Here's the Deal with the Economy- December 15, 2024

Economy: In Slowdown

Market Cycle: Bullish

_{Week 50 of 52 for 2024: 96.2% of the way through 2024}

Table of Contents

• More red flags popping up.

• Inflation’s resurgence.

• Economic plans are making matters worse.

• Shelter inflation making matters more difficult.

• Yield Curve close to uninverting.

• More tariff talk.

• UNH murder.

• Buh-bye Yoon Suk Yeol

• WTF FTC

• Another rate cut this week.

• Anecdote from this past week’s travels.

• Most Important Data Drops from the Past Week:

Weekly Note:

Back and well rested after some much needed downtime at the beach. If you are wondering if I kept up with the economy while gone, the answer is, of course I did. Obsessions don’t take vacations. On the contrary, they tend to strengthen with time to reflect and a mind wired as mine. Especially when it is the very vacation which triggered a major “ah-ha” moment for The Economy Tracker. But that is a story for another time. As this week revealed a few huge developments on the current state of the economy.

More red flags popping up.

Building on last week’s news about a weakening job market, this week brought additional concerning data on inflation and the Yield Curve. These signals reinforce the fact that the U.S. economy is currently in an Economic Slowdown. The second-to-last stage of the credit cycle which almost always serves as a precursor to a recession.

Inflation’s resurgence.

We’ve been anticipating stubbornly high inflation, and it continues to persist. As the Consumer Price Index (CPI) and Producers Price Index (PPI) both showed a second consecutive month of higher rates of inflation than the previous month.

Making matters worse, PPI continued to confirm its new uptrend since early 2024. Concerning as PPI tends to lead both CPI and PCE. Revisions higher to last months PPI and Core PPI data adds to the troubling trend of a growing resurgence of high inflation.

The result of which sent bond yields soaring this past week. Closing 6% higher on Friday than where they opened on Monday morning.

Reminding us that we’re not out of the woods yet with these challenging issues.

This is unfolding right on schedule, and we’re now at a critical juncture: is the recent upward trend just a temporary bounce, or could it develop into another wave of excessively high rates of inflation?

Time will tell, but at this point it’s beginning to look like another wave higher.

Don’t shoot the messenger. I just work here.

(November’s PCE data comes out this coming Thursday, Dec 19th.)

Economic plans are making matters worse.

This comes as the U.S. looks to add to inflationary pressures with policies like tariffs, increased federal spending, planned mass deportations of lower wage workers, and tax cuts. It’s a powerful reminder that economic forces, like policies, have their time and place. The timing of which makes all the difference.

You do not run the ball on 4th and 27 when down by 4 on the final drive of the game. Does that mean that you should never run the ball? Of course not. Taking that leap is an example of extremist thinking. The goal is to do the right things at the right time. And these policies are the wrong ones at precisely the wrong time.

While D.O.G.E is reportedly looking to chop $2T from the federal budget, that number is in a word “insane” as it represents about a third of yearly expenditures. That level of austerity would lead to severe and long-term economic hardships which would primarily be shouldered by the lower and middle classes. It’s another example of how those in power do not understand the economic system in which they oversee.

Shelter inflation making matters more difficult.

One important factor to keep in mind is the rising cost of shelter, whether it’s owning or renting a home, which is only beginning to show up in inflation data. This delay happens because shelter costs have a lagging effect in the formulas used to measure inflation. Meanwhile, the high cost of home-ownership is helping drive a growing trend: more residential neighborhoods are being designed and developed as rent-only communities. This shift, which began in the late 2010’s, reflects how economic pressures, brought upon by a lack of housing units and in particular affordable housing units, continue to reshape the housing market and put upward pressure on prices which ripple throughout the economy.

Compounding both issues of high inflation and unaffordable housing is higher home-insurance rates which appear to be here to stay.

Meanwhile, this is all playing out while businesses which cater mainly to lower-income consumers are reporting signs of financial strain. Significant, as Economic Slowdowns and Recessions tend to hit lower-income earners first.

Yield Curve close to uninverting.

A major development this week as the 10yr minus 3month Yield Curve is now on the verge of uninverting on a weekly close. As stated back in the Sept 7th, 2024 edition of Here’s the Deal, when the 10yr minus 2year uninverted, this is the biggie in which to pay attention. Typically when this happens, a Recession is followed within a few months.

More tariff talk.

On the topic of tariffs, Canada reiterated this week that they plan to impose retaliatory tariffs on U.S. products in response to those placed on their goods entering the U.S. While China signals bolder stimulus next year as Trump returns.

Although, China officials won’t say by how or by how much.

These reactions aren’t surprising. It’s how the global economy operates. No country is likely to stand by and allow itself to be pressured without pushing back. If they did, it would set a precedent, making them vulnerable not only to further demands from the U.S. but also to similar actions from other nations. It’s also a lot of posturing for stronger positions in which to negotiate.

Meanwhile, business leaders are trying to get the message to Trump of how his tariff plans will more than likely hurt the economy and most people in the country, outside of the wealthy who can easily afford higher prices, but to no avail.

UNH murder.

This week, new information came to light about the alleged murderer of UnitedHealthCare CEO Brian Thompson. While I suggested last week that the real villain in this case was the insurance industry, that has been proven wrong as more details about the alleged perpetrator have come to light.

This individual was not someone struggling with a debilitating health condition or part of a family working tirelessly to make ends meet; circumstances many have highlighted online when sharing their difficult experiences with UnitedHealthCare. Nor was he someone battling the systemic challenges faced by those paying rising premiums while seeking coverage for critical, sometimes life-threatening, health needs.

Instead, the alleged murderer reportedly comes from a life of privilege, and, notably, UnitedHealthCare wasn’t even his insurance provider.

Imagine that, a person that allowed themselves to become so depraved that he makes the insurance industry look like a victim. I did not think that was possible until this week.

Worst part is, his alleged actions do more to harm those already being victimized by UnitedHelathCare and the insurance industry.

There is and has been an urgent need for a meaningful and difficult conversation about the state of the insurance industry and the government programs that exacerbate the problems within it. My hope is that this incident doesn’t detract from those much-needed discussions.

If the details we now know are accurate, then the situation unfolded as follows:

• A privileged individual, raised in a wealthy and close-knit family, sustained an injury while surfing during an extended vacation in Hawaii.

• Then trekked around Asia after getting back surgery.

• He had no direct connection to UnitedHealthCare and it was not his health insurance provider.

• Despite this, he allowed himself to become so radicalized that he allegedly committed murder by shooting another person in the back for the sins of a company in which the victim was an executive and industry which he was a part.

• He was ultimately identified because he reportedly decided to flirt with the receptionist at the hostel where he checked into in order to carry out the murder.

This tragic chain of events highlights the dangers of allowing your thoughts to spiral into radicalization and poor decision-making that come from consistently feeling sorry for yourself.

Remember that whenever someone tries to claim he’s some sort of hero.

If he did carry out this murder, he’s no hero. Just a gutless coward who refused to control his own thoughts while shunning those trying to help.

He may have been a valedictorian at a $35k+ per year high school and ivy league graduate, but his alleged deplorable act severely hinders the conversation needed about the insurance industry. Showing an incredible lack of intelligence and self-awareness.

This is an incredibly heartbreaking story from every angle. My heart goes out to the families of both Brian Thompson and his alleged murderer. The pain for Thompson’s estranged wife and sons must be unimaginable, as is the anguish of the alleged perpetrator’s mother, who had been trying to reach her son and bring him back to reality. For all of them, being thrust into the spotlight of such a major national story only compounds their suffering. All because of one individual’s selfish and destructive decision.

As more details inevitably emerge in the months and years to come, this story may yet provide deeper insights into systemic issues, such as the insurance industry and its broader economic impact. If so, we’ll pick it up again at that time.

Buh-bye Yoon Suk Yeol

Speaking of bad decisions, South Korean President was formally impeached this week over his massively ill-advised decision to put the country under Martial-Law for nothing more than to silence his political rivals. Lol. You love to see it.

WTF FTC

Meanwhile the FTC has decided to take action to raise wine and spirit prices as the economy moves through the Slowdown and towards a more than likely recession. Taking issue with discounts provided to retailers that buy far more product than smaller stores. Weird, as supposedly the whole point of the FTC is to protect consumers.

It’s also about as anti-business and anti-American as you can get. Trying to ban larger discounts to customers who purchase far higher quantities than most speaks either to a complete lack of understanding to negotiating and how businesses operate, or just good ol’ fashioned corruption.

Thankfully, this one is more than likely short-lived as Trump this week tapped Andrew Ferguson, who cast a dissenting vote in the 3-2 decision to move forward with the suit, to replace Lina Khan as FTC Chair.

The decision comes on the heels of Albertsons and Kroger terminating their merger after it was blocked at the judicial level due to the FTC as well.

Another rate cut this week.

Adding to the current active economic news cycle, it’s once again Fed Week. As the Federal Reserve will announce their next interest rate decision on Wednesday, December 18th. As of now, there is a 96% chance that The Fed will once again cut .25%. Bringing the Effective Fed Fund Rate down to 4.25% - 4.50% from the current level of 4.50% - 4.75%.

After which I expect the Fed to pause for a bit to see the effects of what would then be a full percentage point cut. Just as strengthening inflation poses challenges for Trump and The Fed.

It will be interesting to see how much November’s inflation data, will affect the Fed’s decision this week and into the coming months.

As always, we’ll see what they say and read between the lines based on what we know about the current state of the economy.

Anecdote from this past week’s travels.

On a side note, here’s some anecdotal information from my travels this week. 50 open seats on the way down to Cancun, and only 48 passengers total on the return flight. Whereas the last two years were completely full with two direct flights per day as opposed to only one for the same trip this year.

I also noticed fewer people at the resort, on the beaches, and in restaurants than the past few years on the same trip.

Again, anecdotal… Buuuttt, also right on time with what The Economy Tracker is telling us.

Unfortunately, the coming year is shaping up to be quite a bit more bumpy than the last couple. Which is always the case on the backside of a credit cycle, where we firmly find ourselves at the moment.

Other Top Economic Stories of the Week:

Trump Eyes Privatizing US Postal Service, Washington Post Says

Why it matters: This would help with the federal budget as USPS took a loss of $9.5B in FY24 and $6.5B the year before.

What China’s Persistent Deflation Means for the World

Why it matters: Ironically, China’s deflating economy and their actions of dumping more lower cost items on the rest of the world angering most countries could help with our battle against inflation in the US. In turn, it could also help China revive their economy as well. Talk about a plot twist.

Meta Platforms is urging California’s attorney general to block OpenAI’s planned conversion to a for-profit company, siding with Elon Musk

Why it matters: The power plays in the land of AI are heating up. Then again, I’d be pissed too if I donated to a non-profit which then decided to turn around and become a for-profit business after they used all of the advantages and “donations” of a non-profit to build the business. This is a pretty shady maneuver by ChatGPT, and well deserving of this level of push-back.

In a Test of Adult Know-How, America Comes Up Short

Why it matters: It’s just not the kids that are getting dumber in the US, adults are as well. Looks like dumbing down our schools the past few decades was actually a bad idea and not a conspiracy theory after all.

Most Important Data Drops from the Past Week:

If you enjoyed this post or found it useful, do me a favor and hit the like (heart button all the way back to the top of the post and to the left) and share it with others.

Click the Leave a comment button if you have any questions or comments, or need something clarified. Don’t be shy. The main point here is to improve constantly. Questions and comments help us both and tells me what you are interested in learning/hearing more about.

Learn. Improve. Pass on.