Our Drunken Sailors Are in No Mood to Give Up Spending, and They Can Afford it

Personal income solidly outpaces inflation.

By Wolf Richter for WOLF STREET.

Income provides fuel for spending. And the income of consumers, all thrown together into one bucket, has been outrunning inflation since July last year, and did so again in May. Adjusted for inflation, so “real” personal income from all sources, rose by 0.3% in May from April, and by 1.6% year-over-year. This includes wages and salaries, income from interest, dividends, rental property, personal business, and transfer payments (Social Security benefits, unemployment insurance, VA benefits, etc.).

Excluding transfer payments, “real” personal income from all remaining sources also rose 0.3% in May from April and by 1.6% year-over-year, thereby also outrunning inflation. This income growth beyond inflation is a function of rising employment (the rising number of people earning money), the amount they each earn, and the amounts earned from interest income (up quite a bit), dividends, rentals, and personal business.

Between November 2021 and June 2022, during the worst of the inflation spike, real personal income fell behind inflation. But in July 2022, as plunging energy prices pushed down headline inflation, this income measure pulled ahead of inflation and started growing again in real terms, and has continued to grow in real terms.

Spending, adjusted for inflation…

Consumer spending, adjusted for inflation and for seasonal factors, so “real” spending, was essentially unchanged in May from April. Year-over-year, real spending rose 2.1%, compared to the average growth in the eight years before the pandemic of 2.5%.

The three-month average of month-to-month spending, which irons out some of the month-to-month variability, rose by 0.1%.

Negative month-to-month readings crop up just about every year even during the Good Times: In 2019, there was one; in 2018, there were four; in 2017, there was one. But during recessions, negative month-to-month readings pile up and get deeper. For example, in 2008, there were nine negative month-to-month readings, and they went as deep as -0.6%.

What we’re seeing is a normal-ish uptrend of consumers outspending inflation, with some variability, despite high interest rates, that “credit crunch” everyone is talking about, layoff news, bank turmoil, and what not:

Spending on services, adjusted for inflation, rose by 0.2% in May from April, and by 2.6% year-over-year, exceeding the five-year average growth in 2015-2019 of 2.3%.

Services, which accounted for 62.1% of total consumer spending in May, include housing, utilities, insurance of all kinds, healthcare, travel bookings, concert tickets, streaming, subscriptions, repairs, cleaning services, haircuts, etc.

The three-month average rose 0.2% for the month and 2.2% year-over-year. There was a near-flat spot late last year, but there’s no sign of a flat-spot so far this year, all adjusted for inflation:

Spending on durable goods, adjusted for inflation, fell by 1.2% in May from April, after the big jump in April from March. Year-over-year, spending on durable goods rose by 2.4%, which is truly amazing given the historic stimulus bubble that durable goods spending is supposed to be coming down from. Durable goods include new and used vehicles, appliances, furniture, electronics, tools, etc.

The three-month moving average in May dipped 0.5% from April and was up 2.4% year-over-year.

Spending on nondurable goods, adjusted for inflation, was unchanged in May from April and up by 0.7% year-over-year. This includes food, fuel, clothes, shoes, and supplies. The three-month average rose by 0.2% for the month and by 0.4% for the year.

Just to note a growing but still small structural shift here, in terms of spending on goods or services: Gasoline is a big component of nondurable goods. Electricity is in the category of services. As consumers buys EVs to replace vehicles with internal combustion engines, the energy spending by these consumer for these vehicle shifts from nondurable goods to services. About 7% of total new vehicle sales in the US are EVs at this point, so we’re going to see energy spending shift ever so slowly from goods to services – and we already saw the first signs of it last year.

For now, consumers are out-earning inflation, and they’re out-spending inflation, and they’re not really in a mood to slow down. They’re now throwing their money at services, though spending on durable goods has been holding up amazingly well, following the crazy spike during the pandemic.

Energy prices have plunged from the spike last year, and the red-hot food inflation has largely burned out, bringing down the overall inflation rate. And that’s a big help for consumers.

But underlying inflation has essentially not changed in half a year: the Fed’s favorite “core” PCE price index has remained at about 4.6% for the sixth month in a row, and core services inflation, in May at 5.4%, has remained near the 38-year high for the fourth month in a row, as we learned today.

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  289 comments for “Our Drunken Sailors Are in No Mood to Give Up Spending, and They Can Afford it

  1. Minutes says:

    Many of these sailors don’t realize they are on the titan submersible.

    • paul says:

      I just want to solve a rubix cube with my son at the ocean floor

      • Apple says:

        Testing out that deep water submersible with billionaires was a great idea.

        • SomethingStinks says:

          More billionaires and a few members of congress need to take the trip…. we can setup a gofundme for the congress critters… pretty sure the whole country would contribute.

        • NBay says:

          Yeah, it sure was! I enjoyed that one immensely!
          And Sir Hairdo (The British one) now has has rich people space trips going, and there is always Everest, rapids, and touching sharks, etc, etc, etc, for the lower level wannabes, which seems to be taking out quite a few more every year. Hope they get more creative!

          And I REALLY hope they don’t get chicken, and keep all this stuff up!

          Us peons are still ultimately screwed first, but every little bit of helps. Beats Springer.

          Might be a good show for his kid…..”Watch fifty rich people die horribly impressing EVERYONE who can’t see all their other stuff.”……..naked?

        • NBay says:

          Hope that wasn’t just another cheap general anti government shot, merely proving your extreme ignorance.

          Congress critters are mostly all extra ambitious lawyers and businessmen…..bottom line, still just low level hired guns.

          Go for their employers, you moron!

          Who wastes time killing/trashing the mob’s “soldiers”?
          Just other mob soldiers.

          Besides, lobbyists do most of the dirty work, trust me, I KNOW and VERY first hand.

          Doesn’t the fact they get on the Congressional Baseball team tell you SOME-THING?

      • Lagoulis says:

        I don’t know about food but it keeps getting higher and higher in San Francisco. Looks dead out here.

        • Wolf Richter says:

          SF is packed with tourists around me. We just went to a restaurant for dinner. Packed (mix of locals and tourists probably). Lots of people on the street going places. I went swimming in the morning, and the entire area was teeming with people. Big lines outside every breakfast place too (I walk by four on my way). No sign of “dead.” Drunken sailors everywhere.

        • NBay says:

          Obviously SF (and CA in general needs help). If these red states were truly Christian, instead of just doing nothing but criticizing CA, they would be sending thousands of missionaries to help us out of our savage and evil ways.
          Perhaps start with the tourists passing out bibles? If each one brought just one out that is a LOT of them.

    • Nissanfan says:

      This economy needs a Titan sub event and then the same kind of media coverage, so wallstreet can get the message that party is over.

      • joedidee says:

        all I can say is I can’t seem to get break this year
        had 1/2 months with $10k+ cc bills
        finally thought I had caught up and was ready to go on vacay
        brakes on truck $1,700, bearings/brakes on 5th wheel $1,300
        now I’m putting tires on truck $2,500 – gonna pay 1/2 and take out 0% interest cc and pay off in couple months from income
        total interest paid since 1995 = $000,000.00
        sure glad though I can afford this and take out of income
        now I need to plan that vacay as it’s gonna be 111 this weekend

        • Ed C says:

          Going to be 115 here and the glass company wants $673 to repair a dual pane window. I’ve heard that the cost of glass has gone up but this is ridiculous.

        • sufferinsucatash says:

          Same, my CC “summary” spiked 400% last month due to unforeseen costs. There goes all I saved this year. But anywho, my violin recital is up. ;)

        • NBay says:

          As usual, diddley’s post is the funniest one in this little humor thread he started……so far.
          He’s really damned hard to beat when it comes to starting a good laugh thread.

    • Ltlftc says:

      Bunch of 20’s and 30’s racking up the card about to get shafted pretty hard.

      • Swamp Creature says:

        Jim Cramer will be giving Wolf a free 3 month membership to his investment club based on the bullish comments in this article.

        • Harry Houndstoothh says:

          If Jim Cramer can convince investors to extrapolate what they see in the rear view mirror, Wolf Richter’s reporting of the truth could be construed to be bullish, but I see no mention of the student debt, commercial property refinancing, publicly held retailers guidance or the declining hours worked affecting the future.

      • bulfinch says:

        Moral qualms aside, taking pleasure in the misfortune of others can be quite thrilling.

        • anon says:

          bullfinch wrote that: “ … taking pleasure in the misfortune of others can be quite thrilling.”

          Unfortunately, the seeming majority of commenters here are HOPING for a
          1929-style Great Depression.

          Why do they want others to be miserable? Is it because they, them themselves, are miserable and want company?

          Personally, being an optimist, I want everyone else to be as happy and contented with their lives as I am.

          No economic maladies for anyone.

          I guess that puts me in the minority. … sigh …

        • Bead says:

          Pangloss weighs in. Why would we ever doubt the Magic Money Tree? Heaven is ours now if we just accept newly sprayed trillions. Don’t worry be happy.

        • Janna says:

          “Unfortunately, the seeming majority of commenters here are HOPING for a 1929-style Great Depression.”

          I’m just hoping that asset prices come back down to earth. I would like to buy a decent house at a decent price before I’m 80.

        • Ed C says:

          Anon — I confess. I am a pessimist. No surprise then that I am a lousy investor.

        • Einhal says:

          No. What we want is a return to normal so that we can rebuild. We know the status quoa isn’t sustainable, so we want it to reverse and begin recovery before it’s too late.

        • Pea Sea says:

          “Why do they want others to be miserable? ”

          Probably because they’re sick to death of seeing those “others” have cash bazooka’d in their direction for years and years on end, no matter how stupid, risky, or antisocial their behavior, and they feel like it’s time for the “others” to get a taste of what it’s like to be chosen as the loser for once.

          Not saying that this is the correct response, but it’s certainly understandable in that context.

        • Ltlftc says:

          “Personally, being an optimist, I want everyone else to be as happy and contented with their lives as I am.”

          It’s a brave new world, anon. Universal happiness keeps the wheels steadily turning, truth and beauty can’t.

        • bulfinch says:

          Geezus — I was being facetious, but the responses here really do capsulize the general sentiment of the WS comments section overall: no-one wishes for the suffering of anyone else; people are simply sick of the greed-is-good, smash-n-grab mentality. It’s bad for our humanity.

          My hope is that we can pry free whatever is left of the working class from the maw of the market before the death roll is complete.

        • Sit26 says:

          There is a very old German word, “schaedenfreude”. This word specifically means taking pleasure in the misfortune of others.

        • MacGruber says:

          Because some of us perform jobs that are essential for society. We see that no one wants to do these jobs anymore as we drown under the workload and get our miserly wage increase that does nothing to keep up with the cost of living. Meanwhile, it seems that everyone else is a tiktok/onlyfans influencer, marijuana dispenser, “senior” something-or-other for fintech/bank/realty/insert-bloated-middleman-business. They have “unlimited paid time off.” They “work” from home only doing 10 hours of work a week and pushing the mouse around the other 30.

          We need a reset very badly. Everyone who understands this sort of thing can see the reset wants to happen organically but the politicians keep finding one more jug of fuel to dump on the ashes if this fire.

        • SomethingStinks says:

          That’s a side effect when you act responsibly year after year and get shafted while reckless, irresponsible, degenerate behavior gets rewarded. When you see that for a few decades you start wishing ill on people. After that comes scorched earth mindset…

        • Einhal says:

          SomethingStinks, it’s not even just that. It’s that many of the people who have been rewarded for stupid and antisocial behavior brag about it, as if they’re some genius entrepreneur.

        • NBay says:

          Wow…a REAL meeting of the minds…with nearly perfect meshing………of course that’s outside opinion, but then neither of you understand a happy irresponsible economic loser like me, anyway.

        • NBay says:

          …reasonably happy in general……it varies in time…..

    • Occam says:

      If the government during Covid injected six trillion dollars of thin air money into the real economy, and let’s say that there are three hundred million Americans, then that works out to $20000 per person of free money. Many got nothing; some got millions. It’s a testament to how inflation is underestimated in the US that inflation purportedly peaked at 9.6%. Helicopter money did its job in igniting inflation and the “transitory” thesis was just an excuse to let it burn. Bernanke claimed that the Fed had the tools to stop inflation in fifteen minutes. What he forgot to mention was the absence of any intention to hit the brakes as hard and fast as they pumped the gas pedal.

      • Nicko2 says:

        It’s been estimated $200 billion COVID funds was lost to fraud.

        • Implicit says:

          Most of the legal money went to to well off companies and individuals that shouldn’t have recdeived anything, while real small companies went out of business.
          Same old same old, the larger companies can afford the accountants and lawyers to grab the free money legally before it’s gone.

        • longstreet says:

          I read a law office in Boston got $10 million
          And what of hedge funds whose income is not repetitive per se, but based on current decision making. Did they collect on last years income?
          If baseball games had been stopped, would the guy with the big contract be able to tap into the PPP?
          The Fed govt loves to spill money….. that is the only lesson. How much is being spent to recover some of the Fraud? About nothing I would suspect.

        • Venkarel says:

          PPP was freely available and simple to get for … anyone. They did not even check your documents (no need to verify) if you claimed under a certain (high) amount. It is no wonder fraud was rampant.

        • Lynn says:

          Yeah, people are a bit miffed about that. There’s currently at least one social media thread with info on how to report your employer for bad faith PPP loans with 1.8K comments on it. I’m sure there are more.

        • Harry Houndstoothh says:

          Well, if you are throwing it out of a helicopter, who cares?

        • Francis Lunenschloss says:

          By whom????

      • The Real Tony says:

        What produced inflation in America was people getting free money who didn’t need the money. In Canada people who didn’t work got nothing from Covid free money fund unless they were deemed handicapped.

      • Bobber says:

        Who could have predicted such high persistent inflation? All the Fed and government did was print $6T and give it people and businesses, with nothing expected in return. sarc.

        Those unforced errors aside, what happens from here, assuming the Fed is too timid to remove $5T of the $6T before the sun burns out?

        The initial money printing helicopter drops were highly inflationary. Lots of high-spending consumers got cash for nothing, and they spent a good portion of it (and it continues). After the initial spending by these lucky or fraudulent recipients, the cash transferred to businesses in the form of excess profits (profits the businesses would not have otherwise obtained), and a good portion of this transfer is a windfall that gets eagerly spent as well, contributing more to inflation. From there, the excess liquidity continues to move through the system, but with each iteration people have to earn more of it by providing goods or services, so the windfalls and spending propensity decreases over time.

        Ultimately, the excess cash migrates to the wealthiest of business owners who use the cash to trade passive investments back and forth, like we saw during the pre-pandemic period. This does not cause CPI inflation, but it does exacerbate wealth concentration, which is already at astonishing levels.

        Unfortunately, the Fed will say that situation is OK, like it has in the past, so long as CPI inflation is controlled, and the masses have one or more servant jobs.

        In the end, the 90% are left with a disastrous situation. Prices of everyday items and services will have adjusted upwards of 30% permanently, over a short 5-6 year period. Stocks, RE, and LT bonds will have risen another 100% and kept at an artificially high price plateau, via Fed policy, thereby eliminating equality of opportunity for anyone who didn’t have the foresight or capability of buying assets before the Fed embarked on a stealth-like wealth concentration campaign.

        One can reasonably argue that current Fed policy IS a driving force that suppresses equality of opportunity, in violation of the country’s founding principles.

        • gametv says:

          It is easy to have a great economy for a short while when you just pile on more debt. It is like throwing a party, times are good.

          But then comes the clean-up after the night.

          It is going to get really bad within the next two years as we have a choice of either completely melting down the value of the dollar or cutting government largesse.

          We really need to just fire ALL the current politicians, and someone needs to destroy K-Street, where the constitution goes to die.

        • Einhal says:

          I agree. The difference is, I don’t think this time they’ll ever get CPI inflation back down without knocking down asset prices. Also, it was one thing when the top 1-2% were using their Cantillon effect printed money to buy stocks (still very, very bad), but now that they’ve been rampaging through the housing market, you’ll have a situation where the top have eight houses each, while a huge number of people can’t afford anything. This isn’t a recipe for societal stability.

        • ru82 says:

          Yellen told her team QE would make the wealthier more rich. But they needed to drive down unemployment.

          It is no surprise.

        • NBay says:

          The Constitution (and the democracy effort) is essentially DEAD at the entrance to every large Corporation. Won’t be long now. Government is well hated by it’s OWN citizens and ever closer to “bathtub size”……..and it’s worldwide, too.

          Long live the CEO!

      • kam says:

        Cutting to the chase of the matter.
        Nominal “Incomes” are a direct function of the Fed conjuring money. Money which, in turn, is multiplied via the Banking System.
        Last days of Rome, enjoy it. Your children and grandchildren almost certainly won’t.

    • Cas127 says:

      Well done, Minutes.

    • Roger Pedactor says:

      Everybody realizes. Especially the Fed. The rate hikes are FUELING inflation. MMF’s are outpacing real inflation.

      MMF’s are giving people 5% on their pre-tax income this year. The amount of money put into circulation the past 3 years isn’t going anywhere and accruing interest while they do so. That compounds.

      Housing inflation doesn’t matter if you aren’t buying, selling, or renting a house. That’s the majority of inflation at this point.

      • MM says:

        But a lot of folks do rent. And even if you own, taxes, insurance, and other costs of homeownership have gone up.

        Oh and don’t forget utilities.

    • Brian says:

      This is interesting… This article on Bloomberg seems to be about the same data as your last two posts but with the opposite conclusions:

      • Wolf Richter says:

        I wrote these two articles — the first on the PCE price index and the second on consumer spending — precisely to shoot down this kind of BS in the headlines in the media. 🤣

        All you have to do is look at my charts on inflation and consumer spending, but of course that would be too much to ask of you since all you do is read headlines – the dumbing down of America knows no limits — including on the Bloomberg piece, of which you only read the headline, or else you would have noticed that the article agrees with me on inflation and disagrees with its own clickbait headline, LOL.

        The Bloomberg article says this:

        Excluding food and energy, the so-called core PCE price index increased 4.6% from May 2022. That’s in line with annual readings back to late 2022 and shows minimal relief from elevated price pressures. Economists consider this to be a better gauge of underlying inflation.”

        LOL. Exactly what I said. You headline-readers are a never-ending source of amusement for me.

        • andrew says:

          Whatever happened to the recession we all seemed to expect? I just got a 20% raise with the state and i suspect many workers in high inflation areas did too.

        • Wolf Richter says:

          I will keep looking for it and waiting for it. Someday maybe…

      • sufferinsucatash says:

        Bloomberg will write any BS.

        If the corporate overlords need a puff piece they call them. They write it, you buy it. The corporate marketers have done their job.

  2. JeffD says:

    If Wolf keeps it up with these bullish comments, the MSM will be inviting him on nightly.

    • Wolf Richter says:

      I’ve been called bearish because of these kinds of articles.

      The New Bullish is if you clamor for a huge recession, 10% unemployment, and a collapse of the financial system that will cause the Fed to unleash forever-mega-QE and forever-deep-NIRP.

      The 5.25% Fed rates have a funny impact on people’s brains, I think 🤣

      • vecchio gatto veloce says:


        You are the embodiment of what Yogi once said.
        “You can observe a lot by watching.”

        I do recall that couple years ago, your observations were quite accurate, describing the actions of, “The most reckless Fed ever!” Times change, eh?

      • DawnsEarlyLight says:

        “All good writing is like swimming underwater and holding your breath.”
        ― F. Scott Fitzgerald

        Bay swimming must be a close second.

      • Modalita says:

        I’ve been following you for a few years now. Honestly your tone is a lot less bearish compared to say…2018.

        • Cas127 says:

          So long as ZIRP continued, there was a huge anvil over the head of asset valuations – which were inflated by the printed money regime of ZIRP (DCF/NPV calculations being distorted by ZIRP’s phony interest rates).

          Now that rates have been along to semi-normalize upwards, that hanging anvil shrinks a bit…thus a bit less bearishness.

        • Cas127 says:

          Allowed not along.

        • Pea Sea says:

          His tone isn’t bearish at all lately. He’s one of the few prominent Fed critics who seem to actually notice that inflation hasn’t gone away, spending hasn’t gone down, and risk markets are on a tear. The rest of them are making absurd claims about inflation being sharply down and a recession already being here.

      • Kent says:

        Over many, many years, I’ve learned that depressions simply aren’t going to happen any more. But for good reasons: corporations want sell more products, hire people, become more efficient. Working folks want to work harder, make more money, collect more stuff. Investors are always ready to step in when they see something dropping in price below perceived value. There is a floor to economy that is hard to break through. Especially when the Fed is quietly standing behind the bad investments banks occasionally make. Folks waiting for the great collapse, are always going to be disappointed.

        • kam says:

          1. depressions simply aren’t going to happen any more.
          2. Folks waiting for the great collapse, are always going to be disappointed.
          Ask yourself what is the magic about a Central Bank? Set up your own Central Bank on an Island and see if an economy and nation arrive.
          The Fed is in the Last Days of Disco.

        • Blam 35 says:

          I’m a bit guilty of waiting for small crash like downturns in like cmbs. But, the fed has always created some.talc.like program. But part of me doubts they can contain all of it so I’ve held drv.

        • danny g says:

          It’s different again, folks 🤣
          It’s probably true that incentives and policies today are set up towards permanent inflation.
          However, people and society are still subject to the laws of physics and psychology. In fact, the world is more unstable today than it’s been in the last 50 years.
          Still waiting for the last bear to throw in the towel 🙄

        • Pea Sea says:

          It’s Different This Time™!

        • HowNow says:

          danny g – “waiting for the last bear to throw in the towel.” Reminds me of a comment by the late Alan Abelson (Barrons): “…when the last bear sprouts horns.”

        • Harry Houndstoothh says:

          Be sure to count me in on your disappointed group. I love hiring former millionaires looking for a job.

        • NBay says:


          “Derivative contracts, swaps, and repos enjoy super-senior status in bankruptcy: they are exempt from the automatic stay and, if collateralized, they are effectively senior to virtually all other claims. We propose a simple corporate model to assess the effect of this exemption on cost of borrowing and incentives to engage in derivative transactions. Our model suggests that, while derivatives are value-enhancing risk management tools, effective seniority for derivatives can lead to inefficiencies because it shifts credit risk to the creditors, even though this risk could be borne more efficiently by derivative counterparties. In addition, because senior derivatives dilute existing creditors, [greedy pigs} may take on derivative positions that are too large from a social perspective.” -from Cal Berzerkely paper

          Not worried about you, but these things are moral hazard city.

          I read the history of how they legally changed over the years….lotta lobbying.

          Anyone ever see the sculpture outside the old B of A monolith in SF called (unofficially) “Banker’s Heart”?

      • BENW says:

        I’d be happy with 6.5% unemployment, no QE, an FFR that stays at or above 2%, a national 20% drop in real estate values, and a 30% drop in markets.

        The reality is that inflation doesn’t get sorted out without housing, nationally taking a 20% hit with the 30YFRM not dropping below about 4.5%.

        And we all know this doesn’t happen with a mild 4-6 month recession that sees unemployment rise to maybe 4.3%.

        Overall, the US economy is clipping along fine. There’s near zero chance of a recession this year.

        The Fed should not have taken their foot off the gas. They should be crystal clear that a 6% FFR is about 85% and that it may take upwards of close to 7% to really solve inflation.

        And then, they need to explain to everyone that we’re not likely to see anything more than a mild recession in 2024 that will turn around quickly, meaning that the FFR may not drop below 5% for years to come.

        To date, they’ve gotten EVERYTHING wrong, but I’m wanting a meltdown just a nice 80% GR2.0.

        • Lynn says:

          They really need to put a cap on foreign, offshore and large corporate investing in SFHs. By taxes or laws.

          And very very heavily tax and fine vacant houses.

          Everything else they do just ends up screwing up the entire economy. For chrissakes workers can not even afford to live in many places. They move out. Where the heck they move to and if they can even manage to make a living there is a hard nut to crack. This is not a functioning economy. In California some end up moving onto BLM land. En mass. Or like near the Salton sea. Does anyone seriously think they are even counted in homeless censuses? Salton area looks like mad max from the photos I’ve seen.

        • VintageVNvet says:

          Agree with Lynn, like totally dude or dudette…
          Crazy bad when ANY of the help must commute such long distances that they don’t bother, eh?
          Some cities in FL that I keep somewhat in touch with through, mostly websites these days, are getting the idea that WE, in this case the WE who need help due to age, disability, or just too spoiled to soil our hands, MUST have local help, no more than a local bus ride or reasonable walk away, etc.
          Hard to believe, but it appears both the RED and the BLUE city folks have begun to propose taxpayer subsidies to be used for ”’affordable”’ housing for teachers, first responders, and even, non government employees….
          Both Red and Blue!!! Amazing, eh

        • NBay says:


          I heard biker gangs run that place.

      • JimL says:

        Maybe this is just me imposing my views on your words (i.e. I am putting my views onto your words). But I don’t read your words as being either bullish or bearish. I read them as more as “this is what I am seeing, and this is where I think things are going”.

        Sure, maybe more bearish than bullish, but not “end of the world bearish” that some on here want to see.

        • Captive says:

          Nobody wants an apocalyptic dive. Not really. What they want is a return to sanity and stability, and they realize it’ll take a significant downturn to balance things out.

        • NBay says:

          I’m all for some planet saving austerity….as long as it is spread around MUCH more equally.

          Already told y’all Constitutional max net worth is the solution….let’s put some boundaries on this here playing field. The rules to the game will then pretty much take care of themselves.

  3. Debt-Free-Bubba says:

    Howdy Folks. Wonder where spending the Interest Income comes into this. Some folks may be spending every bit of the higher income earned due to the interest rates. I sure is and proud to be a sober sailor spending.

    • American Dream says:

      One side effect of higher rates is just this. More money going into the pockets of generally older Americans who are spending like everyone else. Another contributing factor to sticky inflation.

      Seems to me more aggressive QT and an asset draw down would be the actual fix to inflation. Or raising taxes and cutting spending which seems unlikely given our crocked leadership smh

      • Debt-Free-Bubba says:

        Howdy AD, This old gezzer has waited a long time to spend a little more. Just want to properly time my long term T Bills ….

    • Cas127 says:

      ” folks may be spending every bit of the higher income earned due to the interest rates.”

      I sorta wonder if interest revenue/expense doesn’t more-or-less net out to zero on a macro level (at least within private sector)…after all, if creditor is receiving more interest income that means that debtor is *paying* more.

      In aggregate, a change in interest rate levels might have distributional consequences…but few net *macro* ones (at least in near term).

      • Wolf Richter says:

        The biggest debtors are governments at all levels and companies. Household debts ($17 trillion total, most of it mortgages) are much smaller than debts by governments and companies. The easy parts of government and company debts to add up amount to about $65 trillion. But there is a lot of “private lending” to companies by PE firms, nonbanks, commercial mortgage REITS, etc. There is a huge amount of interest-bearing leverage in the financial sector. There are all kinds of other commercial debts out there that pay interest.

        So these government and commercial borrowers are paying most of the interest. And some of that goes to households.

        But what does happen is that the households that earn interest (typically households with few or no debts) are not the same as households that pay interest.

        So the households that earn interest get to spend more. Most of the household debts are mortgages, and something like 95% of the mortgages outstanding are fixed rate. Those households do not pay more interest until they get a new loan. Auto loans are more expensive now, but most of the outstanding balances are with low rates from a year ago and earlier (auto loans are long these days). Credit card rates have gone up, but most of the credit card balances are non-interest bearing because most people use their credit cards only as payment device and pay them off every month and collect the 1% or 2% cashback, or the mileage or whatever – roughly $5 trillion a year is paid for with credit cards, and only a tiny portion gets stuck as interest-bearing debt.

        • gametv says:

          So based on these facts, consumers will not be the ones that go into financial duress, it is going to be companies and government agencies.

          Seems like we need to see companies go bankrupt and much higher unemployment to cause any distress.

  4. Gary Fredrickson says:

    It is obvious that nothing domestically is going to stop the runaway inflation. Those alive during the 1970s and 1980s know that nothing short of Volcker will fix this problem.
    We don’t even know what the problem is; all these charts and graphs are nice, but the methodology of calculating inflation has changed. What good is a graph with the left half of inflation calculated differently than the right half.

    • old school says:

      Three truths of the Federal Reserve:

      1. It was created by Congress
      2. Their biggest worry is deflation
      3. They don’t like to mention gold

    • spencer says:

      Volcker screwed up 3 different times.

      • HowNow says:

        Yes. He’s a hero now but was hated back then. And it’s not as though he managed to create a “soft landing”. It was a very hard one, maybe not necessary, but it worked. But in retrospect, he’s regarded as being a savior.
        We twist and turn things to fit our bs narrative of how things “used to be”.

        • Einhal says:

          I think people revere him now because he realized that there was no magic bullet, that there was going to be pain.

          History tends to look more fondly upon people who choose the least bad option than people who bury their heads in the sand and pretend that there is a good option.

        • 91B20 1stCav (AUS) says:

          Einhal – very well-said.

          may we all find a better day.

        • rojogrande says:

          Einhal +1

        • Einhal says:

          Thank you both. I see Powell as Chamberlain and Volcker as Churchill. Yeah, it would have been nice to eliminate Hitler without a costly and deadly world war, but it’s not realistic, just like it’s not realistic to expect to get inflation under control and not have a recession.

    • JimL says:

      We don’t have runaway inflation. Full stop.

      We have high inflation (especially compared to recent years (decades)), but no where near runaway inflation.

      I think we got exactly what the FED is shooting for, a slightly high inflation rate to inflate away all of the public debt, but nothing out of control (let alone runaway).

      Yes, it will completely suck for those thinking inflation would stay low forever. Those people will be punished, but it isn’t Weinmar Germany or some shithole 3rd world South American country.

      It is simply slightly high inflation.

      The world will adapt. There will be winners and losers, but the world (and the country) will go on.

      • MM says:

        Anyone with fixed, low-rate debt is in a position to benefit from inflation.

      • Einhal says:

        Housing prices have tripled in 14 years in many places. If that’s not runaway inflation, I don’t know what is.

        Yes, it’s not as bad as it in Argentina or Turkey, but that doesn’t mean it’s not runaway.

        • VintageVNvet says:

          our house has quadrupled in 8 years if one believes the ”comps” as presented by the z folks!!!
          others in this small hood even more

        • bulfinch says:

          Yeah, I think engaging in dramatic understatement just makes some folks feel like the coolheaded one.

          Tis but a flesh wound…

        • Flea says:

          Bought my house 20 years ago 4 bedroom 23/4 bath inground pool 147,000$ now taxed at 307,000$ . Only thing I got was devalued money in Omaha ne and a rediculios property tax bill

  5. Broke Student says:

    Seems like quite a lot more consumer driven growth to come. Wonder how well distributed this income is though, higher earners tend to save more.

    • Augustus Frost says:

      Change in median household income shows that. Haven’t looked at it recently.

      I presume it’s going up in “real terms” due to rising wages. Concurrently, most people are still actually broke or near it which isn’t fully evident due to $2T+ in deficit spending, loose credit conditions, and the job market.

      • Wolf Richter says:

        “… most people are still actually broke or near it ”

        I’m so tired of this most-Americans-are-broke BS. Post this stuff somewhere else. It shows you’re totally utterly clueless and will never understand the US economy. There is a huge wealth disparity in the US, but lots of Americans have plenty of money.

        13% of households are “broke” — the rest are not, and many of them are pretty well off:

        Debt burden is small:

        Households far from “tapped out”:

        • Bond Vigilante Wannabe says:

          If most people were broke, the stock market wouldn’t behave the way it is.

          Money flows come from people with money, and as unemployment went down, more money went into the markets.

          This can’t happen if everyone is broke.

          Directing people who keep repeating this to a chart of the SPY might help. The tape tells the story.

        • Cas127 says:


          You are completely ignoring the influence of one of Wolf’s favorite villains…the stock buyback.

          Corporations (via real earnings or borrowed money) can prop up their stock prices (in the near/intermediate term at least).

          So, stock market advances don’t necessarily require widespread stock equity ownership…in fact, I think maybe only 51% of US households own *any* stock equity…let alone a significant amount.

        • Bond Vigilante Wannabe says:


          Have you considered telling these people that this isn’t a support group for frustrated bears?

          That is what ZeroHedge is for.

        • Swamp Creature says:

          I’ve never seen so many homeless tents popping up all over the place here, and panhandlers on every main intersection. This was not the case 3 years ago. I would say these people are broke. It’s in your face. I agree that the wealth disparity has gotten much worse. A lot of people still have a lot of money and are spending it like drunken sailors.

        • MM says:


          I too see (seemingly, subjectively) a lot more panhandlers in my area. At the same time, nearly every shop on Main st has a now hiring sign.

          I don’t get it – these folks would surely earn a lot more even doing a part time job at min wage. Must be some psychological reason for their chosen path, not just economic.

        • 91B20 1stCav (AUS) says:

          MM – mebbe in part, and supreme irony, a reverse replay of the Opium Wars…

          may we all find a better day.

        • Gabriel says:

          Thirteen percent of 334,000,000 is more than 43 million people. I don’t know what an acceptable number is but that seems pretty high in an affluent country like the US. Just saying!

        • Wolf Richter says:


          You completely missed the statement that triggered my reply, and thereby you completely missed the point.

          The statement by August Frost that I replied to was this: “… MOST people are still actually broke or near it.”

          And that is BS. “Most” is not 13%. “Most” may be something like 90%, or if stretching it, 80%. Anything over 50% is at least a “majority.” But 13% is a small minority, not “most.”

        • sufferinsucatash says:

          MM I once knew a panhandler.

          He would laugh so hard about the morons who gave them money for just standing there.

          He didn’t want a job, he wanted to be free. He wanted morons to hand him cash and tell him some random stuff about their life.

          He totally was just using everyone at the stop light to go buy drugs with the money. And then laughed at how dumb people were.

          “It’s so easy!!” He would say.

          So if anyone here ever gives money to those people. He thought you were dumbasses, he’s dead now btw

  6. Bobber says:

    Things look like they are gravitating back to a prepandemic setting, which the Fed touts as optimal. Corporate profits were high, wages were low, investments were in a bubble, interest rates and growth where suppressed, and debts were growing.

    The best part is the wealthy could accumulate tons of new wealth and spend in luxuries without creating inflation. The masses would gladly serve via low wage jobs, so long as Apple produced a new shiny phone every year and people could follow the NFL salary negotiations.

    Goldilocks period, they called it.

    • HowNow says:

      The problem is that the human race hasn’t improved much since the Neanderthals. The only change is the standard of living. Lots of idiots running around & buying sh*t. Come on, they just want to be cool.

    • Flea says:

      Mm most of these people panhandling,have addiction,or mental issues . Or there lazy

      • VintageVNvet says:

        Guy who stood most days on same corner in SF bay area, late 1980s, told me he averaged $200 per day.
        That was a living, minimum sure, but a living, even if he was not augmenting with drug sales, pimping, etc.
        Wasn’t dirty, had a gentle vibe.

    • Flea says:

      Apple borrowed billions at cheap rates ,there balance sheet of cash is borrowed money ,executives stold the rest In compensation

  7. Blam35 says:

    Oddly msm seems to eschew all the covid spending. But, an arg can be made that it had a “wealth effect” across all classes that buoyed the economy. Based on my modest economic training that was true keynesism, not tax cuts for the rich. Tax cuts in a mature credit rich environment does not spur prductive nvestment but money to the working classes drives consumption because they have a much higher propensity to consume not the rich unless one sells yachts.

    • Cas127 says:

      Government printing of little green pieces of paper does not increase a nation’s real asset endowment by a single 2×4, hubcap, or handful of grain.

      • HowNow says:

        Cas, you ALWAYS find the government to be the root of all evil. Have you ever considered the population that’s being governed???

        • DawnsEarlyLight says:

          Governments(the Fed) create inflation, everyone else just reacts to inflation.

      • MM says:


        You see people as the fundamental problem, but governments are made up of… people.

    • gametv says:

      Blam35 – If the government found a way to make this happen without adding debt, fine. We are simply borrowing from the future.

    • Anon says:

      Yeah and Keynes also said we should run a surplus in the good times.

  8. Flea says:

    Someone turn off the lights ,when parties over .

  9. DawnsEarlyLight says:

    Funny, considering the government(fed) are the creators of inflation. Everyone else just reacts to it.

  10. Brant Lee says:

    Apparently, there is still a lot of cash out there and money earned. Let the good times flow. Life in the states is like a beer commercial: “Boy’s it don’t get no better than this!”

    U.S. dollar is king. We can print all we want. Enjoy! Just ask Congress.

    • Slavik says:

      The “apparently” part in your comment is right; cash is created by your signature at a bank or when you get credit cards.

      The technological financial instant transactions coupled with JIT global manufacturing creates near instant balances throughout the global industrial system coupled with many people —7.5 billion — who are willing to get credit and work. It’s just that simple. Describing simple complex integrals and demand derivatives as in calculus economics can look impressive BUT in the end the system is simple. The hard part is tracking instant happenings across all categories and nations all at once. That would be omniscience.

  11. SoCalBeachDude says:

    Wouldn’t much higher federal income taxes solve these issues 100% while putting the US government on a sound track towards repaying it’s massive public debt which is now moving towards 180% of GDP?

    • 1stTDinvestor says:

      SoCalBeachDude- Stop gaslighting, lol.

    • Miatadon says:

      Please run for president, SoCalBeachDude.

    • Augustus Frost says:

      No, because the elite buy elections. Nothing new about that.

      Any belief that the masses are ever going to plunder the elites (the actual dream of every progressive) is a complete fantasy.

      • HowNow says:

        Wrong. The “elites buy elections” is correct. The “plundering” of the elite is the fantasy of the communists, not the progressives. Too bad that you can’t recognize differences. Your distortions are ever present. It’s the “when all you have is a hammer…” syndrome.

    • Augustus Frost says:

      One more note. Your post also assumes that fake “wealth” can be converted into spending in the real economy with limited or no consequences. What you propose would crash the markets, eliminating this fake “wealth”. At scale, it isn’t real.

    • longstreet says:

      So Cal…
      “Wouldn’t much higher federal income taxes solve these issues 100%”
      First, history will show you that for every tax dollar collected, the Federal Govt spends 1 + X. There likely would be no reduction in national debt.
      Secondly, with people and businesses being already harmed by inflation, to then TAX them on top of that is absurd.
      You essentially are suggesting “shuttering” the private sector to fund the irresponsible spending of the Federal Govt.
      I disagree with that notion.

      • JimL says:

        Sure, if you ignore the parts of history that run counter to your claim

        • Einhal says:

          There are no parts of history that run counter to the claim.

          Are you planning on bringing up the fallacious “We had 90% marginal tax rates and the 1950s and everything was great” line?

          Or were you planning on bringing up the equally banal “Clinton ran a surplus” line?

          The fact is, both of these things were accidents of history and resulted from a series of factors that are not likely to ever happen again.

          The federal government has grown out of control because the people demand it. No one cares about reining in spending, as long as they get theirs.

          This is a fundamental flaw of all democracies.

        • El Katz says:


          The United States is not a democracy. It’s a constitutional republic.

          A democracy is two wolves and a sheep deciding what’s for dinner.

        • ru82 says:

          The US needs more than 2 parties. It is always left or right and rarely anything i. the middle.

    • Implicit says:

      Defense/offense is comparable big slice of the budget.They would just find a new war to support, or add more $ to the present one. Both parties would vote yes.

    • MM says:

      “I don’t need to spend less on takeout, you just need to increase my allowance.”

    • El Katz says:


      The government has a spending problem. That needs to get fixed first. Your assumption appears to be that the government can better spend your income than you can. I find that hilarious.

  12. America Strong says:

    Wolf had me months ago with the 6 to 7 millions backlogs of vehicle demand waiting to be upgraded. Americans still have pent up demand post COVID, and all the $FOMO streams daily across social media showing neighbors on extravagant vacations and what the .01% are spending their money on. I call it the perfect storm create by 12 years of QE, the Smith and Barney commercial is in full effect “we make $ the old fashion way”. Travel, Hospitality, and Entertainment sectors are still short employees. 14 homes for sale in my east Denver suburb, 10 under contract. Glad to see the Shock and Awe Recession Bullshit is just that.

    • Al Loco says:

      How are all the commission sales reps doing out there? Every hourly employee in my company has enjoyed significant raises and sales just got cut. I’ve heard this at multiple other companies too and since it’s been softening already, this is concerning me. We’ve cut back on discretionary spending but my 3 boys won’t stop eating:). I have this new party trick while out for cocktails. I turn a $1 into a $10 by topping off my vodka rocks with my trusty flask.

    • Depth Charge says:

      “Wolf had me months ago with the 6 to 7 millions backlogs of vehicle demand waiting to be upgraded. Americans still have pent up demand post COVID, and all the $FOMO streams daily across social media showing neighbors on extravagant vacations and what the .01% are spending their money on.”

      I call BS. A lot of demand has been pulled forward. I have never seen so many new vehicles/RVs/boats/side-by-sides/motorcycles/2ndhomes/vacations in my life. This is like 2006 on steroids. Wolf himself talked about the fact that Yosemite was busier than he’s ever seen it in his life. That’s what I’m seeing, too. This is like a blow-off-top economy. At some point, it has to crash. You can’t have a boom without a bust. And this bubble is unlike anything ever seen in this country. There is no such thing as “it’s different this time.”

      • Flea says:

        Roaring 20 s replay

      • Einhal says:

        I agree on this. I’m seeing car dealerships parking lots largely full again. RV distributor lots (there are many where I live) are fairly full again.

        I’m hearing anecdotal evidence of people who bought boats and RVs in the past few years trying to sell them.

        The fact is, America didn’t generate any new wealth over the past 3 years. It just printed money and caused massive malinvestment. There’s never a scenario where you don’t pay a price for doing that. It’s just a matter of time.

        • Depth Charge says:

          “I’m hearing anecdotal evidence of people who bought boats and RVs in the past few years trying to sell them.”

          For more than they paid for them new, naturally. It’s almost like they were speculating in depreciating assets or something. And KBB and NADA values seem to be of little importance to these people, as they have no problem pricing them $10k above private party value. Yeah, good luck with that…..

        • El Katz says:


          KBB and NADA are “wish books” as in “I wish my car was worth that much”.

          Vehicle auction values change daily. They’re regional, seasonal, color sensitive and body style specific. Dealers use Manheim online or BlackBook to buy your car and NADA or KBB when they try to sell one to you to convince you of what a “good deal” you’re getting.

      • DawnsEarlyLight says:

        Sooner or later, we will come to the end of the string, because we can’t ‘push on a string’ any further.

        • Depth Charge says:

          But they can destroy a currency and the standard of living over the course of a lifetime. We have THE WORST human beings in history in charge of everything. Just vile, irredeemable filth.

    • sufferinsucatash says:

      No one is short of employees. Quit thinking that. Short of employees means corporate wanted more profits and won’t hire anymore.

      The signs are a show for their customers.

  13. Augusto says:

    I’m not so sure about this. I just saw an article where Gross Domestic Income over that last year has fallen 2.6% while GDP over the same period rose 2.3%? Or what the financial industry is calling “out of sync or just plain doesn’t make sense. It seems all our stats are screwed up since Covid. In any event, from what I see the boomers, with money or assets, are spending, while the younger people are not, because they have no assets and their incomes are being eaten by inflation. I think it’s really about “who’s inflation”, and this differs by income class. For the poor, I think food and rent are still rising, and inflation is very real.

    • Wolf Richter says:

      Real Gross Domestic Income (GDI) and Real Domestic Product (GDP) are completely different measures. Discrepancies, up and down, are normal. They rarely every match quarter to quarter though over the long term you can see parallels.

      For example, GDI includes corporate profits which fell for the third quarter in a row. Falling corporate profits has been one of the most discussed topics out there.

      • Harry Houndstoothh says:

        Jack Webb-

        “Just the facts, Ma’Am”

        Joe Friday, Badge 714

        “GDI includes corporate profits which fell for the third quarter in a row.”

        • 91B20 1stCav (AUS) says:

          “…the story you have just seen is true. No names were changed, however, as there were no innocents to protect, and no one brought to trial, convicted, or sentenced…” (…DUM-DA-DUM-DUM…).

          may we all find a better day.

  14. SoCalBeachDude says:

    DM: Some good news! Gas prices have plunged 27% down from record highs last year – as 43.2 million Americans prepare to hit the road for Fourth of July celebrations

    Motorists will finally have some respite from sky-high gas prices this Fourth of July weekend after costs plummeted by 27 percent.

    • Anthony says:

      oil is sticky at $75 dollars, meethinks it will rise with a pond full of black swans swimming around Brics

      • SoCalBeachDude says:

        Oil could fall to $-33.00 (negative $33.00) per barrel as it did only a few years back as the world is awash in excess oil supplies.

        • rojogrande says:

          I doubt the lockdown thing will be tried again, so that’s highly unlikely.

        • ru82 says:

          The good thing is there seems to be plenty of oil and nat gas. Funny how money printing brings down commodities prices but jacks up prices everywhere else.

    • danf51 says:

      At the start of the Biden administration, gasoline prices where I live where $2.29/gallon. Then the “inflation” took hold and gas ran up to close to $5.00. Then 6 months ago, it was down to $3.29. Thats about as low as it got. Still $1/gallon higher. But the 3.29 counts as disinflation ?

      In the last 6 weeks, gasoline went from 3.29 to $3.69. I’m not seeing how that translates into a 27% plunge ?

      • JimL says:

        That is a pretty strange starting point you choose to make your comparison on. Why choose the middle of a once in a century pandemic as a starting point? Of course numbers are going to look wonky based off of that.

        • Kurtismayfield says:

          Narratives need to be fed. Pay no attention to OPEC production either. If you compare OPEC production to FRED average cost of a gallon of gas they are almost inverted.

        • El Katz says:


          Instead, you can use 2017 when I moved to our little slice of paradise. Regular top tier gasoline was @ $2.50 a gallon. It was just $4.87 and recently “reduced” to $4.39 just prior to July 4th weekend. Same physical gas station. Same brand. Same operator.

          No pandemic need apply.

        • SpencerG says:

          There is nothing wrong with using the start of a new administration as a benchmark. For anything really. But the problem with measuring inflation in the oil markets is that they aren’t independent markets. OPEC is a cartel that tries to control the price of oil… and the Saudis are the principal cornerstone of that organization. In the past five years, oil has bounced around based on…

          1) The Kingdom of Saudi Arabia lowering the price of oil to try to bankrupt the American fracking industry
          2) Iranian oil being sanctioned by America and thus unsellable except in small amounts off the radar screen
          3) The sanctioning of Russian oil in response to their invasion of Ukraine
          4) The Crown Prince of Saudi Arabia raising the price of oil to rub Joe Biden’s nose in it for calling him a murderer

          I am sure that I am missing some events… but the point is that oil prices are not the result of a free and open market allowing buyers and sellers to find the natural price. Which is why it is typically excluded from “Core Inflation” calculations.

    • Ltlftc says:

      We’re draining SPR.

    • Daniel Abrahams says:

      I live in Maryland. On July 1st the gas tax went up 5 cents a gallon. Not all inflation is in the product.

  15. George W says:

    Credit provides fuel for spending.

    Rather than a velocity of money indicator how about a credit to debt velocity indicator.

    I would like to see an indicator that demonstrates how quickly newly issued credit is being converted into debt and how this relationship has accelerated over time.

    • longstreet says:

      ” how quickly newly issued credit is being converted into debt”

      It’s not immediate?

    • Blam35 says:

      No such thing as nations real asset endowment, it’s all about distributive assets. My comment.was directed at the sacred cow cut taxes for growth fallacy, how true keynesiism was about money to the many and creation of melt up from.bottom growth not tax cuts, that’s basic trickle down econ

      • HowNow says:

        If trickle down was at all real, we wouldn’t have the continuous growth of wealth and income disparity, now would we?

        And the tax cuts Reagan wanted with the highest level of defense spending at that point in time raised the deficit to the highest ever during his Presidency. Well, at least he served in the military. Not so for guy who had heel spurs.

        • Einhal says:

          Trickle down isn’t the cause of wealth and income disparity. Poor monetary policy, uncontrolled unskilled immigration, and our outsourcing low-end manufacturing to the third world is.

        • SpencerG says:

          When Reagan and GHW Bush left office, Communism had been defeated, inflation was under control, unemployment was minimal, economic growth was consistent and the highest it had been in decades. In short, a massively improved economy (and world) for a measly $3 trillion in additional national debt.

          By the end of Biden’s first term, the Baby Boomer presidents will have added an ADDITIONAL $30 trillion in national debt. Feel free to tell the class what we got for THAT debt.

  16. Shufflesf15 says:

    This is the kind of information and insight I get from Wolf and nowhere else in the financial media. Thanks for another great post.

  17. Micheal Engel says:

    1) Consumer spending is up in real terms, but motor vehicle sales are down 6% m/m seasonally adjusted annual rate. Brand new 2022 pickup trucks are still around. A $7K/$8K discount is offered on new 2023 pickup trucks, after raising prices. Online car sales are down. The boomers and the impaired, Subaru best customers, are taking a hike. The drunks left the party.
    2) Consumers rotation : less on big ticket items like housing and durable goods – more on service and crumbs. Student loans cancellation will reduce Gen Z and millennial real income. They will compete with AI and millions of new immigrants.
    3) The up and coming don’t care. They spend $60K/$100K on EV, because that’s the trend. They spend less on fancy Rolex, Piaget and Patek Philippe. Dozens of high end Swiss watches disappeared in the last few decades. Japanese watches for the middle class, who took over the world and dominated sales in the 80’s and the 90’s, are still hanging around thanks to China. Mgt have to gamble and adjust to survive in the business casino.
    4) The stock market punished Ford and GM for their inconsistency and stupidity : AAPL market cap $3T, GM $50B.
    5) The blue zone ukulele party is on July 4th 2023.

    • Wolf Richter says:

      “…but motor vehicle sales are down 6% m/m seasonally adjusted annual rate.”

      LOL. Reading BS websites again? I hate it when people drag BS into here that they pick up at some ignorant shit website. It just wastes my time.

      Part 1, new vehicle sales (actual, not seasonally adjusted annual rate):
      1. In May, 1.3633 million vehicles were sold
      2. In April, 1.3618 million vehicles were sold
      3. So in May, more vehicles were sold than in April

      Part 2:
      1. In May new vehicles sales soared by 23% year-over-year (to 1.363 million vehicles from 1.108 million in May 2022).
      2. March, April, and May were the best months since early 2021 (before the industry ran into inventory shortages). In all three months, over 1.36 million vehicles were sold. Last time we saw those kinds of sales was in May 2021.

      • longstreet says:

        I am still hearing chip issues with the car manufacturers…
        I am surprised as it seems the issue had been resolved, supply not an issue.

        • Wolf Richter says:

          It has gotten a lot lot better. But some companies are still having problems. So shortages with some brands, and plenty of inventory with others.

      • Some service departments at dealerships are still breaking records as well.

        A friend of mine runs the service dept. at a Toyota dealership. Just hit a new record of ~$380K to close out the month of June. He was aiming at a number thought to be unrealistic of $370K and exceeded expectations.

      • Micheal Engel says:

        In May 1.3633M vehicles were sold. Sold by whom.

        • Wolf Richter says:

          Auto dealers to their customers. Automakers directly to large rental fleets. These numbers are “deliveries to end users.”

          Typically, the fleet business is about 20% of total. It collapsed over the past two years because automakers had shortages and prioritized high-end models through the retail channel because they made more money that way. The fleet business has started to grow back toward normal-ish levels, which is a good thing because that’s where the used vehicle supply will come from in 1-2 years, and used vehicle supply is now getting tight.

      • Dubronik says:

        I second that….I rarely see any old junky cars on the road here is SoCal

      • Softtail Rider says:

        Don’t know where ME got the numbers. But last week I deleted an email from the local Ford dealership offering $8,000 off MSRP on new 2023 F-150 pickups and 0% on some new cars.

        In 2008 I bought my F-250 with an employee discount so am looking for the same offer in September/Fall time frame.

        • Depth Charge says:

          $25,000 off msrp would barely be a deal with as much as they have hiked the prices.

        • Wolf Richter says:

          Yes, deals are back! That’s how it is supposed to be. These addendum stickers we saw in 2021 and 2022 were just freaking nuts.

  18. LouisDeLaSmart says:

    People spend because what they earn is not worth saving.

  19. BS ini says:

    Local personal trainers and gym owners feeling the inflation pressures . No health insurance and grocery at Walmart vs Sprouts. Smaller town in East Texas population 110k . At the same time neighbor across the street traded in duel fuel (EV and Gas) BMW that was 3 years old (15k miles) for a 2023 Mercedes SUV. Plus he just finished a landscape maintenance and new fence at a cost of 40k. He is 71. Pension from Federal Government helps a bunch. Drunk sailor and sober poor service gym owner. Wolf has been signal no recession for longer than I can remember. Higher for longer and don’t forget his mantra on higher long term rates .

  20. Falstaff says:

    Does the final rate hike start with an 8? to kill it even low it is slowing down.

  21. Swamp Creature says:

    What is missing in all this data is the fact that the entire burden of the monetary collapse and rate hikes is falling on the shoulders of families and small businesses, while large corporations and governments are virtually unaffected. The drunken sailors are out there spending money they don’t have and getting poorer and poorer every day. They are drunk 24/7 and don’t realize what is happening to them. The media won’t tell them, until every dime is taken out of their wallets, and they are no longer useful for anything.

    • Wolf Richter says:

      “…are out there spending money they don’t have and getting poorer and poorer every day.”

      No. please read the first part of the article and look at the first picture.

      • Propheticus says:

        “…and look at the first picture.”

        Geezus! I just pissed my pants.

      • JeffD says:

        Now, just the teensy problem of inflation’s coming second wind.

        • SoCalBeachDude says:

          Prices are now falling substantially in nearly all areas.

        • JeffD says:

          Not in services. That’s the only area that matters in the long run, since it is tied at the hip to wages.

  22. Dave says:

    I have come to the conclusion that I must be economically obtunded. Ever since this financial fiasco(covid shutdown and fed/gov interventions related to it) I have been losing ground to inflation. It is like I am sailing upwind and against the current.

    And yet we have articles like this……..


  23. The Real Tony says:

    I hope America can learn from Canada. If too many people emigrate from the third world countries spending and wages always lags the inflation rate leading to a lower standard of living for everyone. The laws or rules of economics have never changed.

    • JimL says:

      That is simply not true. In fact it is wrong more often that it is right.

      Get better sources of information. Once that don’t try to scre you and take advantage of your bigotry.

      • Einhal says:

        It’s very much true. The West has not been made better by mass immigration of unskilled people from the third world.

        • 91B20 1stCav (AUS) says:

          Einhal – where is ‘the West’ ? (…and is it that ‘the West’ is now dealing with the inevitable long-term consequences of its various colonial activities, as other empires have? – ie: paying work and relative stability for the human creature are where you find them…).

          may we all find a better day.

        • El Katz says:

          See *France*

          Immigration isn’t bad. However, failure of the immigrants to assimilate is.

        • Einhal says:

          El Katz, chicken and egg. If you allow too many immigrants in at one time, and don’t force them to assimilate, they won’t.

        • WaterDog says:

          Check your family tree.

          You’re an immigrant.

          Your great grandpa was probably a poor unskilled farmer.

          Criminals come in all flavors and plenty are “native.”

  24. Micheal Engel says:

    Consumers spending is up. Debt service payments as percentage of
    disposable personal income is 5.7%. Add student loans payment.
    The total might be 10% to 15%, a new all time high > 2000 high, a recessionary level.

      • Micheal Engel says:

        1) Total household debt as % of disposable income is up to 90%, well below 2008.
        2) Total debt service is up to 5.7%. Within few loans payments as % of DPI might exceed the peak. Add $1.8T student loans to the actual debt.
        3) The extra $2T in noninterest bearing bank deposits plus other people deposits and CDs are fuel in the tank. It can keep the economy running for 2 – 3 more years.
        4) Drugs infested SF is no bs.

      • longstreet says:

        Who decides what part of my income is “disposable”?
        Consumer A makes X, lives high on the hog, has a big annual “nut”…
        he spends all his money on fancy house, mortgage, car maintenance, expensive clothes
        Another consumer with the same income…. lives a modest life style and has what would appear to me more “extra” money which he banks. His disposable income is high. The first guy’s isnt.
        Isnt what’s “disposable” a decision by the individual?

        • Wolf Richter says:

          Disposable income = total income minus income taxes and social contributions.

        • Swamp Creature says:

          They just raised property taxes by about 10% in Mont Commie County Maryland. My disposal income just went down. Wolf needs update his charts.

  25. CitizenSailor says:

    What about the Supreme Court knee-capping Biden’s student loan forgiveness plan? Nobody has been required to pay on those things for going on 3 years now. Over 43 million Americans owe student loans and the average debt is nearly $38k. That’s a small car payment on an extended loan plan that around 15% of the population hasn’t budgeted for. Might not be enough to cause a recession, but could put a damper on increased spending. Unless of course grandpa Biden kicks that can further down the road.

    • Wolf Richter says:

      As you can see from some of the comments here/prior article: the White House already announced a bunch of steps that would allow student loan borrowers to not make payments, to extend further, to get them forgiven sooner.

      As I said, I will just wait until I see borrowers actually making payments. This administration is hell-bent on buying votes from student-loan borrowers.

      • Lili Von Schtupp says:

        I keep hearing this bit about a ‘bunch’ of programs to not pay student loans and I’m left scratching my head exactly what and where all these programs are. Biden helped create this disaster in the mid-00’s and he’ll soil the bed one last time before any future success to discharge loans.

        As far as delaying repayment, the big red flag is after 3 years, government contracted loan servicers still aren’t prepared to resume payments. Why? We all knew the Supreme Court was gonna shoot Biden’s plan down. Hardly a shocker.

        The PSLF is still a huge joke at best and a massive lie to its core. The ones bailed out so far are people on Disability who should have been discharged all along and hadn’t been, a relatively small amount of people who were in scam universities like DeVry, and maybe a few more actually got their PSLF processed, again, as it should have long ago. Plus another small group whose federally contracted loan servicers scammed them.

        Everyone slags the teenagers who signed a bad contract, bit who’s looking at the ones who jacked up tuition through the roof then slid the bad contracts under their noses? By $ amount of loans owed, these teens are now in the 35-49 age range, and they still can’t repay. Saying its a personal responsibility issue and not a systemic failure of the colleges, employers who demanded advanced degrees for entry level positions and poor paying professions, and a government who failed oversight and borrowers for decades is disingenuous and political divisiveness. But blame the teenagers.

        I’m fine with repayment of my origibal balance owed plus interest, not the 150% increase of initial balance due to tacked on ‘administrative fees’. It should have fallen on the colleges and servicers to pony up, not the taxpayers.

        Of course, taxpayers should only bail out the PPP beneficiaries and of course the poor folks in the banks, auto and airline industries, bless their destitute hearts. (/s)

        • El Katz says:

          I agree 100%, Lili. There are zero consequences on both sides and that is contributing to the moral decay of this country. Protecting yourself from scam after scam after scam is tiresome.

          The demand for degrees for poor paying positions is a result of well intentioned laws that prevent employers from asking certain questions or administering certain tests because they, allegedly, were discriminatory. Now you have complex systems breaking down because people hired to keep those systems operating are incompetent.

          I worked for a large corporation and made hiring decisions frequently. To me, the degree was nothing more than an indicator as to whether or not that applicant could actually finish anything. It was not an indicator of their being the best and brightest. A 4.0 in PE had little value for the positions I needed to fill unless an aptitude in math and well developed logical thinking was included in the package. I wasn’t hiring seeds for the division softball team.

    • Lili Von Schtupp says:

      The meat of an email sent to Federal student loan borrowers today from the Secretary of Education Miguel Cardona:

      “…First, we are taking action aimed at opening an alternative path to debt relief for working and middle-class borrowers. We started the process to provide relief to as many people as we can, as fast as we can, through rulemaking. Under the law, this path will take time, but we are determined to keep fighting for borrowers and we will keep you updated in the months ahead.
      Second, the Administration is releasing the details of the most affordable repayment plan ever created, called the Saving on a Valuable Education (SAVE) Plan. Later this summer, borrowers will start saving money under the new plan, which will cut monthly payments to $0 for millions of borrowers making $32,800 or less ($67,500 for a family of four) and save all other borrowers at least $1,000 per year. Additionally, it will stop runaway interest that leaves borrowers owing more than their initial loan.
      Third, to help borrowers back into repayment, we are creating a temporary “on-ramp” to repayment for one year for those struggling to make payments. For borrowers who still cannot make their payments, we are creating a temporary “on-ramp” period that will help borrowers avoid the harshest consequences of missed, partial, or late payments. During that time, missed, partial, or late payments will not lead to negative credit reporting, default, or loans being sent to collection agencies. Borrowers who can make payments should do so, as payments will be due and interest will accrue during this transition period. Additionally, missed payments will not count toward loan forgiveness under any of the income-driven repayment plans or Public Service Loan Forgiveness…

      After all the traps we walked in on, if Millenials still buy into this tripe and vote this in again, they deserve their expensive degree from Bovine University. Yeah I said it.

      • Ltlftc says:

        “I’ll have those students voting Democrat for the next 200 years.”

      • JeffD says:

        If three years hasn’t been a long enough “on ramp” period, while employees were getting wage increases hand over fist for the last three years with record low unemployment, I don’t know what will be sufficient. Remember, all those loans taken are in nominal dollars at the time the loan was signed, so the massive inflation adjustment to wages over the last three years makes those payments much cheaper.

        • El Katz says:

          The logic of “making those payments cheaper” is great… until you realize that everything else went up and they’re either marching in place or going backwards.

      • MM says:

        How many degree-holders make less than $32.8K? I’d think the point of a degree is to earn more than that.

        • SoCalBeachDude says:

          The entire point of a college or university degree is to LEARN HOW TO THINK and comprehend the world better and not for some sort of compensation for doing so.

        • El Katz says:

          There was only one criteria I had for my kids if I was going to pay for their education and that was: The major had to be in something that you could leverage to earn a living. If they wanted to minor in something that had no commercial value, fine. But their major mattered.

          Reminds me of a friend of my son. She went to Texas A&M and continued on there to earn her Master’s Degree in bugs. Spent over $100K she didn’t have (but she did buy a nice pickup with the loan). Now she’s up to her eyebrows in debt and teaching elementary school in some low income area so the State of Texas gives her an additional stipend. Don’t think she makes $30K…. and the pickup died about 10 years ago from a lack of maintenance.

        • Lili Von Schtupp says:

          More than they should, that’s one of the main problems. For example, in the past two decades teachers in many districts have been forced to take on Masters Degrees (not eligible for Financial Aid — only student loans and whatever grants you can manage). Teachers aren’t exactly swimming in salary.

          Positions like public defenders & social workers also require expensive degrees. And the PSLF lie failed them all big time.

          The student loan finance business has been horribly executed and continues to be so. Imo quasi-blanket semi-forgiveness at taxpayer expense was intentionally designed to incite anger and division to avoid any true needed overhaul.

        • Einhal says:

          Lily, is a master’s degree a requirement for teachers in most states? I know it is in New York, but teachers in the NYC suburbs are paid very well, especially when you consider that they get Cadillac health plans and can retire with a full pension after 30 years.

        • Lili Von Schtupp says:

          Einhal quick googling can answer all your questions. Average Westchester teaching salary per Google is $45k-120k, broad range, in Westchester, average is $76k.

          Lets say you commute in to work because $76k in Westchester gets you some rich slob’s 90″ TV box to sleep in. Average house in Dutchess County is $489k. Rent is about $2500 unless you want to live in the spiciest parts of Poughkeepsie. Now factor in car/commute, student loans, and groceries and tell me how $76k is going to be a salary you can live on, save for retirement, etc.

          Not sure about your High School but in mine, the students had nicer cars than the teachers.

        • Einhal says:

          I think you’re looking at old data. AS an example, I Just googled it, and New Rochelle (hardly the richest place in Westchester) is an average teacher salary of $109k.

        • Lili Von Schtupp says:

          Your Googling one town that falls into the average range of the entire county does not old data make. Not sure last time you were in New Rochelle, but it ain’t remotely cheap.

          $90k salary of a family of 3 could qualify you for the lottery in one of the lower-income apartments in the new high rise that went up a few years back. Forget the name but have the application somewhere. Backed out when they wouldn’t accept dogs.

        • Lili Von Schtupp says:

          For jollies, Salary.com:

          New Rochelle School District (9,990 students)

          How much does a Public School Teacher make in New Rochelle, NY? The average Public School Teacher salary in New Rochelle, NY is $64,743 as of June 26, 2023, but the range typically falls between $54,066 and $78,959.

          Ossining School District (4,800 students)
          How much does an Entry Level Teacher make in Ossining, NY? The average Entry Level Teacher salary in Ossining, NY is $49,353 as of June 26, 2023, but the salary range typically falls between $41,213 and $60,188.

          Yonkers School District (25,488 students)
          How much does a Public School Teacher make in Yonkers, NY? The average Public School Teacher salary in Yonkers, NY is $65,452 as of June 26, 2023, but the range typically falls between $54,657 and $79,823.

          Chappaqua (3,563 students) kinda surprised me:

          How much does a Public School Teacher make in Chappaqua, NY? The average Public School Teacher salary in Chappaqua, NY is $65,269 as of June 26, 2023, but the range typically falls between $54,504 and $79,599.

          That isn’t Masters Degree salary, that’s ‘here’s my WCC degree now deal with it’ money.

  26. THEWILLMAN says:

    I think the age differential is going to come into play here as well. 50’s and 60’s exited the workforce en masse earlier than usual during covid – and the ones that stay around are increasingly discriminated against for high earnings positions. The CFO of Zillow is late 30’s. That’d be unheard of even 5-10 years ago. Countless other examples.

    So you have many late 30’s and early 40’s making incredibly high salaries right now (and since they think they have many more years of high earnings…spending a ton of it – and spending it differently than a demographic 20 years older would).

    When you take a gross measure like consumer spending – I think there might be enough here to drown out the people out there who are struggling. Each trip to Mexico City with 5 star accommodations and dinners at 3 star Michelin restaurants offsets thousands of households living paycheck to paycheck and trying to cut back.

  27. Thomas Curtis says:

    Thanks again Wolf! You make the macro much simpler.

    It looking like a softish landing to me… I am surprised to be saying that. I was short all last year. With Q1 GDP decently positive, employment strong, bank failures mostly corralled, and spending outpacing inflation I can conclude nothing else.

    I am buying back in. Nothing fancy, just safe dividend paying commodity plays that should benefit from long term 2.5 – 4% inflation.

  28. WaterDog says:


    What is your thought on Oil/Energy and Base Effects?

    Won’t CPU-U potentially spike higher towards Christmas?

    Barring recession/further oil drop or energy shocks.

    • Wolf Richter says:

      Yes, the CPI base effect will swing the other way starting in July. In October, the CPI insurance adjustment will end and possibly swing the other way. Energy may not drop a lot more.

      • Depth Charge says:

        Jerome Powell knows this, which is why it was a chicken sh!t move to pause. He’s stalling. I think the administration is involved, telling him they don’t want him to slow the economy down. They want the inflation. They are evil.

        • SoCalBeachDude says:

          The FOMC of the Federal Reserve is very wise and deliberate and makes all policy decisions including interests rate by consensus of the 12 member FOMC.

        • Flea says:

          Every thing they do just sinks the ship faster

        • Einhal says:

          SoCalBeachDude, yes, although the impression I get from all of the “unanimous” decisions is that there is a lot of groupthink going on.

  29. Micheal Engel says:

    Noninterest bearing banks deposits are down $700B from $5.5T to $4.8T,
    or $700B/$2.5T = 28% of the 2020/2022 tsunami size. Lending is shrinking, but banks charges tripled.
    The large regional banks swallowed guppies assets. During the next recession the regional whales might grow and compete with the primary banks.

    • Wolf Richter says:

      Money market funds and Treasury bills, where yields are higher than at banks, find lots of buyers. Banks need to pay more to retain their deposits, if they need the deposits (lots of banks are awash in deposits and don’t need them, but others do).

      • Bond Vigilante Wannabe says:


        At some point longer term rates have to go up and credit spreads need to widen.

        Seems to me that if growth is at 2% annualized and core inflation close to 5%, the 10 year treasuries at 3.8% with junk bonds around 6% simply makes no sense.

        When do you see a repricing occurring and what sort of catalyst would provide that?

        • Wolf Richter says:

          Repricing of longer maturities should already have happened. The mortgage market is pricing better. The average 30-year fixed is already back over 7%, for a spread of about 3.3 percentage points to the 10-year, which is huge. Typically the spread is more like 1.5 to 2.0 percentage points. So the mortgage markets is ahead in the repricing race.

        • SocalJohn says:

          I’m wondering if it has become more appropriate to compare mortgage rates to treasuries with a shorter duration than 10 years. Reason being that people expect (perhaps incorrectly) mortgage rates to go down within a few years, at which time most mortgages being issued now will be refied. That would mean that that investors in MBS would use shorter duration treasuries as the baseline (upon which they would add a spread) to arrive at rates that they demand. This could explain why the spread relative to the 10 year looks high. The 10 year is simply not being used as the baseline right now (rightly or wrongly).

      • Ltlftc says:

        FedNow is going live later this month. Current turn around for treasurydirect is a day or two. Not sure if treasurydirect will use FedNow right away or not, but should make transfers easier non the less at participants. Faster/cheaper transfers mean less reason to keep a balance at 0.01%.

        Current list of ready users:

  30. longstreet says:

    A fair return on one’s money IS and “economic engine”.
    Suppressed rates did not stimulate consumer spending, but it did allow/encourage the government to borrow more and spend more.
    Now we have the govt spending AND the consumer spending his interest income.
    Paging Jerome Powell….paging Mr. Powell. Now what?

  31. Root Farmer says:


    para 1: “Adjusted for inflation, so “real” personal income from all sources, rose by 0.3% in May from April, and by 1.6% year-over-year.”

    para 2: “Excluding transfer payments, “real” personal income from all remaining sources also rose 0.3% in May from April and by 1.6% year-over-year …”

    This indicates that transfer payments are rising at the same proportion as other sources of income. It is wonderful to see income outrun inflation. It would be even more impressive if the economic growth were leading to a decrease in the proportion of income claimed by the transfer payments.

    Is this due to the ‘juicy’ COLA for SS? Where are the biggest contributors to this growth. With unemployment at ~3.5%, doesn’t seem like UI would be a major contributor.

    Thank you for your efforts.

  32. Natron says:

    FRED has a graphic on the “Average Hourly Earnings of All Employees” that shows the opposite of your Personal Income graphic, with them not keeping up with inflation since the pandemic spike. Personal Income includes dividends, rentals, royalties and other asset based income I presume.

    Seems like only a portion of the population are the drunken sailors while the rest are still at the oars, to mix a metaphor or two…

    • Wolf Richter says:

      1. That’s irrelevant here. This is about GDP and consumer spending and consumer income — whether or not spending can continue overall.

      2. There was a HUGE spike in real hourly compensation due to all the stimulus and unemployment stuff, the PPP loans, etc. combined with a very low inflation rate during the lockdowns (CPI was close to 0% in March and April 2020), so a huge spike in real earnings, but that spike has now run off as inflation jumped and wages jumped, and now real wages are rising back to trend.

      Wage increases (4.3%) are currently higher than CPI (4.1%).

      • Natron says:

        The trend does look a little flatter including data before 2008 – the graphic I saw had the trend starting at 2015 or so, which leaves quite a ways to go to get back to trend there.

        Guess we’ll see if the little bump at the end is sustainable for the little guy. Meantime if the real estate and stock markets continue to ‘not crash’ I suppose the party will continue for awhile yet for the ‘owners’ of society.

  33. Micheal Engel says:

    The effects of 2020 “other”people money, your money tsunami are still with us. Noninterest bearing deposits, money markets and CDs are plenty of fuel to the economy.
    Prime age employees might reduce gov debt, work harder, become more disciplined & efficient and spend less on Chinese bs.
    Inflation will take care of their and US gov debt.

  34. SoCalBeachDude says:

    DM: Your Fourth of July cookout will cost LESS this year: Family can expect to pay $67.73 for a party of 10 – down 3% from last year’s record-high

    The cost of a Fourth of July cookout will be lower than last year but higher than two years ago, according to the American Farm Bureau Federation’s annual survey. Families can expect to pay $67.73 for a party of ten, down three percent from last year’s record high, coming to a total of under $7 per person. That estimation considers: hamburger buns, cheese, ground beef, pork chops, pork and beans, chicken breast, lemonade, potato salad, cookies, ice cream and chips.

  35. Concerned_guy says:

    May I ask what is the source of personal income data is coming from? If someone is operating a business how can any agency come to know what that companies and it’s owners personal income is in the month of may 2023?

    • Ltlftc says:

      Source: BEA

      • Concerned_guy says:

        That does not answer my question completely, so let me rephrase it.

        If someone is operating a business, how can any agency(BEA) come to know what that company’s income and there by it’s owners personal income is in the month of may 2023?

        This is just one example. I can come up with several scenarios..

        How can BEA or anyone know what someone (other than those who are on W2) has earned for a specific month of the current calendar year when the current calendar year has not finished?

        • Ltlftc says:

          It’s an estimate based on available data, of which is at least partially obtained in a survey, which is then seasonally adjusted. Which may answer your question. As for the data sources for the estimate, they make it a bit hard to pinpoint exactly, but:

          “Monthly Current Employment Statistics (CES) survey is a sample survey of business establishments that is conducted by state employment security agencies in cooperation with BLS. The CES (also known as BLS-790) covers payroll employment in private nonagricultural industries during the pay period that includes the 12th of the month. The data collected include series for total employment, number of production or nonsupervisory workers, average hourly earnings, average weekly hours, average weekly earnings, and average weekly overtime hours in manufacturing industries. (BLS has developed experimental series that extend coverage to all employees and that include irregular payments, such as bonuses.) These source data are primarily used in estimating PCE, wages and salaries, and nonfarm proprietors’ income. The CES data are usually released on the first Friday following the close of the reference month.”

          I found the above under chapter 3 of the nipa handbook on the bea website.

  36. gametv says:

    there is an interesting study performed by the Fed that indicates that 37% of non-financial firms are in distress and could default.

    i am thinking that the coming recession is going to be bad. this recession will be caused by firms that fail, not so much by financial pressures on consumers.

    it will be interesting to see if biden can extend student loan moratoriums again, despite the supreme court rulings. he knows that he needs to keep the spending afloat until after the next election and student loan payments are one of the biggest ways to pull money out of consumer spending.

    • Wolf Richter says:

      LOL. I already shot this down the other day. So I’ll just repeat it here.


      1. No, that’s NOT what “the Fed” said. But two researchers at the Fed published an academic paper. Link below.

      2. This is how they defined “distressed”: “Firms in distress are those whose distance to default is below the 25th percentile of the distribution of distance to default across the sample.” Got it?

      Kind of a funny definition of “distress,” LOL.

      3. They found that even in the best of times 10% to 22% of companies are in distress, including in 2018-2019 (22% were in distress, LOL), because a lot of businesses are ALWAYS in distress.

      And this is one of the charts:


      • JimL says:

        It amazes me how many people look for sources of information that confirm their viewpoints rather than ones that actually inform them.

        Thank you for setting it straight. Though it will probably fall on deaf ears for those looking for what they want to see.

        • 91B20 1stCav (AUS) says:

          JimL – the number of elected local school boards (who hold more power over curriculums than they are generally given credit for) resistant to the teaching of critical thinking might give one pause (…how many here, w/kids or not, have attended a meeting of one, recently?).

          ‘…as the twig is bent, etc…’

          may we all find a better day.

      • Maria says:

        This is a serious concern and corporate refinancing is cracking right now because of much higher interest rates. Also seen in higher and rising bankruptcies. Interest rates will affect businesses first because they need to roll their debt more frequently.

        • Wolf Richter says:

          Junk-rated businesses are rated junk for a reason: they’re overleveraged, and they don’t have enough cash flow to cover their interest payments, and so they have to borrow more just to take care of their debts. This was during the 0%-era. Many of them were creatures of leveraged buyouts by PE firms.

          If they cannot borrow more to pay off their old investors, they should file for bankruptcy, shed their debts under the supervision of a bankruptcy judge, wipe out their equity investors, partially wipe out their debt investors, and emerge with a lot less debt and much more nimble. That will be a good thing. That type of debt wide-out, at the expense of investors, is what this overleveraged economy needs to prosper and grow – after many years of interest rate repression.

          In general, companies raised their prices, and their revenues increased with inflation or faster than overall inflation, and so they can pay the higher interest rates just fine. They’ll just make less money. What’s wrong that? Nothing. And they’ll try to borrow less.

          You can tell by the corporate bond spreads that there is no distress in the corporate bond market despite the higher rates.

          Even the BB-junk bond spread is at 2.6 percentage points, which is fairly narrow by historical averages. In March 2020, it was 6.4 percentage points. During the Financial Crisis, it was over 12 percentage points. At the end of the dotcom bust in 2002, it went over 6.5 percentage points. During the best of times, it generally runs between 2 and 3 percentage points. And now we’re at 2.6 percentage points.

        • Swamp Creature says:

          Anyone who would buy BB or lower rated bonds or bond funds just to get a little extra yield needs to have their head examined. I wonder who the morons are that are buying these s$ithole investments.

  37. Stephen says:

    Who is buying bonds yielding much less than short-term paper for a GUARANTEED LOSS? The only reason someone would do this, is to manipulate long-term interest rates lower in order to prop up the stock market and the financial system. And who has pockets deep enough to buy enough bonds to smash yields lower and inflate bond prices? The Fed of course. Mom and Pop are busy buying Nvidia stock hand over fist.

    • SocalJimObjects says:

      I’ve already said it before, the PPT will turn up in force to boost the stock market. Government bond sales draining liquidity, the restoration of student loan debt payment, etc, etc, they’ve known this for the past few months and are well prepared for it. “The stock market is only driven by 7 names”, LOL, last I saw, breadth is expanding, and even Bloomberg is now saying the same thing. The PPT is addressing every single concern bears have on the stock market, and this market is going to the moon.

      Dow 900K!!!!

      • SoCalBeachDude says:

        There is no such thing as the ‘PPT.’

        • The Real Tony says:

          The PPT was formed after I crash the Dow Jones on October 19th 1987 at 10:20am in the morning by buying Dow Chemical which by a strange coincidence had the same ticker symbol DOW as Dow Jones.

        • Wolf Richter says:

          If there were really this PPT, stocks would never decline or crash. If there were this PPT, why would they have allowed the Nasdaq to collapse by 78% during the Dotcom bust, and the S&P 500 by over 50%? And eight years later, another 50% collapse all over again? It was six years of money-printing by the Fed that finally pushed the Nasdaq back up to 5,000 in 2015, about 15 years after it had first hit 5,000 in March 2000.

    • Concerned_guy says:

      Fed had been manipulating the market for last 15 years by buying bonds and mbs to prop up the asset prices aka wealth effect, and then people wonder why there is inflation and why the “haves” are spending like Drunken Sailors.

    • longstreet says:

      Former Fed Gov admitted just that in “The Power of the Federal Reserve” a PBS documentary that can be seen on their web site.
      They did it to FORCE investors to take more risk….but they also did a “cattle drive” for banks to malinvest in long term paper….and that is a problem.
      For every action, there is an equal and opposite reaction.

    • The Real Tony says:

      I told everyone to buy Nvidia at 20 bucks before the stock split. I did a parlay of Nvidia onto AMD when I sold Nvidia at 120 dollars well before any stock split. If it wasn’t for Trump’s trade war with China at the time was looking at more than a hundred million dollars.

  38. Crashburn says:

    So when is sp500 going 40-50% down like in 2009 or 2001.

    • SocalJimObjects says:

      Were that to happen then I would think the catalyst would come from some European country or South Korea. The UK economy in particular looks vulnerable, I mean their biggest water company, Thames Water is in trouble and their CEO just “left”. Their bonds are trading at 50%. The thing is, all their utilities companies are in terrible shape, and once investors figure out what it takes to rebuild the UK’s economy, I think they will all be running towards the exit. Perhaps at that time, the Fed will just issue enough money to buy the whole UK? It’s cheaper than a bailout.

      • Gomp says:

        When you think about it, most governments act like major corporations. Why not take them public through an IPO?

        • Rudolf says:

          Who-ho-hoa, easy there. Who would authorize a legal procedure like that without the govt. in the first place?

  39. Bobber says:

    People may think they are amazed at the strength of the economy.

    What is actually amazing is the continued misguided effort of the Federal Reserve to artificially boost asset prices for benefit of the top 10% of society, even when unemployment is low and inflation has been running hot for years. The Fed continues to stimulate the economy by leaving the $6T of money it printed in the market, where it artificially increases asset prices and distorts market functioning. Even with RE prices near all-time highs after rising 300% in many parts of the country, the Fed still stubbornly refuses to reverse out its money printing with any degree of seriousness.

    The Fed’s effort to abolish even mild recessions is absolute foolishness that continues to increase wealth concentration and societal disharmony.

    • Einhal says:

      100% agree. Wolf is right that it’s not feasible to remove trillions in a month or two, or the banking system will melt down, but the Fed could go FAR faster than the measly $75 billion a month it’s been doing (not even including the “temporary” SVB programs).

    • longstreet says:

      “ absolute foolishness that continues to increase wealth concentration and societal disharmony.”
      Central bankers forcing the markets pushing so much out of reach for so many
      The decision to buy MBS pushed housing out of reach for a great many of an entire generation

  40. Bond Vigilante Wannabe says:

    Looks like a rerun of the late 60’s early 70s.

    Massive fiscal and monetary stimulus, plus war spending (invisible to most Americans because war is in Ukraine). All made possible by Arthur Burns.

    Big question– what is the catalyst for the stupid bond market to wake up?

    A few of the dumb analysts I follow have started expressing anxiety following the Thursday bond market fall. So far little serious follow through however.

    In the 70s it took a while for the 10 year to shoot up, but when it did it refused to come down.

    Is the bond market going to “get it” faster this time? Or are they going to ignore it dreaming of a return to ZIRP?

    What do they need to see– hotter CPI print, Japan finally capitulating on yield curve control and getting it to a less ridiculous level, ECB to do more hikes, another bank to blow up SVB style?

    And most importantly, WHEN?

    • SpencerG says:

      Our spending on the war in Ukraine is a ROUNDING ERROR. $75 billion so far… and mostly equipment that we already bought (if not paid for considering a $34 trillion national debt) in the past two decades.

      Can we do it for ten years? NO.

      But neither do we need to. The Ukrainians have already set the Russian military back by two decades. Another year of this and we will need to consider helping the Russians fight off a Chinese grab of Siberia.

  41. Bobber says:

    Of course they will print money to deal with any hiccup.

    The current Fed policy is to avoid CPI deflation, asset price deflation, and mild recessions at all costs. On the other hand, it is OK to formally target inflation, or run multiples ahead of that target. There is never a reason to reverse out excessive inflation or other types of market excesses.

    That’s the true Fed policy we’ve seen in practice.

    As we sit here now, the Fed has printed $6T and spread it around via helicopter drop. This printed money was largely captured by some of the least deserving folks, including the top 1%, PPP and unemployment program fraudsters, medical and defense industry welfare recipients, and other federal program abusers.

    That money still bloats in the system. Initially it was spent on good and services, and that continues today to a lesser extent, but a large part of it has already wound up in the accounts of business owners and the top 1%, who are passing that liquidity between passive investments, like a hot potato, which artificially jacks up stock and RE prices.

    That’s why investments are perking up again. The money that was helicopter dropped, then spent, is now being captured by big business in the form of excess profits for the top 1%, which quickly leads to asset price speculation, just like we saw in the pre-pandemic period.

    The Fed needs to get out of the asset price inflation game, for everybody’s sake.

    • longstreet says:

      “There is never a reason to reverse out excessive inflation or other types of market excesses.“

      CPI /PCE since 2020 should be a little over 3 times the Feds illegitimate 2%.
      But we are way above that, yet we never hear the Fed speak of getting down to that trend line….ie 0% inflation for several years or price rollbacks.
      That is a “tell”.

  42. gametv says:

    I found a video online that was fascinating, it is called All Wars are Bankers Wars. It goes back in history and correlates the interests of bankers with wars. Pretty fascinating perspective.

    What really stuck out to me was that the Federal Reserve is not a government entity, it is a private bank. It is not subject to freedom of information acts and defended a lawsuit on this basis.

    So what right does a private entity have in managing the monetary policy of our country?

    When you think of it in this context, all the actions of the Federal Reserve make alot more sense. There is one overriding goal – keep rich people rich. So for example, when COVID threatened to trash every asset value, what do you do? Helicopter money to bail out the rich at the expense of the poor.

    This explains to me why the Fed chose to address inflation by raising short term interest rates instead of dumping the large balance sheet they had acquired (which would have driven long term rates higher). Selling the assets would have deflated the bubbles really fast.

    The US has become a financialized system – pump up the value of debt issuance by raising asset values, so the bankers can charge more interest and put the US taxpayer on the hook for any downside risk.

    The video goes alot further in also pointing out we have used wars to maintain the dollar as the global currency, therefore preventing the meltdown of the currency and allowing us to borrow endlessly.

    Those bankers intend to milk the US dry and move their money into other assets once the whole thing collapses.

    • SoCalBeachDude says:

      Congress created the Federal Reserve System and it is answerable to Congress and rebates 94% of its profits annually to the Congress of the United States and its purpose and authority is very clearly stated in the Federal Reserve Act which is a short 36 page reads at FederalReserve.gov which will enlighten your further.

      • William Leake says:

        If you believe our federal government is pretty much controlled by big business, it does not matter much whether the Fed is either supposedly owned by the private sector or supposedly owned by the government.

    • Wolf Richter says:


      “What really stuck out to me was that the Federal Reserve is not a government entity, it is a private bank.”

      This is a common misconception, it’s BS, and I have shot it down a gazillion times, and the parts of your comment that are based on this BS are therefor also BS. So here we go again:

      The Fed is a hybrid organization.

      The Federal Reserve Board of Governors is a government agency, and all its employees are federal government employees with a government salary and a government pension, including the seven members of the Board, including Powell. These seven members of the Board of Governors are appointed by the President and confirmed by the Senate. The Board of Governors has lots of employees, and they’re all employees of the Federal Government. They’re headquartered in the Eccles Federal Reserve Board Building, the main office of the Board of Governors of the Federal Reserve System. This is a federally owned building on 20th St. and Constitution Avenue in Washington, DC.

      The 12 regional Federal Reserve Banks are private organizations that are owned by the largest financial institutions in their districts. They include the New York Fed, the San Francisco Fed, the Dallas Fed, etc. All their employees are private-sector employees.

      The FOMC – the policy-setting committee – consists of the 7 members of the Board of Governors who are federal employees and have permanent votes on the FOMC. The New York Fed governor also has a permanent vote. The other 11 regional FRBs rotate into and out of 5 voting slots annually.

      The FOMC is designed to give the 7 government employees a voting majority over the 6 presidents of the regional FRBs.

      • Jon says:

        It does not matter if it is a private or hybrid organization

        What matters most is to know for whom the FED works.

        Looking at their actions so far it looks like they work for the wealthy.

        If FED has been really serious to tame inflation they would have

        NOT paused in June.
        Done QT more aggressive.
        Start selling MBS.
        Would have started qt and hikes 2021 when home prices spiked up by 40 percent and same for stocks.

        Don’t lose the forest for trees.

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