F. Scott Fitzgerald wrote that “the test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.” George Orwell labeled the ability doublethink or indoctrination. Psychologists call it cognitive dissonance. I call it the current economy.
There are mixed signals everywhere. Inflation is running hot at an 8.5% annual rate—subtract food and energy and it’s 5.9%. Despite a string of long-overdue Federal Reserve rate hikes, credit is still loose and will be until short-term rates rise above inflation. At 2.25% to 2.5%, we have a way to go.
Prices are popping. Restaurants everywhere seem to have New York prices. Haircuts are more. Same for doctor’s bills, furniture and Uber rides. There’s still $5 rotisserie chicken, and the $1.50 hot-dog special, but it sure feels like Costco added a couple of bucks to every other item.
More heat: The U.S. economy added 315,000 jobs in August, and unemployment is 3.7% as workers are hard to find for the 11.2 million available jobs. Stores are closing or limiting hours owing to a lack of workers. And unionization is back, burdening Amazon, Starbucks and even Google’s cafeteria. A national railroad strike might hit soon.
Once wage hikes start, they are hard to stop. John Deere increased workers’ pay by 10% last November. Lowe’s is giving out $55 million in bonuses this quarter. I expect more pay increases of 10% to 15% over the next year. The new- and used-car market is still tight because of chip shortages, but that’s almost over. Container ships now are idling outside East Coast ports, as I observed flying into New York recently. Hot, hot, hot.
Policy makers keep pouring gasoline on the inflation bonfire. California Gov. Gavin Newsom signed a law that would increase fast-food worker wages up to $22 an hour next year from $15.
