Canada slumps .... as will the US

OK, here I showed Mexico's PMI, which is falling fast.  So what's been happening to Canada?  Well, it's no surprise that it too is plunging.  In fact, the plunge started when Trump imposed his "beautiful" tariffs.  In common with much of the rest of the world, Canada had started a new upswing as the impact of interest rates started to wear off.   This upswing has come to an abrupt end.  (Heading towards Covid Crash levels!!)

This is what Canada and Mexico together are doing:

Together, Canada and Mexico buy about 20% of the US's exports.  So, we can expect a significant decline in US exports to these two countries.  And that's before the impact of retaliatory tariffs and boycotts.  

When we calculate GDP, we add exports and subtract imports to domestic spending [ GDP  = (C + I + G + NetInv) + X - M ], so the net effect on GDP, in a purely mechanical sense, should be close to neutral.  The problem is that this assumes that the demand for imports is replaced by domestic spending, and though some will be, it will be at higher prices.  That's the whole point of import tariffs:  to persuade domestic manufacturers to enter the market by making it more profitable.  So there will be shortages in the USA, and where there are not, there will be increased prices.   And since the tariffs change from week to week, no manufacturer is going to commit to new investment until things have settled down.  So there won't be much of a rise in employment or incomes, just a rise in prices and fewer goods available in shops.   In other words, the decline in imports, which arithmetically should lead to a rise in GDP, in fact will not. 

So far, Canada and Mexico have been the worst affected by the tariffs, for obvious reasons.  However, to a lesser extent, the Trump Tariffs are or will be having the same effect almost everywhere.  Which means the world economy and the US economy will slow.   We've already had one negative GDP quarter in Q1.  In Q2, imports [ M ]  will fall (increasing GDP), but so probably will exports [ X ], and consumption [ C ] (artificially boosted in Q1 by people bringing forward purchase to beat the tariffs) and inventories [ NetInv ] (built up ahead of tariff-induced price increases), all of which will reduce GDP.  Oh, and government expenditure [ G ](remember Elon's DODGY?) will also slump. 

Will the cavalry ride in to save us?  The Fed will be extremely reluctant to cut interest rates until the temporary (??) rise in inflation has passed out of the system.   And the economy takes time to respond to monetary stimulus.   In the bond market, always clearer-eyed than the share market, yields are rising, not falling.   It doesn't think the Fed Funds rate is going down soon.

Indicator after indicator points to a US and (prolly) a global recession.  (See next post).  This will be the second recession in my long career not caused by monetary or financial factors.  The first was the Covid Crash.  In my nightmares, I'm wondering whether this one will be as bad, just longer.

Commodity prices suggest world econ is troughing

 I talked about this, before, here.

The inverse relationship between the economy and commodity prices goes back a long way.  In the chart below, I show my calculation of world industrial production, compared with CRB commodity price index, inverted and lagged 24 months.  Why inverted, and why lagged?

When commodity prices surge, commodity exporters gain, but they don't necessarily spend their gains immediately.  Think of a rise in the oil price.  Motorists everywhere have to pull in their belts, but oil producers might just accumulate any windfall.   Total world demand, GDP, industrial production, etc., tend to go down.  At the same time, central banks respond to the rise in inflation caused by rising commodity prices by tightening monetary policy, and governments by tightening fiscal policy.   So a rise in commodity prices ultimately leads to a  fall in economic activity, and the response is lagged.  On the basis of the last 70 years, the lag is about 18 months to 2 years.

The irony is that a sharp rise in economic activity can lead to a jump in commodity prices which in turn leads, 2 or 3 years later, to a collapse in the economy, which leads to a plunge in commodity prices, and so on.  War, oil boycotts, sanctions can complicate this relationship, but the economic fundamentals remain critical.  For example, the export embargo by oil producers which led to the 1973 oil crisis and the deep 74/75 recession, only worked because economic demand was so strong.   

Right now, the turn in commodity prices, i.e., their sustained fall, is consistent with a troughing in the world economy towards the middle of this year.  It's not just the oil price which is falling, but also food prices.  Leading indicators, such as PMIs, have passed their low point, but the actual economy lags PMIs by 3 to 6 months, so that is also consistent with a mid-year turn. 

Why haven't we had the deep recession I forecast in my earlier piece?  Partly the stimulus provided by massive deficit spending by the USA as a result of the so-called Inflation Reduction Act ("IRA"), partly the spending rebound as the world came out of the covid crash lockdowns.   What will be the next factors to throw my forecasts awry?  Covid certainly threw several massive spanners into the works!

China should be stronger than this

I finally got around to updating my China data and indices.  And, according to my China diffusion index, which leads my coinciding index by 7 months, China's economy should be stronger than it appears to be.   It is however true that my China coinciding index is growing reasonably, on a month-on-month basis.  Yet there are so many signs of weakness. 

This is possibly because of the plunge in China's exports, now heading towards GFC lows:

And that in turn is because the world economy (or at least, the manufacturing chunk of it) is so weak:

I think I need to dig deeper.  I'll get back to you.   (Click on each chart to see it more clearly)

US GDP growth likely zero in Q2

I started calculating my QCI (Quick Coinciding Index) back in 1986, when my (first) PC only had 220K of memory.  There wasn't enough memory to calculate a full coinciding index with several components on that primitive machine.  I had to write programs that rolled matrices out of memory onto the disk to do the calculation of my US coinciding index, and then roll them back when I needed them, and that, combined with the slow speed of the microchip, meant that the calculation of the full coinciding index was very slow.   Hence the quick coinciding index.

It's nothing special, just an average of non-agricultural employment, industrial production and the volume of retail sales.  The close fit with GDP goes back decades.  

The chart shows the QCI through June 2023.  If the relationship between real GDP and the QCI holds up, expect GDP to reach zero YOY in Q2.   Not quite a recession.  Yet.

Same timescale comment applies as with the previous post.

[Update:  The "flash" estimate by the Bureau of Economic Analysis suggests GDP grew in the second quarter, by a strongish 2.4% annualised.  The perils of forecasting a single data point instead of a trend!  Still, this is a provisional estimate, and I've seen quite large shifts between the first stab at the latest quarter's growth and subsequent estimates when better underlying data become available.]

Services are all that's holding up the economy

 I've talked before about the post Covid Crash catch-up, as demand for services has boomed since the beginning of the year.   The chart below shows the manufacturing PMI vs the services PMI for the Big 8, and you can see the record gap.

Services normally follow manufacturing, and services normally have a smaller cyclical swing than manufacturing, creating a larger gap at recession lows.   But the gap that's developed now is unprecedented.  

With services holding up the economy, it has become less responsive to rises in interest rates.  Yes, manufacturing is in recession and getting deeper, but the overall economy is OK.  Will Central Banks have to raise rates further to bring inflation back under control?  There has to be a serious possibility that that will happen.  The PMI sub-indices and commentary show falling inflation in manufacturing, but not in services.   

This unprecedented overall whole-economy lack of response to tightening means, I think, that CBs will raise rates too high (in my opinion, they already have) and then, services will snap back to manufacturing.  At which point overall GDP will plunge.

Very interesting situation.  This is the first time in my nearly 50 year career in economics and funds management that this has happened.  Covid continues to screw up economic relationships.

At any rate, I'll be watching the trajectory of services PMIs very closely.

M1's decline as severe as during the Great Depression

 Here, I showed a chart of real (= inflation-adjusted) US M1.  The unadjusted version is as interesting.

As you can see, nominal (i.e., not adjusted for inflation) M1 is falling as fast as it did during the Great Depression (1929-1933).  It fell then because banks failed, and when that happened, their deposits were written off, causing money supply to fall.  It's happening now because The Fed is allowing its book of government bonds bought during the Covid Crash to run off without replacing them.   When that happens, the money it receives is extinguished (central banking is complicated to explain!) and so the money supply is reduced.  

The huge surge in money supply during Covid led to an economic boom (though fiscal stimulus exacerbated the boom) and a jump in inflation to 40-year highs.  Of course, there's never just one factor---inflation was worsened by the invasion of Ukraine, by a surge in commodity prices, and by supply chain hiccoughs.  However, there is no doubt in my mind that massive monetary stimulus in the form of zero interest rates plus quantitative easing helped overstimulate the economy and worsened inflation.   

Now the situation is reversed.  Interest rates have risen the fastest in 40 years, and money supply is falling as fast as it did in the Great Depression.  It is of course possible that neither of these two factors will lead to recession.  But, alas, it seems very unlikely.  

We must be alert to the possibility that the Fed's redefinition of money supply to include liquid interest-bearing deposits has changed its behaviour, but you would have expected the effect to be the other way, as precautionary motives and rising interest rates led to an increase in interest-bearing liquid assets.  But M2, which includes money market funds, is also falling faster than at any time in the last 60 years, though not as fast as M1.

The Covid Crash payback

A common pattern is emerging over the last couple of months, in Europe, the USA, Australia, and other places too.  Manufacturing PMIs are plunging, after a brief levelling off.  But service PMIs are rising sharply.  Here is the commentary from the UK news release from S&P Global:

The latest survey indicated a robust and accelerated increase in service sector output (index at 54.9), with growth the highest for one year. In contrast, manufacturing production (index at 48.5) decreased for the second month running and at the fastest pace since January. 

The contrasting trends for business performance in April largely reflected divergent demand patterns. New order growth hit a 13-month high in the service economy amid rising spending on travel, leisure and entertainment. Meanwhile, manufacturers attributed a renewed fall in new work to customer destocking, elevated energy costs and subdued demand for big ticket consumer goods. Similarly, export sales increased at a solid pace across the service sector, but manufacturers experienced a decline for the fifteenth consecutive month. 

I think the difference is due to a recovery from the Covid pandemic.  Manufacturing, directly impacted by rising rates, is struggling.  But people have been starved of travel and holidays and shows (travel, leisure and entertainment) by lockdowns.  And it's taken time for their plans to enjoy themselves to be realised.  So now they're flying away on holiday, staying at hotels and resorts, and going to see music and plays and bands once again, after a prolonged drought.

As this chart for the US shows, mostly the services and manufacturing sides of the economy move in sync, but manufacturing  (the blue line) tends to lead services (the orange one):

It is not often that services lead the business cycle---except with the Covid pandemic, because it was lockdowns (not monetary policy) which crushed services.  

In the chart below, note how the gap between manufacturing and services expands during recessions, with manufacturing falling faster than services.   Except, that is, during the Covid crash, when services fell much faster than manufacturing (the spike at the beginning of 2020).   The gap the other way between manufacturing and services now is "payback" for the gaps when services were below industry, evident since the beginning of the Covid crisis.

Click on chart to see a clearer image.
Chart shows gap between manuf and services PMIs
Shading shows US recessions

Having explained this anomaly to my satisfaction, and I hope yours, the obvious question is:  when will this end?  Is the post-Covid recovery in services over yet?  

It won't be until unemployment starts rising.  The problem is that, if overall GDP remains robust, because services are strong, and price increases in services remain high, Central Banks will go on tightening.  And because of the lags involved, they risk tightening too much.   By the time they realise their mistake, it will be too late.   But at that point, unemployment will be rising fast, and services will have followed their manufacturing brethren into recession.  

How many months away is that?  I don't know.  Any ideas?  Comment below.

The Fed funds rate and the cycle

Key to our perceptions of the economy and stock, bond and commodity markets is the relationship between interest rates and the business cycle.  Has the economy bottomed?  Or is it likely to fall deeper into recession?  If it does, how long will the recession last?  

The chart above compares the *change* over 12 months in the Fed's target Fed Funds rate with the year-on-year change in my monthly GDP proxy.   Because a rise in interest rates leads to a fall in economic activity, the change in the Fed's target Fed Funds rate is plotted inverted.  That is, rising interest rates are shown as negative.  For example, the rise in the Fed Funds rate over the last year, from 0% to 4.3% is plotted as a decline.  Doing it this way makes it easier to compare changes in interest rates with economic activity.  Also, because interest rates affect the economy with a lag, the red line (the change in fed funds rate, inverted) has been shifted sideways (lagged) by 18 months.  This gives you an implicit forecast of the likely change in economic activity over the next 18 months.

It's a little more complicated than that.  First of all, the lag isn't fixed.  As you can see, from 85 to 94, the lag was closer to 2 years.  On the other hand, it seems to be much longer with the GFC in 2008.  But over the last 15 years, 18 months has been about right.

Second, the amplitude of the declines in economic activity varies.  However, the two occasions with the biggest variation were with the GFC (2008) and the Covid Crash (2020).  The GFC was made much worse/deeper by the US mortgage crisis, after banks foolishly lent billions to borrowers who were unable to pay.  Debt defaults and bank crashes are often a consequence of central bank tightening and subsequent recessions, but this time round it was much worse.  

The Covid Crash caused a very deep but very short-lived recession. It wasn't caused by monetary or fiscal policy.

Take those two out, and the fit is much better.

Based on the relationship over the last 40 years, we would expect a recession as deep as the GFC over the course of 2023 and H1 2024.  And that's before any debt defaults and bank failures.  And before we take into account any fiscal tightening as the big covid deficits get scaled back.

OK, so could the relationship be about to break down?  Why would it?  Well, perhaps with Covid, supply bottlenecks, and war, these old (and logical relationships) might not work, for now.  I'm not quite sure why this should happen, but it exists as a possibility.  The world has turned topsy-turvy over the last 3 years.

A better argument is that in real terms, i.e., after inflation is removed, the Fed Funds rate is still negative.  In other words, the monetary tightening by the Fed is much less than it appears on the face of it.  The problem with that hypothesis is two-fold.  First, inflation expectations haven't lifted anywhere near as much as headline inflation, and it's inflation expectations which matter.  More important, the direct resultant of rising interest rates, money supply, is falling in real and nominal terms.  And actual prices matter for real money supply. 

At our Christmas function in 2007, I told clients that there was a serious risk of a deep downturn in 2008.  Mortgage default rates had reached record highs during an upturn.  If there was a downturn, default rates were likely to double, and that would take down the banking system.  When the first payrolls data came in on January 7th 2008, I recalled our dealer from his holidays and I went into the office (I was also supposedly also on holiday)  and we sold half the liquid shares, leaving small caps for later.  The consensus at the time was that there would be no recession and that the payrolls data were a 'blip'.  That consensus was completely wrong.

Once again, the consensus is clear:  the US will experience a soft landing at worst.  Stock markets are rallying on the back of this.  

I suspect the consensus is wrong again.  

Of course, the consensus may be right, and I may be wrong.  We shall see.

The missing workers who are never coming back

From Axios

Federal Reserve chair Jerome Powell struck a particularly somber note at his press conference earlier this week when he mentioned that one reason the labor market is so tight right now is that many workers died from COVID-19.

The big picture: Economists have theorized for a while about the impact of COVID deaths on the labor market. Now, research has started to emerge and key public figures like Powell are starting to talk about it explicitly."Close to a half a million who would have been working ... died from COVID," Powell said while talking about the U.S. labor shortage.
Go deeper: In a footnote to a speech he gave on Nov. 30, Powell estimates that 400,000 working-age Americans died in excess of what was anticipated pre-pandemic.

State of play: Compared to pre-pandemic projections, there are around 3.5 million people effectively missing from the American workforce, as Powell explained in that speech at the Brookings Institution.This number includes older workers who left the labor force earlier than expected. "These excess retirements might now account for more than 2 million of the ... shortfall," he said.
The other 1.5 million comes from a decline in immigration and "a surge in deaths."
Overall, 1.09 million Americans lost their lives to COVID-19, according to Johns Hopkins data.

💭 Our thought bubble: The role these deaths play in the economy often gets overlooked, possibly because it's so devastating to contemplate.But when considering the state of the U.S. workplace, it's worth remembering that many Americans lost colleagues, friends and loved ones over the past few years. It's a toll that will take many years to understand and lifetimes to grieve.


Read more: Jay Powell explains America's worker shortage

Oz PMI falls in December

 It's provisional data based on 80-90% of the sample population, but the trend is obvious.  Since it takes many months for the economy to respond to rising interest rates, the decline is likely to continue.  A recovery in China might help mitigate the Australian recession, but with Covid deaths and illness soaring there, it's hard to be sure just how strong the probable upturn in China is likely to be.  And offsetting that there's the fact that house prices in Australia rose sharply as interest rates were cut to zero during the Covid Crash and have a long way to fall to get back to "normal".  A house price crash here in Australia seems all too likely.

Have we seen the bottom of the bear market?

 Short-term, Wall Street is now very overbought (lower chart).  Normally, that will be followed by a retreat.  Markets (and economies) tend to move in waves, with small waves and bigger waves and sometimes giant, decades-long waves.  But movements in the short waves can give us some guide to likely moves in the somewhat longer waves.  For example, if the share market goes sideways from here, momentum will decrease, and it will move from being overbought to oversold without falling.  Being oversold, the next likely move would be up.  So that's something to watch for.  We have seen one very tentative sign that we might be approaching a cyclical bottom:  the last oversold downward spike in momentum didn't go as low as the previous one, often a sign of an impending cyclical turn, i.e., the beginning of a new bull market.  However ....

[Continued below these charts .....]

The trouble is ..... the market isn't cheap.  Look at the chart below, showing the dividend yield for the S&P500 and the 10-year bond yield.  Before the Covid crash, the D/Y averaged 1.9%.  Let's regard this as "normal" for the sake of the argument (it isn't normal, but it'll do for now)  Then the Fed cut the Fed funds rate to zero, and embarked on a massive program of quantitative easing (QE)  After plunging, so that the D/Y rose to 2.6%, the combination of massive fiscal stimulus and zero interest rates drove the market back up from an index level of 2237 to a peak of 4793, and the DY down from 2.6% to 1.2%.  

So if we are returning to a pre-Covid "normal" state, the DY should be 1.9% instead of 1.6%, which means either dividends have to rise by 20%, or the market has to fall by that amount.   Yet dividends are unlikely to rise.  A recession (mild according to most analysts, but possibly severe, according to me) is on the way.  Moreover, during the bull market from the Covid crash lows, fiscal and monetary policy were hugely supportive.   But the opposite is true now.  The Fed might have slowed the rate of increase in the Fed Funds rate, but it hasn't stopped lifting rates.  And, despite claims of a spendthrift Democrat administration, fiscal policy is tightening.  And that's before we get to soaring inflation and oil prices.  Yes, they have prolly peaked for this cycle, but the Fed won't end its penchant for rising rates and tightening policy until they are certain inflation is heading towards their target.  Even rising unemployment and falling payrolls may not deter them -- and we're not seeing anything like that yet.  Payrolls are still rising by more than 200K per month.  It's a good idea not to bet against the Fed.

Where am I positioned?   I'm sitting on a lot of cash in my notional portfolio---which has however underperformed for the last few weeks!  But I've been wrong before.  And no doubt will be again.  I'd be much more convinced that we're beginning a new bull market if the DY was back at 2.5%, in other words, if we'd had the final capitulation plunge, the last panic-stricken sell-off before markets rally.  As we had during the Covid Crash.

The usual warnings apply:  I could be wrong; these opinions are free and, like most free things, worth what you paid for them; forecasting the future is difficult; past performance isn't necessarily correlated with future performance; your personal circumstance may differ (e.g., you might only care about long-term performance); the share mkt might be looking through the  recession to the airy uplands of recovery later in 2023 (seems a bit early to me, but ....) .  

Big 4 PMI slides again in November

 S&P Global (who took over IHS Markit, and now produces the PMI surveys) releases "flash" (provisional) PMIs for just 4 of the big economies: The USA, UK, Euro Zone, and Japan.  But the correlation of the "Big 4" with the "Big 8" is (no surprise) close.  

Both series are calculated from the extreme-adjusted series for each country, weighted by PPP GDP.  The "Big 8" PMI crossed the 50% "recession line" in October, and so will likely have retreated further in November.  Note that extreme-adjustment sharply attenuates the downward spike in GDP during the Covid Crash in early 2020.  These indices are now lower than they were during the Euro crisis in 2012.

US "flash" PMI falls again

The provisional PMI for November slid even deeper into recession territory.  The PMI is now the lowest it's been in the last 10 years, apart from the Covid Crash.  Reminder:  The Institute for Supply Management (ISM) manufacturing index has data going back to 1937, though I only have it back to 1948.  That's still above Covid Crash levels, but we don't yet have data for November.

Big 8 Unemployment at 40 year low

 My calculation of unemployment for the 'Big 8' (US, Europe, UK, China, Japan, India, Brazil, Russia ― about 75% of the world economy)  shows that unemployment has fallen to lows not seen for 40 years.  Part of that is a consequence of the 'sugar hit' of massive fiscal and monetary stimulus, part is because the labour force has contracted because of Covid.  

Global electricity demand slowing this year

 From RE News

The world’s electricity demand growth is slowing sharply in 2022 from its strong recovery the previous year as economic growth weakens and energy prices soar following Russia’s invasion of Ukraine, according to the IEA’s latest Electricity Market Report.

Global electricity demand is expected to grow by 2.4% in 2022 after last year’s 6% increase, bringing it in line with its average growth rate over the five years prior to the Covid-19 pandemic, the new report says.

While electricity demand is currently expected to continue on a similar growth path into 2023, the outlook is clouded by economic turbulence and uncertainty over how fuel prices could impact the generation mix, IEA said. 

Strong capacity additions are set to push up global renewable power generation by more than 10% in 2022, displacing some fossil fuel generation.

Despite nuclear’s 3% decline, low-carbon generation is set to rise by 7% overall, leading to a 1% drop in total fossil fuel-based generation.

As a result, carbon dioxide (CO2) emissions from the global electricity sector are set to decline in 2022 from the all-time high they reached in 2021, albeit by less than 1%.

In the first half of 2022, average natural gas prices in Europe were four times as high as in the same period in 2021 while coal prices were more than three times as high, resulting in wholesale electricity prices more than tripling in many markets.

The IEA’s price index for major global electricity wholesale markets reached levels that were twice the first-half average of the 2016-2021 period.

Due to high gas prices and supply constraints, coal is replacing natural gas for power generation in markets with spare coal plant capacity, particularly in European countries seeking to end their reliance on Russian gas imports.

To secure energy supplies following Russia’s invasion of Ukraine, some European countries have delayed coal phase-out plans and lifted previously imposed restrictions on coal.

Globally, coal use for power is expected to increase slightly in 2022 as growth in Europe is balanced by contractions in China, due to strong renewables’ growth and only a modest rise in electricity demand, and the United States, due to constraints on supply and coal power plant capacity.

Gas power is expected to fall by 2.6% as declines in Europe and South America outweigh growth in North America and the Middle East.

Renewables are now a large enough ratio of total electricity supply that an increase of 10% per annum in renewable electricity output  is enough to lead to a small decline in fossil fuels burnt to make electricity.  This is good news, though the decline is nowhere near fast enough.  And it is also offset by fossil fuels used in transport, which are still rising.

Source: Our World in Data
Note: this covers all energy, not just electricity, i.e.,
it includes cars, aircraft, ships etc.
The big fall in 2020, and the rebound in 2021 is due to covid

Wear your mask

 Wearing a mask reduces your risk of catching Covid, and if you have it without knowing, reduces the risk of others getting it.  

More Australians are dying from Covid now than from any other single cause, including bowel cancer, which used to be the largest cause.  And, as if that isn't bad enough, you have an equal risk of getting long covid every time you are re-infected.  

Just wear a mask when you're on public transport or in the shops or at work.  It's not hard.

Covid distorts the stats

 After rebuilding my programs and updating my data banks, I have started to once again be able to calculate world industrial production and world GDP.  The way I do that is to calculate IP and GDP for each continent.  

I was the first person to calculate monthly world industrial production back in 1992.  I did it to explain movements in commodity prices, because OECD industrial production didn't cover China, Brazil, Russia, etc.  By factoring in these fast-growing economies, the surge in commodity prices made sense.  Now, of course, including large developing economies in our calculations is standard.

To create my early version of world industrial production, I did a lot of trawling through old physical copies of the UN Monthly Statistical Bulletin and other paper data sources to obtain industrial production data to feed my indices, and I have kept those time series more or less up to date, though recently, various factors led to my letting them get a couple of years out of date.  

I have now updated these records, and can once again calculate world industrial production and GDP, as well as regional indices.  

The chart below shows GDP-weighted IP and GDP for South America,  extreme-adjusted, which helps reduce the Covid-related  downwards spike in 2020.  I have also expressed the indices as a percentage of their long-term moving trend.  As economies develop, the trend growth rate gradually slows.  Expressing the underlying series as a percentage of its own moving trend allows us to understand the business cycle better.

One interesting result is that industrial production has rebounded much more strongly relative to trend and on a year-on-year basis than GDP, despite both falling year-on-year by similar percentages.   Otherwise, as you can see, industrial production usually tends to have very similar cycles to GDP.

I should be able to calculate world GDP and industrial production tomorrow, and I'll post the results then.

Wearing masks will traumatize us

 Righthandedleftyartist has an Instagram page, but since I refuse to use Instagram, I can't link to it.  If you have Instagram, you'll be able to see his other cartoons there.

Long covid reducing labour force

From a Twitter thread by Eric Feigl-Ding

Whoa— @bankofengland just warned that deep concern of surging #LongCovid is taking workers out of the workforce. The spike  in workers age 16-64 who do not work because of long term illness during the #COVID pandemic is alarming, and fast increasing. [Just look at this] Bank of England graph again… the surge in women not working due to long term sickness is now at a 30 year high!! Jesus.

“Since Q4-19, the number of people aged 16-64 years that are outside the workforce and do not want a job has risen by 525,000 (1.3% of the 16-64 age population). This **largely reflects increases in long-term sickness** (roughly 320,000 people) and retirement (90,000) “The share of the 16-64 who are outside the workforce and do not want a job because of long-term sickness is a record high, with an especially sharp rise among women—much of this rise in inactivity due to long-term sickness reflects side effects of the pandemic, eg Long Covid”

Don’t forget that #LongCOVID also carries the risk of being denied life insurance as well as possibly, I predict, employment denial in the future as well. We know this may likely happen, as seen by the employment trends already recognized above. Don’t risk mass infection! US’s Federal Reserve Chair now also warns about persistent labor shortages. Like the UK, the labor shortage will be very acute, and likely due to pandemic related long term illnesses.

in terms of inflation, the Bank of England says, aside from Energy, COVID EFFECTS ON DEMAND and COVID EFFECTS ON COSTS and LABOR are major contributors to inflation.

Inflation is likely to trend higher because of the labour shortages Feigl-Ding talk about, but it's not the only factor.  Covid and the Ukraine war have shown  that 'just in time' manufacturing, and 'outsourcing' to foreign countries, risks creating supply blockages.  In effect, these factors have contracted overall supply of goods and services, which means that ceteris paribus, inflation will be higher than normal.  

UK business confidence

 After my analysis of Russian business confidence, I also looked at UK business confidence.  This has an even better correlation with the overall PMI  than it does in Russia.  You'd have to conclude from these data that growth is slipping, but remains at the peaks of previous business cycles.  However, *if* it keeps on slipping, you'd be looking at recession in H2 2023, entirely consistent with the rise in the Bank of England's discount rate, as extreme measures introduced to support the economy during covid are withdrawn.