Wall Street Advocates Begin Admitting Demand Side Economy is in Free Fall

Posted originally on the conservative tree house on July 1, 2022 | Sundance

Keep in mind as you review this article from the Wall Street Journal that every corporate (think Wall St) media outlet, has claimed for well over a year, that inflation was predominantly a demand side issue.  In essence, consumer demand was so strong that prices were rising because of it.

The demand side argument/justification for inflation was always false.  However, it was/is still the claim made by members of the Biden administration and almost every board member of the federal reserve.

All of them, almost universally, dismissed the supply side inflation argument which is the reality at the epicenter of inflation causation.

Inflation was/is an exclusive outcome of three supply side aspects which merged simultaneously: (1) the Joe Biden energy policy, (2) the Joe Biden promoted covid response via legislative spending, and (3) the promoted Biden administration monetary policy.

While the legislative spending did create artificial economic activity, all of these inflationary sources are supply side impacts.

The demand side claim for the origin of inflation was always a ruse, a con, a complete farce intended to backstop the claim that inflation would be “transitory” once consumer spending moderated.   From that perspective every approach from government toward controlling inflation was wrong.  Not wrong by accident, wrong as a matter of deceit and purposeful media manipulation in order to maintain the “Build Back Better” or “Green New Deal” agenda….. which, I might add, benefitted from the advanced Wall Street investment in both constructs, globally and domestically.

In short, a collaboration of purposeful ignorance and pretending not to know has culminated in the collapse of much of the global economy.  Now, with that result visibly and unavoidably surfacing, the controllers of policy, both here and aboard, need to shift and start making admissions.  Thus:…

Wall Street Journal – Factories around the world are reporting weakening demand for their products, a sign that the consumer-goods boom that kick-started the postpandemic economic recovery could turn into a bust as surging prices and interest rates erode spending power.

Surveys of manufacturers released Friday told a similar story whether the factory was in South Korea, Italy or the U.S.: Output is falling or is rising at a slower pace, driven by declines in new orders, and particularly those from overseas buyers.

When prices began to rise rapidly early last year, central bankers thought the surge would be short-lived because supply would increase to match higher demand. As higher inflation persisted, they stopped waiting and began raising borrowing costs to reduce demand.

Now it seems higher prices themselves appear to be having the same effect, weighing on purchases even in places such as the eurozone, where interest rates have yet to rise.

“Demand is now weakening as firms report customers to be growing more cautious in relation to spending due to rising prices and the uncertain economic outlook,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

U.S. factory activity grew in June at the slowest pace in two years, according to the Institute for Supply Management’s measure of U.S. manufacturing activity known as the purchasing managers index.

New orders fell for the first time in two years as customer demand weakened. Employment in the manufacturing sector also fell for the second straight month, the survey found.

A separate measure of U.S. manufacturing PMIs produced by S&P Global indicated that output stagnated in June as sales fell for the first time since May 2020. Expectations for future output dropped to the lowest level since October 2020. (read more)

U.S. inflation was/is driven -in the vast majority- by supply side impacts as a result of policy (Build Back Better).  The U.S. recession was/is now going to be driven by demand side impacts that are the result of increased supply side costs.  This is the natural economic truth being denied by all levels of political leadership.

Joe Biden policy makers, specifically the U.S. treasury secretary and the federal reserve chairman, have claimed -falsely- that current inflation was/is being driven by demand. In essence, and ironically, their position means consumers are to blame for high prices.  This has been their story and they have stuck to it.  However, remember monetary policy can only impact the demand side of the economy.  Monetary policy cannot impact the supply side, that aspect is led by Joe Biden policy.

The Federal reserve, having denied (pretended) the supply side causation, has effectively raised interest rates (0.75%) into an economic environment where consumer demand was already contracting.  CTH has been asserting this fundamental position all year.   Here is the evidence:

US Manufacturing PMI fell dramatically to 52.4 in June 2022 from 57 in May.  This drop is well below the market and economic expectations of 56, and now points to the slowest growth and steepest drop in factory activity in almost two years.  Contractions in output and new orders are pushing the index down.

Production and new sales declined for the first time since the depths of the pandemic in mid-2020 driven by weak consumer demand.  Inflation and a drop in wholesale and retail purchases have lowered purchase orders.  The gears inside the economy are slowing to a halt.

Look at the PMI trendline and you can clearly see what we have been discussing on these pages since March of 2021.   Consumer demand has been dropping in direct proportion to the dramatic rise in inflation (consumer prices).

At the exact moment that U.S. inflation began spiking in housing, energy, fuel and food, consumer demand for non-essential purchases, durable goods, started dropping.  This is a natural outcome that mirrors your own experience in checkbook economics.

When food, fuel and energy cost you more, you stop buying stuff and start prioritizing.

Following the path of the “build back better” agenda, the U.S. version called “Green New Deal,” meant the Biden administration had to continue denying that any demand side contraction was taking place.   However, it is clear from the indexes under the control of purchasing managers that orders for factory goods have been dropping.

The same is true on the services side of the PMI.  Demand for services are being prioritized, and demand for non-essential services are dropping.

The U.S. economy is contracting.  Denial abounds.

Infuriating does not adequately describe my sentiments toward these intentional liars.

We are in an abusive relationship with all levels of government and their media spokespeople.

Independent and honest journalism, the sharing of information that can empower people to intercede events with political liars, is quite literally the only thing that might save us from the catastrophic consequences of all this pretending.

Knowledge is power, and we need to build our arsenal with an urgency unlike any before in our lifetime.

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