"A little bit of inflation is always good in our business"
It’s November 9, 2022. I’m tired of hearing about Elon Musk. Here’s the rundown:
Good signs are bad signs
Can we blame corporations for inflation?
Numbers and links
More jobs are bad
Can we take a minute to realize just how absurd our current reality is?
Let’s face it: We’re living through trying, but absurd, times. Especially when it comes to trying to make sense of the world, and the economy in particular. Case in point: We’re at a stage in which more jobs are a bad thing.
The latest jobs report for October, which came out last week, showed that the economy added 261,000 jobs for the month, and that the unemployment rate rose to 3.7%. In almost any circumstance, this would be good — we’d all nod our heads and move on.
But these are not normal times. Instead, that report showed something that many people don’t want to see: Jobs growth. We’re actively rooting for unemployment to go up (yes, the unemployment rate went up, but it needs to go up more significantly!).
That’s because we (using “we” here in lieu of the Fed, and policymakers overall) need prices to stop rising. The main tool in the toolbox to accomplish that is to raise interest rates and slow the economy. The Fed has been doing that, and the economy has seemingly slowed, GDP numbers notwithstanding. But we’re still not seeing it where it counts: Jobs numbers.
If people don’t have jobs, they likely won’t have money to spend, right? If people aren’t spending, then prices shouldn’t increase, as demand has been stymied. Well, people are still working and employers are still hiring, which means that the economy hasn’t been blunted enough by rising interest rates. So, the Fed’s going to keep increasing them.
It’s a wild time to be alive.
And add in that several states are reportedly sending out $31 billion in stimulus cash this year (I haven’t seen the analysis the reporting is based on, so we’ll take this at face value), and we’re actively fighting a fire with gasoline.
Again, a wild time to be alive.
So, looking ahead: The Fed and policymakers are looking for the labor market to cool off. The evidence for that will come in a bad jobs report. We haven’t gotten one yet — though it’s only a matter of time. But if we were looking for signs of cooling? Katherine Judge of CIBC Capital Markets writes:
If you're hunting for signs of a cooling, there was one place for fertile ground. The household survey, while more volatile that payrolls in a given month, is often considered a leading indicator of the payrolls count around turning points in the economy. After stripping out the self-employed to get a measure more comparable to payrolls, including this month's dip, household survey job gains have averaged well below the payrolls survey since April 2022.
Bad signs are good signs. What a time to be alive. Absurdities abound.
Can we blame corporations for inflation?
A new analysis lays out a good case, but there’s a lot to consider.
We’re collectively looking for anyone and anything to blame for inflation. The pandemic, pandemic-related stimulus measures — there are a lot of things to consider, too. The truth is, though, that there isn’t a single cause. It’s a complex blend of variables colliding, with the pandemic acting as a catalyst, that caused supply chains to collapse, the Fed to take certain measures, and numerous other things.
But Democrats in Congress (and others) have also liked to point the finger at big business, saying that inflation is largely being driven by companies jacking up prices on goods and services simply because they can. A panel of the U.S. House Committee on Oversight and Reform issued a report highlighting this fact, which was released a few days ago. That report, titled “Power and Profiteering: How Certain Industries Hiked Prices and Drove Inflation,” which drives their point home. Here are some takeaways:
“The Subcommittee’s analysis of financial information from a sampling of the largest corporations in several industries shows massive increases in profits between 2019 and 2021:
Three of the five largest companies in the shipping industry saw profits
rise by 29,965%;
The two largest public companies in the rental car industry enjoyed a
profit increase of 597%;
Four of the largest public companies in the meat processing industry saw
profits go up by 134%; and
Four of the ten largest public companies by market cap in the oil and gas
industry had profits rise by 62%.”
And the report included some rather damning quotes from CEOs:
“[A] little bit of inflation is always good in our business.” (Kroger, June
“[W]e’re actually pricing to recover all of those inflationary impacts, just
as we’ve done in the past. So you’ve seen us move retail prices up. As
inflation has moved up mid-single digits, our pricing has moved. ... And
as I’ve said before, inflation has been a little bit of our friend in terms of
what we see in terms of retail pricing. [F]ollowing periods of higher
inflation, our industry has historically not reduced pricing to reflect lower
ultimate cost.” (Autozone, May 25, 2022)
“[O]ur total pricing actions are forecasted to more than offset raw material
and delivery cost increases. We are closely monitoring supply costs and
other inflation, and we’re prepared to implement further increases as
necessary. ... [W]e don’t reduce prices on the back end of these increases
[in underlying costs].” (HB Fuller, June 23, 2022)
With that, I don’t think the panel is entirely wrong, here. I do think companies are hiking prices, simply because they can.
But that’s where this doesn’t make a lot of sense, because of course they are. Why wouldn’t they? Isn’t it only natural that a business would charge the highest price the market will bear? Further, many businesses run as effective monopolies or duopolies, and can charge pretty much whatever they want — that’s the crux of the issue, here. Many of these corporations have so much market power that they can’t effectively be challenged, in many industries.
What are you going to do, switch utility companies? Is that even an option? Take Comcast to task for charging too much for internet, and switch to the one other provider in your town? Or maybe you think you can write a letter to ExxonMobil and tell them that you think gas should be cheaper?
It comes back to this: Consumers really don’t have much power, especially for essentials like utilities, health care, housing, and food. You kinda get what you get, and there isn’t much you can do to find a deal, in many cases.
Along those same lines, I also think many consumers live in a fantasy world where gas costs $1.50 per gallon, cheeseburgers should always be $1, and that a college education can and should be paid for with a part-time job during the summer. Prices do go up over time, we should anticipate that. But I do think it’s okay to be miffed about prices for eggs going up 80% in six months.
With this in mind, though, I do think workers can and should take a similar approach to corporations: Charge as much as you can for your labor, and shrug and blame inflation when you’re met with resistance. We know that the Fed and policymakers are actively trying to blunt the labor market and slow wage growth — effectively, this means that the working class will end up eating cost increases. While there may not be much you can do about that, you can look out for yourself and get as big of a raise as possible. As we know, the best way to do that is to find a new job, or go into business for yourself.
Not easy, but doable.
To wrap this all up, though, I want to bring it back to the House panel’s report. We need to keep in mind that this was produced by a political committee, who are trying to hammer away at a certain point or narrative (why do I hate this word so much?). They’re not wrong, but they are oversimplifying a massively complex issue — which is really all politics is these days.
Yes, I think it’s fair to say that big business has the American consumer on the ropes right now, and that they’re going to bleed you for everything they can. They do have a nice excuse to do so right now, too, and it’s exacerbating the problem. But the circumstances allowing them to do so, or giving them cover for it, is not completely of their making.
The world is a very complicated place, and there are no easy answers or solutions to any of this — we’d all be wise to keep that in mind as it relates to the economy, or anything else, for that matter.
Numbers, links, and more
10%: The percentage of total dollars a boxer generally takes home out of the overall amount the fight generates. (Profluence Sports)
-77%: The discount on Bitcoin-mining rigs compared to last year. (The Wall Street Journal)
$1 billion: The amount of Series I bonds sold last Friday, locking in a 9.62% interest rate for six months. (CNBC)
Stuffed: Gold bars were found stuffed inside frozen chickens in China. (Vice)
Breakdown: Carvana stock is down 96% this year. (CNBC)
Going with gimmicks: Why new cars are so damn weird. (The Verge)
Great analysis on a very confusing landscape. Most people don't get the meanings of the underlying numbers in these jobs and unemployment reports. There's much more to it than the political headlines. Add to that the weirdness of our economic and inflation universe right now and you get a lot of misunderstandings. I will offer one opinion.
In a kind of, sort of defense of corporate profits... I think that many companies are taking larger profits and holding them in self-defense. They don't know where all this is heading and the smart ones are banking capital reserves to stay alive.
On one side, let's look at Meta. They just announced over 11,000 people were going to get laid off and major restructuring and realignment within the company. They were caught with their pants down and need to take drastic action to survive this weirdness.
On the OTHER side, the Oil & Gas industries have record profits and are retaining massive amounts of cash and other assets. Why? Because they do not know what the government has in store for them. They need to be ready AND ABLE to jump and pivot or reinvest when the landscape becomes visible to them. I know this doesn't make it any better for us in the short term, but it may mean everything in the long term.
Thanks for the article. It was great. David