August 7, 2022


The most obvious weirdness factor going into this recession is the still-strong employment data. Employers are hiring people faster than they are firing them, and many wish they could hire more. That doesn’t square with recessionary conditions.

This may be because the recession is still young. A reader sent me this chart in response to last week’s letter. It shows the unemployment rate with arrows pointing out a bottom just ahead of each recession (the shaded areas). . . .

The BLS switched to OER after the last inflationary surge in 1979–81; indeed, if inflation was calculated today like it was in 1981, we would already be solidly into double digits. Similarly, the BLS estimate of rental prices, rent of primary residence (RPR), is up a near-identical 7.1% in the last two years, while the CoreLogic Single-Family Rent Index is up twice that in the last year alone (and an astounding 41% in Miami!). The BLS uses survey data to gauge shelter inflation. Homeowners’ perceptions of their property rental values anchor on the past and only respond to soaring home prices slowly, gradually, and over several years. The one-third of CPI for shelter will be playing catch-up for some years to come. Empirically, most of that catch-up occurs over the subsequent two to three years. Note that this inflation has already happened; it simply hasn’t made its way into CPI quite yet.

I predict it won’t end well.

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