Multiple Economic Paradoxes Persist in the Post-Great Recession Environment
The weaker-than-expected Employment Situation report for August confirms the continuation of a slow growth economic equilibrium. Meanwhile, the battle between the doves and hawks on the Federal Open Market Committee (FOMC) could become more intense and protracted if subsequent reports display an analogous tone to last month.
The problem of persistently low inflation is not solely a US problem, since it also afflicts other advanced economies. A structural break in the Phillips Curve has recently been cited by the European Central Bank (ECB), citing hysteresis effects from the financial crisis and Great Recession. Furthermore, according to the ECB, institutional forces affecting the nexus between companies and their workers have also contributed to the low inflation environment.
The post-Great Recession recovery and subdued inflation did not produce the deleveraging predicted by some commentators. US households and corporations re-leveraged themselves, arguably helping the economy to avoid the debt- deflation spiral endured by Japan between 1990 and 2006.
US consumer price inflation has recently been suppressed by idiosyncratic factors, such as weak cellular phone service and used car prices. Primary rent and owners’ equivalent rent prices have moderated marginally in 2017, but they will both be carefully monitored by the FOMC.
Weak corporate pricing power and anaemic productivity are seemingly unsupportive for elevated levels of US profitability. Meanwhile, US domestic non-financial corporations were able to grow Q2 unit profits, courtesy of falling unit labour costs and indirect taxes. Despite unimpressive productivity, subdued wage inflation suggests that any prospective erosion in corporate profitability is likely to be gradual.
DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the intention of delivering independent global macro investment insights and new thematic long-term ideas to investors, along with an agnostic opinion of the markets.
Said DeSaque has over 29 years of experience working as a professional economist in financial services, primarily based in London. His working role has involved extensive travel around the world, bringing him into contact with investors of different cultural backgrounds and investment requirements. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist and Investment Strategist at US banks Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he became Head of the London Economics Department in 1996. This role allowed him to engage with senior investment professionals, alongside regulators and provided a unique perspective of market intelligence at work.
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