“Transitory”- the magic word of the moment for the economy. It’s even more magical than the word “inflation” b/c it defines & qualifies the inflation.
The Fed has been warning us about “transitory” inflation- due to base effects, pent-up demand, & supply chain constraints- for months.
Now that we are beginning to see inflation materialize, some equities investors are worried (and the bond market can’t decide how it feels).
But this inflation we’re about to see, should, in fact, be transitory … at least until an infrastructure bill is presented to the House for a vote.
If, during the (alleged) “transitory” period of inflation, a two-trillion dollar (or so) infrastructure law looks more & more likely to be passed in Congress or forced-through in reconciliation, “transitory” inflation could run, head-on, into “sustainable” impulses (even the social programs that comprise a large part of the present plan will mean new buildings and build-outs that require metals, lumber, and concrete, communications infrastructure, oil and gas, construction workers, and, of course, full-time employees to administer and oversee the programs; such programs, themselves, will require physical infrastructure in which to operate.)
Some investors and market observers posit that the long-term nature of an infrastructure plan, where the spending would be spread-out over 8-10 years, would make it less inflationary. But once government contracts are won pursuant to RFPs and bids, purchases of materials & staffing initiatives by contractors would ramp-up fast so that resources are in place & costs are minimized (and profits on contracts are maximized). No contractor would wait to obtain necessary copper or labor until just before needed. These needs would be pursued immediately, either by taking possession or by locking-in contracts (in the case of commodities). And keep in mind the multiplier effects this would have on the economy, how public investment spurs private investment, the high minimum wage levels that would be in federal contracts, and the requirements for contractors to buy supplies and services from U.S. companies. Plus, the labor skills needed by the government and its contractors will be the same as those needed by private industry, creating competition. It wouldn’t be only U-3 and U-6 people that the government would need; it’d be employees from all across the skills spectrum- even those already employed. Finally, when has a government project not had cost overruns and not had projects go on longer than initially planned? The labor and material needs would likely continue for longer than scheduled and cost more money than originally budgeted.
It’s worth noting that there are wage pressures already materializing today, but they are, likely, due to post-pandemic frictions and due to fiscal stimuli creating work disincentives, and will prove to be transitory as labor supply-demand dynamics correct. Though, if these allegedly “transitory” conditions continue for long enough, higher wages can become structural, since once higher wages are paid, it’s difficult, or impossible, to reduce them.
The Fed may be right about the coming inflation being “transitory”- resulting from base effects and supply constraints. But if the period defined as “transitory” runs into a time where an infrastructure law looks likely to be passed, then supply & demand dynamics from base effects and supply constraints that should dissipate, could transition, quickly, from mere post-pandemic impulses to more persistent pressures as demand materializes for commodities & labor from the long-term fiscal impulse, or, at least, from the inflation expectations that develop in anticipation of that impulse. These pressures would be on top of an already improved economy, more onshoring and onshore manufacturing investments (requiring commodities to build manufacturing facilities, labor to build the facilities, and long-term labor for business operations), and expanding ESG policies and practices. Further, it isn’t only the government’s commodities and supplies demands that push costs higher- the continuing needs of private industry would follow-on those government and government contractor purchases to create an upwards input-cost spiral.
Even if “transitory” inflation impulses fade, we may never experience any price alleviations if structural impulses grab the inflation baton and run with it.
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About the Writer
Neil Siskind is: President of The Siskind Law Firm, focusing on business transactions, real estate, product investments, trademark licensing, and product distribution; Founder & Chairman of The Fatherhood Assignment™, a think tank and advocate for children with absentee fathers; Founder of the global charity marketing initiative, Caring is Free®; Founder of National Fatherhood Day™; Owner & Conservator of The Neil S. Siskind Nature Preserve, over 9 acres of conserved waterfront land along New York’s majestic Hudson River; and author of The Complete Guide To The Ways To Manufacture & Sell Your Products. On December 11, 2017, in his article The Yield Curve Speaketh: Why Stocks Might Crash in Early 2018, Neil Siskind accurately predicted the February, 2018 stock crash, the largest single-day point drop in the Dow Jones Industrial Average’s history. All the stock indices are down approximately 6% for 2018. In his September 26, 2018 article, Lots of “Bull” In The Bull Market: Let’s Look At What’s “Really” Growing, Neil Siskind explained that, despite Wall Street’s bullishness, the economic data and stock market underpinnings were in decline, and the economy and stocks were at imminent risk. By the closing of markets on October 23, 2018, the S&P 500 had fallen approximately 7%, with October being the S&P’s worst month since August 2015 (and December being the S&P’s worst month ever), the Nasdaq continues to have its worst month since 2016, and is down approximately 8% from article publication, and the DJIA is having its worst monthly performance since 2008. In 2018, Neil Siskind coined the phrase “synchronized global slowth™” (or “synchronous slowth™”) to describe the occurrence or condition of multiple emerging market and developed market economies commencing a downward trajectory of economic and GDP growth, or actually contracting to a point of slow, stagnant, or negative economic and GDP growth, simultaneously. If you are in need of office space in South Florida, contact Neil Siskind about space availability at The Siskind Executive Office Complex in Boca Raton, FL.
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