earners’ price inflation adjusted wages come in negative since the early spring season of 2021. This is placing notable strain on U.S. household’s financial health and is consistently showing up in various measures of household finances.

Above is a visual covering the previous decade of collective wage earners’ price inflation adjusted experience. Our red circle highlights the entrenched negative wage experience. The most recent employment report’s wage data is captured within it at the far right and depicts another turn lower that is now threatening to make a lower low in this overall storyline since April of 2021. If near-term wage reports via the overall monthly employment report turns notably negative from here (again when adjusting for price inflation) that will be an ominous trend development that will lead to increased strain on collective household finances which will play out negatively in the overall socioeconomic landscape. Near-term reports will shed important information relative to these price inflation adjusted wages of which we will continue to monitor and share accordingly. Building the Rainy Day Fund is Ever Harder In light of the above the everyday household is struggling to continue their general consumption while also building an on-going rainy day fund. The Personal Savings Rate is a multi-decade metric that gives insight into the general household’s ability or willingness to save money. As this becomes ever more difficult households operate on a financial razors edge which leads to more household stress, less consumption (ultimately – if you don’t have saved dollars can you spend future dollars from savings?) and more debt as a relief valve in meeting downstream unexpected expenses.

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Above is the Personal Savings Rate which dates back to the late 1950’s for a broad perspective. In the multiple decades displayed our two red circles denote two stand-out periods whereby the Savings Rate plumbed not seen before lows. The first was a couple of years before the housing bust which led to the Great Recession as it was coined back in 2008/09. The second is our current experience denoted to the far right. This past Friday the U.S. Bureau of Economic Analysis (BEA) updated this monthly measure. Similar to inflation adjusted wages shared above the Savings Rate continues to cruise lower to the point in recent months that it too is registering concerning results when viewed through its history. While our current collective Savings Rate remains a touch above the first red circle, in the grand scheme of the above history the current reading is historically low and concerning while the trend is ominous. Bad News is Good News – For Whom? As the structural health of collective households dwindles with ensuing economic deterioration there has been a building narrative throughout markets that this is good news for risk assets (think stocks) in particular because it will force the Federal Reserve to ease back on their rising interest rate plans. The question to ponder is will this prove to be a worn out slogan as near-term time unfolds? As a very general backdrop this has appeared on the scene in recent decades (with vigor) as the FED would be in a campaign of raising interest rates to the point that it would begin to show up in various household and economic data points. As this played out it wouldn’t be long that the FED would stop their rate hikes which then would lead to interest rate decreases. With this risk assets would find their footing and ultimately begin to rise again on the back of cheaper money and lower interest rates. That is the recent decades storyline very briefly and generally shared but does this mean it will be so easy and predictable this time around? The notable fly in the ointment this time around is the multi-decade high price inflation backdrop. The FED has been and remains notably behind the price inflation curve being price inflation jumped significantly and consistently while they were convinced it was “transitory” suggesting there was nothing to be concerned about. It would all go away soon as it was inferred – which it didn’t and still remains current day. With this, they are chasing the price inflation tail if you will. To this point, emphasizing little has changed on the price inflation front, this past Friday the FED’s long favored Personal Consumption Expenditures: Chain-type Price Index posted little change on its year-over-year measure. For 2022 this measure has posted 6% type results month after month and did so again on Friday coming in at 6 1/4%. If price inflation doesn’t fall notably, if not dramatically soon, then it will be hard pressed for the FED to consider ending rate hikes lest they do so while showing little improvement in their battle against price inflation. Concerning, if this comes to be, is the forward looking backdrop for price inflation as it could get worse as the FED walks away from the battle so-to-speak. All told, there are many cross-currents around the socioeconomic landscape and to think a long played slogan that perhaps fit times previous does not mean it will be applicable this time around. In light of this, for our part, we are watching everything as though our heads are on a swivel and suggest you be cautious of easy to repeat slogans that will be very hard to implement without potential notable societal consequence in light of our current price inflation landscape. I wish you well…

I wish you well…

Ken Reinhart

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.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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