It is high time to recognize that what ails the U.S. economy is beyond fixes from the government and/or Fed. In fact, most of our economic problems are because of their well-meaning interdictions. We need to release the private sector to return production back to sufficient levels in order to tame the beast of inflation which seeks to devour the greatest country in the world (ok, the greatest part represents our biased opinion).
Commentary for Week Ending 2/9/23
As China’s stratospheric balloon slowly meandered across the continental U.S. in “international airspace” 12 miles up, everyone wondered why the government waited so long to pop it. As it turns out, the government is better at inflating than popping as evidenced by its handling of the economy. Perhaps some may think the same thing about the Fed (not officially part of the U.S. government) which executed a tiny 25 bps point rate hike right before the rah-rah State of the Union address. As for us, we are no fans of the rate hikes which are punitive to indebted Americans and do nothing to increase the badly needed supply of all things (notably our new SOAT acronym rhymes with goat) which is the only way we get rid of inflation without pushing demand off the cliff (a remedy which is about as nuanced as a blood-sucking leach therapy).
In any case, it is perhaps best to formulate policy with economic analyses & forecasts provided by managers of large, public companies that are paid a lot of money to be right and have a reputation to protect. To this end, YUM (including Taco Bell, Pizza Hut & KFC) just reported a positive consumer environment with increased frequency from high-end consumers (possibly driven by trade-down into its brands) with lower-income consumers exhibiting more interest in value (not so bad). On the labor side, YUM also reported an increase in job applications & stores returning to pre-covid operating hours (suggesting a stabilizing labor market as we discuss in this post). Finally, while YUM’s on-premise consumption is returning, none of its brands are back to pre-covid levels – a good thing for YUM because of the operating efficiency gains enjoyed by its off-premise model.
While this may be good insight into our current situation, we must reiterate McDonald’s recent report that its business base case for 2023 is for a mild to moderate recession. Let’s hope for the mild version…