Morning Wire - Americans Struggle While Wall Street Booms | 5.19.24

Episode Date: May 19, 2024

Despite low unemployment and record highs on Wall Street, inflation continues to strangle middle class Americans. Now, millions are defaulting on their credit card payments and piling up debt. How will the election affect the economy? Get the facts first on Morning Wire. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Despite low unemployment and record highs on Wall Street, the economy continues to struggle under the weight of persistent inflation and increased cost of living. Now Americans by the millions are defaulting on their credit card payments and piling up debt. In this episode, we break down the latest numbers and hear from a market expert on where the economy is heading in the second half of the year. I'm Daily Wire editor-in-chief John Bickley. It's May 19th, and this is a Sunday edition of Morning Wire. Here discuss the state of the economy and how it's impacting the 2024 election as Daily Wire's senior editor, Cabot Phillips. Hey, Cabot. So you spoke with an expert on all this.

We'll get into that soon. But first, let's start with a brief overview of where things currently stand with the economy. Yeah, it's easy to focus only on the negative. And there is plenty of negative. But you know me. I'm an optimistic guy, John. So let's start with the good news from our economy. After hitting multi-decade highs in 2022, the rate of inflation has.

has begun to slow a bit. Last month, it came in at 3.4%. That's a 0.1% decline from the month before. Those with a rosier outlook on the economy are also quick to point to the unemployment rate, which currently sits a hair under 4%. That's around the lowest mark we've seen in the last 50 years. Yeah. And then there's Wall Street, which has been on a bull run since 2022 and hit record highs this week. The Dow surged over 40,000 for the first time. So good news for a lot of people's 401K. Now, President Biden has been quick to tout all of those figures, saying it's proof his economic agenda is working. According to the White House, Biden inherited a historically weak economy from Donald Trump and then turned it into one of the best economies our country has ever seen. But there is a reason, a lot of reasons, that polling this month shows that just one in four Americans believe the economy is heading in the right direction.

Yeah, let's get into some of those reasons. Yeah, it's hard to convince folks things are going well when they see for themselves the impact of inflation, every time they go to the grocery store or make a Walmart run. It's one of those rare economic issues that's felt on a regular and personal basis. Now, we've talked about it before, but the numbers bear repeating. Since President Biden took office, gas is up 55%, groceries and eating out, 21% apiece, baby food, 30%, electricity, 28%, used cars, 20%, airfare 38%, and rent 21%. You get the idea.

Now, over that same time frame, real average weekly earnings, which takes inflation into account, have fallen 4.5%. And the impacts of those higher prices are wide reaching. Take credit card debt, for example. This week, the Federal Reserve reported that Americans now owe $1.1 trillion, with a T, dollars on their credit cards. That is a 68% increase from just three years ago. Stunning.

And a big reason for the spike is the fact that millions of Americans are now being forced to go into debt just to cover their monthly expenses. And now millions of those people have burned through their savings, paying off those cards, and are now entering delinquency. According to the Fed, one in five users are now maxed out, and around 9% of users are delinquent on their payments. And those numbers are only expected to get worse in the coming months. Yeah, just staggering numbers there, really.

They are. And it's easy to see why inflation and the cost of living are just far in away the number one issue for voters in poll after poll. But for his part, President Biden has claimed inflation has gotten better under his watch, saying this week that it was at 9% when he came into office. No president's had the run we've had in terms of creating jobs and bringing down inflation. It was 9% when I came to office. 9%. But look, people have a right to be concerned.

But that claim, despite being repeated multiple times in the past week, is simply not true. Yeah. Inflation was actually at 1.4% when Biden took office and never rose above 3% under Donald Trump's term. That explains, in large part, polling from CBS that shows 65% of Americans say the economy. was good under Trump compared to just 38% for Biden. And while the White House is clearly hoping to convince Americans' inflation is getting better, pointing to those latest reports, those numbers can be deceiving. From more than that, I spoke at length with Kenny Polkari, senior market strategist for

Slate Stone Wealth. Here's what he had to say about President Biden's take on inflation. They're telling us that year over year at 3.6% is the lowest it's been in three years. That's how they're playing it. So they're trying to flip the script and tell you, we should be happy. Prices are only rising at 3.6%. They haven't been this low since, you know, 2021. And so they're trying to get you to accept the fact that the report was a good report.

Now, look, I'm not saying it's a horrendous report, but the fact is inflation is not slowing. It came in right on where the number is. So it's not coming down. So while I think it's great, the market's up. Look, I'm invested. Do I love the fact that prices are higher? Of course I do because my, I'm participating. But I think it feels a little bit like a house of cards to me.

Not that there's going to be a complete collapse, but that the reaction is overdone. And according to Polkari, inflation is not going away anytime soon, in large part because, unlike other countries, our economy is far more reliant on services than raw goods. Here's the other thing you need to remember. The U.S. economy is a 75% services economy. So sticky inflation in the service sector is very important. to understand because that's how our economy works, mostly on services. But you can see it across the board where the sectors that will continue impact. Now look, even used cars, which was one of their big sectors, oh, look, the price of used cars is coming down. That's great. Okay, well, guess what?

The price of used cars are starting to tick back up again. And how many times you buy a used car in any month versus you have to go to the grocery store? You've got to buy chicken, steak, rice, fish, whatever, every day. You're not buying a used car every day, nor you're buying one every month. So when they talk about, oh, use car prices are coming down, I just tune it out because it's ridiculous. That doesn't make a difference to me. What makes a difference to you and me are my utility bills, my insurance bills. Look what's happening to car insurance, homeowners insurance, right? Look what's happening to the utility bills.

And besides the food bills that, you know, you and I get every day, you go out to a restaurant, go out to dinner. Look at that. That's a service industry. Look what prices have done at the restaurant level. Now, certainly people are still going out. I get it. They're going out because they want to go. but they're paying dearly for it, but you're going to start to see that also pullback for,

you know, kind of the blue collar worker and below, because they're the ones that are going hit the hardest. Pauari also made an interesting point with regard to the different types of inflation. While the CPI or consumer price index gets the most attention, because it tracks inflation on things people are buying, he stressed the importance of the PPI or producer price index, which monitors how much producers are paying to actually make the things being purchased. While the CPI fell slightly last month. The PPI actually went up nearly half a percent and saw its largest 12-month gain in a year. That's bad news down the road for consumers who Pocari says will eat the difference. So what are producers? What are manufacturers having to pay for the raw product that

they're buying to produce the goods that they're ultimately selling to the consumer? And so what's important to understand is as those prices at the producer level increase, who do you think is really going to pick that up at the end of the day. The manufacturer is not going to say, oh, let me swallow these higher prices. They're going to push it on to you, the consumer, you, me and everybody else, in terms of higher prices. But it usually takes four or five weeks for those higher prices at that level to make their way through the system. So producer prices translate into consumer prices based on what the producer has to pay because they're not going to eat the higher prices. They're going to sneak it in and you and I are going to have to eat the higher prices,

but you'll see that in my mind next month. Now, much of the conversation around the state of our economy has rightly centered on interest rates. Remember, the Fed increased rates at a record pace over the last two years to intentionally slow down the economy in an effort to cut inflation. And while it looks like they're done with rate hikes, the question on everyone's mind is when they will implement cuts that will end up hopefully making it more affordable for folks to borrow money. While plenty of economists believe those cuts will come this year, Bukhari is skeptical to say the least. Now, look, I'm still in the camp rates aren't getting cut at all this year. Goldman Sachs came out and said that we're going to get

three rate cuts starting in September, November and December. There are lots of asset managers that think we're not going to get a rate cut until after the election, which could be November or December or maybe both. I don't understand it. The data doesn't suggest one, two or three rate cuts to me, and so I'm going to remain in the camp that we're going to see no rate cuts this year. And I think you also have to look at what J.J. Powell said that inflation is more stubborn than he anticipated. That suggests to me is the Fed is under no pressure to cut rates. And if you look at the last five commentary that we got out of the five FOMC members last week, they all played the same song. Slow down. You know, there's still too much data to consider. Inflation is not retreating as we

thought. And so higher for longer seems to be the Fed's narrative. The street, the market may want to create a different narrative, but that's what they did in November when suddenly we were getting seven rate cuts in 2024, which is completely illogical. Now, it's important to note the window for potential rate cuts is closing as election day draws near. The Fed has historically avoided implementing cuts or hikes in the months leading up to a presidential election. So if they're going to happen, it'll likely be June or July. We just don't know.

Well, a lot of folks will be watching that very closely. Cabot, thanks for reporting. Anytime. That was Daily Wire, Senior Editor Cabot Phillips, and this has been a Sunday edition of Morning Wire.