Every single point of Fed cut is worth roundabout a million jobs, while every trillion of investment is also worth a million jobs. The problem, of course, is that it all takes time. The FED is looking at three quarters of a point cut the next year, while that tsunami of foreign investment will take years to go from planning to blueprints to construction to operation. --Peter St Onge
New data says millions of Americans are struggling even as GDP soars. Are we becoming a two-speed economy with party at the top, misery at the bottom? The last couple of weeks showed spreading pain among low-income and even middle-class Americans. One study found foreclosures jumped 20% year over year after a decade laying dormant. Car loan delinquencies are up 50% this year. In fact, 60-day late car payments hit a record high, worse than 2008. Repossessions hit 1.7 million, also worse than the 2008 crisis. Another study found 68% of Americans are living paycheck to paycheck; that's up 10 points in the last 18 months, 43% of them have trouble paying their monthly bills. Combined with recent job weakness it's painting a picture of essentially three Americas: a rich quarter who is doing fantastic, a middle half who's running down assets and starting to miss payments, and a bottom quarter who is close to going under.
Now this pattern did not start yesterday. In fact, it's the theme of Joe Biden's four long years where we got a so-called k-shaped economy with the rich soaring to new heights, while everybody else treads water or sinks. To illustrate, a study by Moody's found the top 10% of households now account for 49.2% of spending; that's up almost five points since COVID. Interestingly, the bottom quarter also rose since COVID thanks to trillions dumped into welfare and social spending using COVID as the excuse. To illustrate, SNAP alone grew almost 70% since COVID. In other words, the middle class is getting squeezed on both ends. Now, help is on the way. According to the Atlanta Fed, GDP right now is growing at a blistering 4% led by trillions of investment flooding into reshoring production and, of course, AI data centers. Meanwhile, mass deportations and departures are already 2 million plus, which is driving down rents and used car prices. Rents are currently falling by 4% annualized, all while blue-collar wages just hit the highest growth in 65 years. Still, Biden left a deep hole and Trump's made back barely a quarter of the loss in real incomes. Moreover, those trillions of COVID benefits and stimmies resets spending levels for a lot of middle-class households. They got used to spending more than they make, and are now losing their cars and apparently their houses.
We've got two big growth engines coming: Fed cuts and those trillions of Investment. Every single point of Fed cut is worth roundabout a million jobs, while every trillion of investment is also worth a million jobs. The problem, of course, is that it all takes time. The FED is looking at three quarters of a point cut the next year, while that tsunami of foreign investment will take years to go from planning to blueprints to construction to operation. Meanwhile, if AI job losses ramp up, it could gobble those millions of jobs as fast as they're born. If that happens and jobs are still sluggish by midterms, voters may take it out on Republicans and see if socialism works this time.
