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Confounding and Confusing Events 11/1/21

The budget deficit reached $2.8 trillion in this second year of COVID. This is a continuing pattern since the onset of the Trump administration, and given where Mr. Biden is going with his programs, its likely to be a continuing flow of red ink. What we seem to be doing is benefiting each political party’s constituencies in the main and not really focused on the fiscal health of the country. The debate among economist continues around whether or not the great deficits that we have been running are, in fact, truly problematic. I can’t see how they escape that conclusion, but it doesn’t appear that many in either Party share that concern.

PBS broadcasted a special entitled, “American Veteran” which honors the many faces of the US soldiers from World War II through Afghanistan. The story line appears to focus on the experiences of the veterans while in the military, but also on returning home as they, in some instances, struggled with both. The story raised an important statistic which is that only 7% of Americans today have served in the armed forces, which is largely the result of an all-volunteer Army (which I fundamentally disagree with) which has in practice taken away the ability and the obligation for service from too many Americans. The special was excellent as I always believe it is important to hear about the experiences from those on the ground, both here and in the war zones.

The Fed is in conversations to begin to taper the stimulus purchases that they have been making, as well as when to raise interest rates. Obviously, much of this is impacted by COVID, as well as by inflation, and how the supply chain recovers. It would appear that there will be substantive discussions of both topics at the Fed meeting early in November. The question will be what course will the Fed’s set, and what parameters will they place on it to determine whether or not they should proceed with the plan that is adopted? This is clearly something which is very fluid, and I think we can anticipate higher interest rates later in 2022, but they may be delayed until early 2023.

Lou Holtz was recently asked about the difference between football players 50 years ago and today. He responded as one might anticipate by saying that the players of 50 years ago were, in effect, better, more responsible people. I don’t accept that because if that were true, and we were getting worse as a society, etc., then why is history constantly repeating itself, not just in this generation, but for generations past? Painting a picture that everything was better years ago, unfortunately, is a trick played on the mind as we age, when in fact, in my view, people have not changed substantially in millennia, if ever. Does he think the same of coaches?

The great resignation seems to have taken hold most firmly in Georgia, Kentucky and Idaho, where more than 4% of workers voluntarily left their jobs in August, the highest rates in the country. It is also important to note that those states have the lowest minimum wage in the United States, while states with higher minimum wages tended to have lower quit rates, with the national average being about 3%, of note, the quit rate was 4.3 million and layoffs were 3 million. Are these workers going to other jobs, are they retiring? It will take time for those stats to emerge, but it is having a huge impact on the workforce.

Continuing with the discussion of the workforce, we are missing foreign workers because of the significant decline in immigration under the Trump administration which has added to the woes of many employers, most notably in the hospitality industry, particularly where workers are seasonal, for instance in Lake Placid or Lake George, as well as those who work in very physical intense occupations such as, gardening, lawncare, etc. This is a problem that was long talked about as Mr. Trump went on his anti-immigrant rampage, and has come back to haunt our economy across the board.

Environmental, social, and government practices have become a hot topic in boardrooms, particularly of publicly traded companies, and goes by the acronym, ESG. An interesting article in the Wall Street Journal talked about Marsh McClennan, a large insurance brokerage teaming up with a number of international law firms and major insurance carriers to recognize and reward corporate clients for their ESG efforts by providing some level of reduction in the cost of their directors and officers insurance (known as D&O Insurance). It is interesting that this group feels that these issues are strong enough to attract and create potential business opportunities. This is capitalism at its best when good theories are tied to economic rewards.

It appears that many large companies are in the process of raising prices, initially based upon increased demand because of supply chain issues. It appears that companies are taking this to the next level assuming that buyers will continue to pay higher prices, partially because of demand, but also because many buyers have “extra” dollars to spend as a result of the pandemic. One should note that orders for durable goods declined in September and deposits held strong.

Another question that is on the top of the minds of many is, what will happen to the cash that is currently being hoarded by both individuals and companies? Bank deposits are way up and are staying there as companies, in particular, appear to be reluctant to spend, particularly on capital items. This may be the result of increase pressure on wages and those funds are being held to address that issue, but it may also be that we are going to see a deployment of those funds in 2022, (let’s hope) which will ultimately be reflected in two areas: A decline in bank deposits; and in the annual capital expenditure survey (ACES), which is conducted by the US Treasury. Unfortunately, the ACES Report is behind by a year to a year and a half, so we may not be able to see where those dollars are going in the short term, but if they do go to capital expenditures such as new equipment, new technology, new buildings, etc., then that could create a much longer-term benefit to the economy. We can also watch purchasing indexes.

In other economic news the Canadian dollar (the Loonie) weakened against the US Dollar this past week. Downward currency fluctuations generally encourage Canadians to export to the US as the goods become cheaper in the US if prices do not rise. It was also reported that the US trade deficit widened as exports tumbled to some extent as the result of the strengthening dollar and GDP growth slowed as previously reported here.

Bill Owens is a former member of Congress representing the New York 21st, a partner in Stafford, Owens, Piller, Murnane, Kelleher and Trombley in Plattsburgh, NY and a Strategic Advisor at Dentons to Washington, DC.

The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.

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