Fed Caught in the Jaws of Stagflation: Times of Trouble for Stocks or Bonds or Both by David Haggith for The Great Recession
Stagflation is showing up in data points and articles everywhere now.
Delta worries, labor shortages and fading Washington stimulus — it’s enough to cast a chill on the U.S. economy this fall.
A bevy of Wall Street forecasters chopped their targets for U.S. growth after a poor U.S. jobs report for August. The government on Friday said the economy gained 235,000 new jobs last month — just one-third of what investors were expecting.
Goldman Sachs, Morgan Stanley, BMO Capital Markets, TD Securities and other firms cut their forecasts — some by more than half.
An economy that was expected to grow at a sizzling 7% annual pace from July through September is now seen expanding at a more modest 3% to 3.5% clip….
The companies that have been hurt the worst during the pandemic — restaurants, hotels, theaters and so forth — added zero new jobs in August. They had created an average of 364,000 new jobs a month since May….
A possibly even bigger factor in the U.S. employment report is a lack of people willing to go back to work….
It’s not just labor shortages, either.
Companies are struggling to obtain the parts and materials they need to produce enough goods and services to satisfy the surge in demand….
Fading government stimulus could also weigh more heavily on the economy in the second half of the year….
As Chris Williamson, Chief Business Economist at IHS Markit, noted after the latest IHS survey of US business activity:
Growth slowed sharply in the US service sector in August, joining the manufacturing sector in reporting a marked coolingin demand and encountering growing problems finding staff and supplies. Jobs growth almost stalled among the surveyed companies in August and supplier lead times are lengthening at a near record rate.
While the resulting overall pace of economic growth signalled is the weakest seen so far this year, backlogs of uncompleted work are rising at a rate unprecedented in at least 12 years, underscoring how supply and labor shortages are putting the brakes on the recovery. The inevitable upshot is higher prices, with firms’ input costs and selling prices rising at increased rates again in August, continuing the steepest period of price growth yet recorded by the survey by a wide margin.
Here is what the IHS survey showed for rapidly stalling business activity:
