Late May/Early June Economic Outlook

The major causes of our current inflation-driven crisis are the roughly $6 trillion in largely excessive spending the Trump and Biden Administrations spent in the name of COVID relief and economic recovery; President Biden’s reregulation of the U.S. economy; and the dramatic expansion of the U.S. Federal Reserve Bank’s balance sheet from $4.14 trillion (January 2020) to about $9 trillion (May 2022). 

U.S. fiscal, monetary and regulatory policies since early 2020 are the primary cause for a pending recession over the next 12 to 18 months.

Many in Washington have argued that inflation is a global phenomenon and Biden’s policies are not responsible for the high inflation levels in the United States. Including the rest of the world, the Biden Administration claims U.S. inflation is largely due to supply chain issues and the war in Ukraine.  We disagree.

A recently-released study from the Organization for Economic Cooperation and Development (OECD) shows U.S. inflation at the end of March 2021 at 2.6% and 8.5% at the end of March 2022. Over the same period, most of the largest European economies — countries much more directly impacted by the war in Ukraine — showed substantially lower rates of inflation. We believe differences in inflation rates can be attributed to less government intervention among our European allies over the same period. Consider the following: Inflation in the United Kingdom was 1% at the end of March 2021 and 6.2% at the end of March 2022; Switzerland had inflation of -0.2% at the end of March 2021 and 2.4% at the end of March 2022; Sweden had inflation of 1.7% at the end of March 2021 and 6.0% at the end of March 2022; Italy had inflation of 0.8% in March 2021 and 6.5% in March 2022;  Germany had inflation  of 1.7% in March 2021 and 7.3% in March 2022; and France had inflation of  1.1% in March 2021 and 4.5% in March 2022. The same holds true with other global economic powers, like South Korea, whose inflation was 1.9% at the end of March 2021 and 4.1% at the end of March 2022; and Japan, which had inflation of -0.4% in March 2021 and 1.2% in March 2022. Finally, Canada experienced inflation of 2.2% in March 2021 and 6.7% in March 2022. 

In the case of the above-mentioned economies or other OECD countries with inflation rates close to ours or higher, a strong correlation between inflation and excessive monetary, fiscal and/or regulatory policy exists — similar to what took place in the United States over the same period.

Current Issues

For months, we have been discussing the growing number of economic signals that a recession will be part of the U.S. economic landscape sometime between Q2 2022 and the end of 2023 at the latest. In addition to our previous discussions on inverted yield curves, the rule of 4%, falling used car prices and tracking quarterly U.S. GDP, the following indicators add fuel to the argument for a pending recession.

1. Stock market parallels and the Great Depression

On May 20, 2022, the Dow Jones Industrial Average (DJIA) experienced its eighth straight week of decline – not seen since 1932. In fact, the Dow Jones Industrial average has been volatile throughout President Biden’s administration (30,930.52 on Inauguration Day; an all-time closing high of 36,799.65 on Jan. 4, 2022; 31,253 on May 20, 2022; and, just under 31,393 on June 10).

2. The National Federation for Independent Business (NFIB)

The NFIB, tracks quarterly small business economic trends (since 1973) and conducts monthly surveys (since 1986). Its latest survey data released on April 12 reflects an all-time record low for business confidence. 

3. The University of Michigan Consumer Sentiments Index

The University of Michigan’s Consumer Sentiments Index, perhaps the most respected tool for tracking consumer confidence, was down 14% from May in its preliminary June release last week. The June preliminary report came in at 50.2, down 8.2 from May, registering its lowest recorded value since the recession of 1980.

4. Most recent CNBC’s CFO Council survey results

In a recent CNBC survey of top corporate chief financial officers (CFOs), the consensus is for the Dow Jones Industrial Average to decline 18% from its 2022 high to roughly 30,000 before it can realize a sustainable rebound. Every CFO in the survey believes a U.S. recession can’t be avoided, with 68% predicting a recession by the end of the first half of 2023, while the remaining 32% believe a recession will occur by the end of 2023 or sooner. 

5. The S&P 500 has declined more than 20% since January 2022.

The investment research firm CFRA found that S&P 500 bear markets on average begin seven months before the start of a recession. A bear market is defined as a decline of 20% or more in a broad-based stock market like the S&P 500. This correlation has resulted in recession nine out of the 12 times it has occurred since 1948. If the data holds true for the 10th time since 1948, a recession can be expected in early August, seven months from the S&P 500’s all-time high in January 2022.

Unfortunately, the tell-tale signs of a recession continue to grow.

Conclusion

Recently-released U.S. CPI and PPI data indicate that inflation is not under control and the Federal Reserve will need to take continued strong action similar to its June decision if it is to tame inflation. However, we do not believe our current Federal Reserve Board has the policy knowledge, courage and time to reduce inflation while navigating a soft landing and avoiding a recession.

Contact Us

Comments or questions should be directed to Dr. Timothy G. Nash at tgnash@northwood.edu.  The NU Outlook is a monthly publication of The McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University. This month’s publication was co-authored by McNair student scholar Brad Getchel. To view Northwood University’s Monthly Economic Outlook Newsletters from previous months, visit:  www.northwood.edu/media/publications/. For more information about Northwood University, our academic programs and enrollment opportunities for students, visit www.northwood.edu.

Can money measure love … at least on Mother’s Day?

This year, Americans celebrated the 116th Mother’s Day on May 8.  Even though some believe Mother’s Day has become too commercialized, Americans continue to spend billions of dollars on their moms. From a simple gift or cooking dinner at home for Mom, to an ornate bouquet of flowers and dinner at a special restaurant, Mother’s Day is a special event in America — a time to honor moms as well as to stimulate the U.S. economy.

A few days after our most recent Mother’s Day, Antenna TV aired a re-run of “The Tonight Show Starring Johnny Carson” from May 1986 in which Johnny was reading from newspapers about expected spending on the celebration of the upcoming Mother’s Day. In the segment, Carson noted Americans were expected to add $6.5 billion to the U.S. economy through gifts ranging from chocolates and flowers to elaborate dinners at fancy restaurants and even a “re-roofing” package offered as a Mother’s Day gift through Sears & Roebuck.

This rerun of “The Tonight Show” got us to think about how much Americans spent on Mother’s Day this year; what they spent their money on; and whether spending has increased or decreased since 1986.

With the current level of inflation Americans are facing, coupled with a negative 1.4% first-quarter U.S. GDP, preliminary estimates are Americans spent $31.7 billion celebrating Mother’s Day this year on a wide variety of gifts. In a survey conducted by retailmenot.com, Americans listed the following items as the top purchases for some or all of their Mother’s Day dollars: flowers (47%), chocolates (36%), gift cards (29%), dining (26%), jewelry (22%) and beauty products (19%).

In fact, if Mother's Day was a U.S. publicly traded company, the estimated $31.7 billion spent this year on our moms would have made it the 99th largest company by sales on the 2021 Fortune 500 list of U.S. publicly traded corporations by sales, just two spots in front of Tesla. Also, it would have been the 389th largest publicly traded corporation by sales on the global list of Fortune 500 companies.

In addition, if the $31.7 billion Americans spent on their mothers for Mother's Day were a free and independent countries’ GDP, Mother's Day as a country would be the 101st largest economy in the world in 2022; larger than well-known countries such as Iceland and Jamaica.

Next in our study, we adjusted for population (which was 333.3 million in 2022 and 240.1 million in 1986); the number of mothers (89 million in 2022 and 66 million in 1986); and inflation (it takes $2.62 2022 U.S. dollars to equal one 1986 dollar). We found the $98 Americans spent per mother on Mother’s Day in 1986 is the equivalent of $256.76 per mother in 2022 dollars, while Americans on average spent $356.78 per mother this year.

During these challenging and turbulent times, when precious dollars are more carefully allocated than they are usually, Americans spent, adjusted for inflation, 39% more on their mothers on Mother’s Day 2022 than in 1986. Whether the best we could do was a simple “I Love You” note on a piece of paper or a more extravagant gift, there is no doubt Americans love their mothers (and rightfully so!). And if money spent on Mother’s Day is a measuring tool, perhaps we love our mothers these days just a little bit more than we did in 1986. 

One final note: the data shows average daily call volume is up 31% on Mother’s Day. Did you remember to call your mother?

About the authors:

Dr. Timothy G. Nash is the director of the McNair Center at Northwood University.

The Honorable Lisa C. McClain is a member of the United States Congress from the 10th District of Michigan.

Mr. James Hop is a McNair Scholar and chair of the Entrepreneurship Department at Northwood University.