Monetary policy is on hold: The Fed has set a pattern of interest rate increases and is sticking to it. Fiscal policy is also on hold. Republican scorpions bottled in the House of Representatives are split between deficit hawks and deficit doves, and those favoring a border tax and those joining the president in skepticism of it. For now, Fed monetary policy and Trump-administration fiscal policy are weighty matters that will just have to wait, to borrow from Stephen Sondheim. In lieu thereof here is a review of some of the changing fundamental forces at work in the American economy, stated without recourse to mind-numbing data, partly as a favor to readers, partly to prove it can be done every now and then.
Perhaps the most consequential change has occurred in the labor market. For many years policymakers and employers have been operating with a substantial reserve army of the unemployed, or partially employed. Which allowed for stimulative policies designed to provide jobs for those actively seeking them, and as an incentive for others to come off the couch and resume the search in the hope that the skills they once possessed have not atrophied or become irrelevant. With the unemployment rate reported yesterday to be at its lowest level in a decade, the baby-boom generation retiring in large numbers, many the victims of opioid or heroin addictions, all the talk among businessmen I meet is of shortages of skilled labor. Auto dealers can’t find enough auto mechanics capable of handling complicated diagnostic equipment; builders tell me that a shortage of skilled workmen is constraining the number of homes being built; hospitals complain of a severe shortage of nurses and the teachers to train them. This means that an infrastructure program cannot increase the number of jobs, or the economic growth rate. Unless the output of the existing workforce increases; productivity rises, in the jargon of my trade. Which it isn’t, for reasons most analysts cannot explain.
Then there is the emergence of divergent trends in two important economic drivers: cars and houses. Auto sales are slowing from the red-hot pace of recent years, and sales of homes are rising. In the case of cars, consumers are finding bank loans less available, and seem to be taking a rest after filling their family garages with multiple vehicles; in the case of houses, some younger people seem more ready than they have been to form families and buy houses. Fewer of which are available. This straw in the wind might be blown away by another development: The preference of many millennials for renting apartments in urban areas replete with restaurants and uber cars. That fleet of ready-rides, along with Lyft and other services, have auto makers worried that the American dream no longer includes owning a snazzy automobile, preferably a profit-spinning SUV. Software already accounts for a large portion of the cost of a car, and if the trend continues Silicon Valley will become the new center of gravity in the auto industry, especially if driverless cars make Uber drivers the coal miners of tomorrow.
The energy to fuel the bigger cars, warm houses and turn turbines in electric generation stations comes to us from a sector unimagined only a relatively short time ago. The one-time fuel of the future, nuclear power, proved not to be too cheap to meter but too costly to produce. The fear of the recent past—that we have reached peak oil and had better start conserving before we suck the earth dry of oil—has been replaced by periodic supply gluts that drive down prices. The coal that powered generating plants is being replaced by cheap, cleaner and abundant natural gas. We have gone from searching for an energy policy based on scarcity, to one based on plentiful supplies, with more oil and gas available thanks to technology and still more to come available as a new administration relaxes constraints on drilling and mining.
Then there are changes in consumer tastes and the retail industry that are rippling through the market for commercial real estate. Major department store chains such as Macy’s are shuttering unprofitable units, and once-mighty Sears is burning through cash at such an alarming rate that it is warning of a possible bankruptcy. Amazon is now either the largest seller of apparel or about to seize the title from Wal-Mart, causing vacancies in malls that often served as meeting places for the pram set. And leaving investors hunting for alternative uses of those spaces; some are leasing abandoned department stores to call centers. Only home-improvement stores are crowded with customers seeking supplies and instructions on how to spiff up their increasingly valuable homes.
Some major apparel sellers are fighting back, struggling to come to grips with consumers who have enough sweaters and, if they do want new ones, want them now. Tommy Hilfiger, head of the eponymous fashion firm, says that whereas years ago his models would parade down the runways with his latest fashions, and the audience of department store buyers would place orders for garments to be delivered months later, now the public is invited, click on their app when they see something they like, and expect it to be delivered the next day.
Most important, experiences, not stuff, now top the “bucket lists” (things to do before kicking the bucket) of many consumers. The cruise business is booming and the more affluent are signing up for trips into space and, I suppose, back again, with the possible exception of members of the anti-Trump “Resistance”, who might prefer one-way tickets.
A final important change in our economy, and in the lives of most Americans whose eyes are glued to one screen or another, has taken place in what I will call the communications/entertainment industry. Cords are being cut, and investors in cable companies are hoping that as their viewers decrease, the users of their broadband services will increase. Younger consumers have never had a cable box, and many viewers who do have them hate their cable companies and would dearly love to rid themselves of their suppliers. They would like to join the cord-cutters who rely on streamers for their movies, their cell phones to watch sports, and their apps for their news, if they have any interest in the latter. Netflix, Hulu, Acorn TV stream series old and new, and thousands of movies. No cable box, no monthly fee high enough to rival the monthly mortgage.
There’s more. No tectonic plates shifting. But changes of considerable significance nevertheless.