Before the Nov. 5 election, there were already signs the incoming Donald Trump administration would be handed a live economic grenade. Months of cooked books on successive jobs reports, a spiking 10-year Treasury yield in spite of Fed rate cuts, and half a trillion added to the deficit in September portray the Biden-Harris administration as handing the next president a can of worms.
Meanwhile, markets have been euphoric on the heels of Trump’s landslide. The Dow Jones Index surged almost 8% the following week, with the NASDAQ and S&P jumping too. Bitcoin skyrocketed to an astonishing all-time highs above $90,000. Stocks and other assets tend to trend upward on the heels of elections regardless of the victor — traders love stability.
But new data shows the market euphoria conceals underlying warning signs for the incoming administration in the form of inflationary pressures and softening jobs. Is the era of stagflation at last upon us?
Should inflation come roaring back, as it appears set to, the country could be in for a bumpy ride on the heels of its elation over Trump’s victory if unemployment chickens also come home to roost.
Inflation: the Fed’s September rate cut of 50 bps, even as stocks and inflation remained high, convulsed treasury and bond markets and spurred consumer and producer price indices higher.
As such, recent rate cuts were unable to make a dent in consumer lending products. Treasury yields jumped on parabolic new government debt, leading mortgage rates to rise for the first time in months and fears they could rise further.
The 10 year yield has now completely reversed from this mornings lows after CPI and is now ripping to new highs
Mortgage rates are going to surge
5% is not far away at this point. If we got there it would be for the first time since 2007 and would top this cycle’s peak pic.twitter.com/Ev1eY29Zh0
— QE Infinity (@StealthQE4) November 13, 2024
Even as auto loans dipped into November, delinquencies are at all time highs. Meanwhile, inventory is up on car lots. Instead of slashing prices, automakers have scaled back production, including at Stellantis’ Toledo Jeep factory and Warren, Michigan truck plant, where the auto giant cut 1,100 workers a piece.
On jobs: leading indicators show unemployment could rise. The outlook on jobs could darken on the heels of new data on temporary jobs, which can lead broader unemployment trends.
On top of that, Biden-Harris agencies including the FBI’s National Incident Based Reporting System and the Bureau of Labor Statistics picked up a nasty habit of cooking stats and quietly revising figures months after the fact. The FBI released data this fall showing years of declining crime were a mirage, adding thousands of murders, rapes, and assaults to data that now in fact shows crime has been up the past few years, prompting calls for accountability from lawmakers.
BLS has been no different, revising the majority of its jobs reports downward the past year. August’s stunning downward revision of 818,000 jobs dealt a blow to the picture of economic health projected by Biden’s BLS.
Backing up public sentiment behind Trump’s proposed mass deportation operations is stunning new data revealing the U.S. added 3.6 million foreign-born workers to the labor force since 2019 compared to just 479,000 jobs for citizens.
Over the last five years, only 479,000 U.S.-born workers were added to the U.S. labor force, compared to 3.6 million foreign-born workers, per NFAP.
— unusual_whales (@unusual_whales) November 13, 2024
The September jobs report had more bad news: a net loss of jobs in the private sector, with figures plumped by the addition of 40,000 government jobs, eeking out a net gain.
Government job growth is just the tip of the federal iceberg, as government spending went parabolic in the weeks leading up to the election.
Some are seeing fruit in Argentina’s outlook and Argentinian President Javier Milei’s playbook of massive government spending cuts. Trump is said to be meeting with Milei on the heels of his victory last week. Milei’s spending cuts have caused inflation to plummet as employment increased.
Herein lies opportunity for the incoming administration: Trump’s promised Department of Government Efficiency spearheaded by Elon Musk and Vivek Ramawamy is set to make the effort. Musk said at a Trump rally last month he thought $2 trillion could be cut from the budget.
In any event, the out of control deficit is approaching $36 trillion, the interest payments on which eclipsed defense spending for the first time last spring. Whether Musk’s and Ramaswamy’s promised spending cuts can tame potential employment and inflationary waves latent in the Biden-Harris economy, they will be the first in a generation to try.
