Why Firms Are Struggling with the U.S. Economy’s Soft Landing

https://hbr.org/2023/02/why-firms-are-struggling-with-the-u-s-economys-soft-landing

by mooreds • 3 years ago

38 85 3 years ago

hbr.org

downrightmike• 3 years ago

It is a K type recovery, the real economy that 99% of people suffer through hasn't recovered yet.

toomuchtodo5• 3 years ago

There is more nuance than that. There always is.

Unemployment is at a 60 year low. 10k Boomers retire a day, almost 3 million a year. About a million folks permanently exited the labor force during the pandemic, for a variety of reasons. Wage gains are wrestling with inflation. The benchmark rate increasing will continue to push down equities and real estate while providing risk free return for cash. In the Fed’s attempt to cool the economy, they have arrived at a soft landing.

If workers want wages to accelerate (or job security), they will have to organize and unionize as there is a lot of corporate and political momentum attempting to maintain the status quo of an extraction environment.

Expect to see profits decline as labor power increases and Boomer consumption declines (half of all people over 55 in the US have no retirement savings per the GAO, 1.8 million of them die every year per the CDC, but those folks clinging on to labor participation is also what’s preventing unemployment from declining further). The stock market is not the economy. Structural demographics have the wheel for the next decade. There is no labor shortage, just a shortage of people willing to work for poverty wages.

Iowa has a stubborn, worsening labor shortage. Burt we don’t believe a bill advancing in the Iowa Legislature loosening child labor laws is a smart or prudent way to address it.
Under the bill, 14-year-old Iowans would be allowed to work in industrial freezers and meat lockers, unloading vehicles and in laundry facilities. Fifteen-year-olds could work in light manufacturing and could work up to six hours daily. Sixteen-year-olds could work as bartenders with parents’ permission.
But find two other provisions of the bill are the most troubling. One would permit businesses that conduct on-the-job training programs to seek state waivers allowing 14-17-year-olds to work in jobs related to manufacturing, mining, construction and processing.

Interestingly, the bill would not raise the minimum wage from $7.25/hr or improve worker benefits/working conditions.

Aside from being tragically disturbing, this is the stress you want to see if you care about workers. They are grasping at straws.

https://www.thegazette.com/staff-editorials/lawmakers-should...

com2kid3• 3 years ago

Almost no one mentions housing's upwards pressure on wages.

In Seattle, renting a studio in a not-terrible part of town costs over $1500 a month. With prices like that, there is no room for "low paying" jobs.

Accordingly, everyone has had to raise wages, which means some types of businesses are no longer viable. Child care is a good example, between housing prices and higher wages, daycare in Seattle now starts at $22k a year, with well rated daycares charging around 30k a year, and at those prices many daycares are struggling to stay open! Staff turnover is high, employees cannot afford to live within commute distance of their jobs, but wages cannot go up any more because customers can barely afford prices as they are.

The answer is a royal-shit-ton of construction. The answer is the complete demolition of existing zoning laws and a dramatic rethinking of building codes[1]. We need to allow more in-home businesses[2], and allow a wide variety of different styles of housing to be built. The city needs to stop encouraging tall and narrow townhomes that are not livable by families, or really anyone over the age of 40, and stop mixing middle class morality with housing options[3].

If housing goes back to being an 8k a year expense rather than a 20k+ a year expense, wages can stop shooting up.

[1] As an example, if I wanted to add a new bedroom to my current, well insulated house, I'd have to get the entire structure of my roof replaced so I could fit in additional couple inches of insulation. I already had an energy assessment done and they confirmed that this change would have, quite literally, 0 impact on my home's energy usage. The law as it stands prevents me from adding more density to my existing house, so good job there city.

[2] Why can't I buy breakfast sandwiches out of the front of someone's garage as I walk to the bus stop? Why aren't more barbers working out of their house?

[3] Boarding houses and such are famously illegal in most US cities, even though they provide affordable, dense, housing.

tastyfreeze3• 3 years ago

I don't think that relaxing work restrictions for 14-17 year olds is bad. At 14 I was capable and already doing many of the things that I was prohibited from doing for money. I was also working at 14. About the only work allowed for a 14 year old is retail and custodial work. It would have been great to be allowed to get paid for more kinds of jobs.

mlindner4• 3 years ago

I'm not sure why people instantly jump to unionization when making these types of claims. You assume that every company is cooperating to pay the same price for labor, when that's not at all the case.

It may only seem like that at the low end because of artificially high minimum wages in some states ($15/hr) which basically makes multiple skill levels of labor all pay the same when they used to pay different.

Also these two statements are in conflict:

Unemployment is at a 60 year low.
just a shortage of people willing to work for poverty wages

datavirtue5• 3 years ago

Citation for boomer retirement figure? I'm trying to keep an eye on this.

ITB• 3 years ago

People won’t increase their standard of living by making labor more expensive. This is simply going to accelerate economic momentum towards automatization. And silly efforts to try to tax “each” robot as a human, to provide for those displaced also won’t work. We are about to see a generation or two where social stratification will deepen and we won’t have the tools to mitigate it on time. But after that, we’ll reach a new equilibrium, either doing complementary jobs to machines, or moving to a new type of economy, and everything will be ok for future generations. Or the robots will take over, kill us, and carry the torch, which is also okay.

adventured• 3 years ago

There is no labor shortage, just a shortage of people willing to work for poverty wages.

The U6 indicates there is increasingly a labor shortgage. It's hovering around 6.5-6.6%. That's lower than the hot economy of the 1990s and it's lower than the rate achieved just prior to the pandemic. That general level has been reached only a few times in decades and only briefly.

thunderbird120• 3 years ago

Quite the contrary, income growth post-covid has disproportionately favored lower income groups[1]. White collar working professionals captured a disproportionate amount of the growth from the previous recovery as a result of over inflated speculative bubbles resulting from low interest rates lasting nearly a decade. Easy to justify speculative tech companies when you don't need to be profitable any time in the near future, but when interest rates are >0% reality sets in. The idea that the crunch is now hitting the "real" economy is a bit out of touch, but given HN's demographics it's not surprising there's so much screeching.

[1]https://www.dallasfed.org/cd/communities/2022/0808

nobu-mori• 3 years ago

The article talks only about nominal wage increases. It also has this gem:

Due to the transient nature of pandemic inflation...

Real wages, overall, are decreasing: https://www.bls.gov/news.release/realer.nr0.htm

Real average hourly earnings for all employees decreased 0.2 percent from December to January, seasonally adjusted
Real average hourly earnings decreased 1.8 percent, seasonally adjusted, from January 2022 to January 2023

graycat• 3 years ago

I'd like some good content on business, the economy, and finance, and I tried that HBR article.

We will/won't have a "soft landing"? Okay question. Let's have some meaningful information for an answer.

In the article I saw a lot of words, very little numerical data, no meaningful graphs of data over time, and nothing at all on the supposed economic theory mentioned.

It looks like the article was some especially light version of some recent mainstream media headlines, that is, about as serious about business, ... as, hmm, the last Super Bowl half time show.

Net, HBR seems just determined, feet locked deep in reinforced concrete, to be light entertainment, trivial, and useless for meaningful information about the economy, etc. HBR believes that there is a law against publishing meaningful content about business, the economy, ...?

HBR, here is some breaking news: The Internet has arrived. The mainstream media centuries old nearly uniform practice trying to get as many eyeballs from just the mass audience is ending. Instead, the audience is splitting into partitions. Some of the partitions will actually have some meaningful content. The HBR can keep writing like the news did in the 1950s, 1930s, 1920s, ..., Franklin, etc., but some meaningful sources are in line to grab nearly all the HBR audience.

slantedview2• 3 years ago

They can't provide data because it would contradict the story they're pushing about companies "struggling".

treis5• 3 years ago

I don't think it's a soft landing because the economy wasn't really crashing to begin with. Inflation was up largely due to Covid issues and some panic around Russia's invasion of Ukraine. Both have eased on their own.

It really does look like this was an opportunity for capital to regain some leverage they lost and crack the whip. Which, to be fair, at least in the tech sector was probably warranted. But not really what the Fed should be enabling.

imglorp• 3 years ago

Plenty of sectors are seeing record profits, such as energy. It's simply price gouging.

throwaway9870• 3 years ago

With as large of economic disturbance we have seen in the last 3 years, you will find examples of almost anything. However, I can assure you as some who was in manufacturing during this period, it was not just price gouging. There were true shortages up and down the supply chain, supplier quotes that used to be good for 30 days were good for 24hrs, and distributors that thought they had plenty of stock found themselves cleaned out by companies panic buying. It was incredibly hard to run a supply chain and for smaller companies, almost impossible to predict the cost of good sold (COGS). If you can't predict the cost to make something, you better raise the price enough to be sure you don't lose money. Many companies had to hire extra people just to track price changes and manage the supply chains. Building anything efficiently was crazy hard. On top of that, in certain markets, people were spending like crazy which made it very hard to stay stocked.

This whole idea of "simply price gouging" is completely inaccurate for many industries.

lotsofpulp• 3 years ago

Given that the purchasing power of money is constantly decreasing, why would you not expect to see record profits, especially after the most annual inflation in decades?

Changes in profit margin would be the relevant metric to see if a business has gained or lost pricing power.

boringg• 3 years ago

Correction. oil and gas. Solar and wind aren't seeing record profits - though they are seeing record installa.

datavirtue5• 3 years ago

Back when the inflation hoopla started I watched the newshour desk (Amna, looking at you) very poorly hype it up. They had economists on to talk about it and they shrugged it off as corporate profiteering. You can always tell when they don't want to hear the truth. I yelled out the answer a few minutes before the economist did.

They didn't invite her on to talk again. For some reason they just froth at the mouth at the prospect of systemic inflation. They will grab the reigns of the culture war and flog it mercilessly to the finish line but will never call out corporate collusion against workers nor the abuse of consumers lest Facebook or Walmart ease up on the "donations."

hourago• 3 years ago

for capital to regain some leverage they lost and crack the whip. Which, to be fair, at least in the tech sector was probably warranted.

Capital has way more, by a large margin, leverage than labor. Big technology companies were far from have less leverage that tech workers. Why do you think that it is fair that a reduction in that difference is ended?

uxp100• 3 years ago

I don’t think this comment was about capital and labor, but instead between capital and management. Maybe there is a better phrase. Finance capital and business?

The idea is that capital has had very little control the operations of business over the past 10 years, due to low interest rates. This leads to businesses that don’t make money continuing to grow, and bubble conditions, is more or less the idea. I’ve also seen this idea of the Millennial Lifestyle Subsidy also being related to interest rates.

naasking4• 3 years ago

Inflation was up largely due to Covid issues

I don't know why people still believe this. Supply chain issues account for 2-3% of inflation immediately after COVID restrictions eased. The other 6-7% is corporate profiteering off of the perception of supply chain issues. You can see this clearly from the record profits being reported.

darkerside• 3 years ago

Why would you say it's they and not the tremendous amount of money pumped into the economy through COVID programs and artificially low interest rates?

datavirtue5• 3 years ago

opportune3• 3 years ago

Corporate profits are an effect, not a cause. And you’d expect profits to hit records after 20% cumulative inflation + not being able to hire enough people to expand the business.

I don’t buy the supply chain argument much either, but I think the huge economic stimulus from the Fed and government + many people dying or exiting the workforce led to both wage inflation (pretty glaringly obvious looking at eg fast food pay, also in the amount of HC expansion in big tech, etc) and more dollars chasing goods/services that did not increase as quickly as the money supply.

treis5• 3 years ago

If A causes B which causes C then it can be said that A caused C.

AbrahamParangi3• 3 years ago

The “corporate profiteering” thesis is so blatantly motivated that it shocks me that this is treated as a serious hypothesis.

In what world is the massive, multiple waves of stimulus just completely unrelated but instead it’s those greedy corporations who are for some reason no longer bound by price competition.

blululu• 3 years ago

> It really does look like this was an opportunity for capital to regain some leverage they lost and crack the whip. Which, to be fair, at least in the tech sector was probably warranted. But not really what the Fed should be enabling.

Railroad workers had to strike to get a single sick day. Across the board American labor has been getting flogged for years. Maybe Google's people should be flogged a little, but not because of the financial balance.

datavirtue5• 3 years ago

Let's not wish any workers to be "flogged." Google workers deserve their pay and others deserve more. What happens to them happens to me. Don't take the "divide and conquer" bait.

fallingfrog• 3 years ago

I think they were really hoping for a sharper correction so they could fire a bunch of people and discipline the workers. A nice high unemployment rate or at least a round of layoffs keeps people in line.

t-writescode3• 3 years ago

How sad for the multibillionaires

puffoflogic2• 3 years ago

though inflation has turned into rapid disinflation

Excuse me? No.

mercutio22• 3 years ago

Disinflation, very confusingly, refers to a negative value of the second derivative of price with respect to time.

It is not a negative value for the first derivative of price, that’s deflation.

The speaker is making comparisons of quantities with different units, which is confusing, and the verb indicating transformation is inappropriate, but if you squint what they said is true:

The second derivative was going up, which heightened the salience of inflation, it’s now negative.

Without anchoring the statement with something like “while disinflation is happening, we’re still seeing modest inflation” would certainly have been clearer, I don’t think they’re quite wrong.

sp527• 3 years ago

“while disinflation is happening, we’re still seeing modest inflation”

The inflation we're still seeing is severe, not modest.

puffoflogic2• 3 years ago

Ah, so it was intentional disinformation, not accidental misinformation. Good to know.

cm2187• 3 years ago

People focus solely on rates and seem to often forget that there is also the unwind of QE, which will happen irrespective of the inflationary environment. That will put some additional pressure on asset prices.

slantedview2• 3 years ago

The idea that firms are struggling is a lie meant to justify layoffs and high interest rates. You can't have all of these companies making massive profits and sell a story that they're "struggling" with a straight face.

Why Firms Are Struggling with the U.S. Economy’s Soft Landing

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