經濟週期剖析：形勢瞬息萬變，但美國經濟依然強勁

Interviewer: Jeff, let’s start with the Recession Risk Dashboard, which gives us the foundation of your economic outlook. Remind us, as always, how the dashboard works and what it looks like right now as we begin 2022? 

Jeff Schulze: Well, the ClearBridge Recession Risk Dashboard is a group of 12 variables that have done an excellent job of being able to foreshadow an upcoming recession. And it's a stoplight analogy, meaning green is expansion, yellow is caution, and red is recession. And at current moment, we have 10 green, one yellow and one red signal, but the overall signal continues to be a very healthy, green expansion color. But we did have two color changes in the month of December. We had “Money Supply” go from green to yellow, and we had “Wage Growth” go from yellow to red. Now, with money supply, we're going from very, very elevated levels of money supply to just elevated levels. So, there's still going to be a lot of liquidity squashing around in the US financial system. So, I'm not really concerned about that color change. But with wage growth, this is one of the earliest times we've ever seen “Wage Growth” turn to a red color. And normally, when “Wage Growth” turns red, it stays red for the entirety of the rest of that expansion, because again, you've run out of labor supply, and wage growth continues to move higher to attract the right workers. But because of the pandemic-related disruptions, I could see labor supply coming back into the economy in 2022, as we move past the virus and a lot of people burn through their cash cushions that were accumulated over the last couple of years. So, this may be the first time where “Wage Growth” actually goes back to yellow or maybe even green in the middle of an economic cycle.

Interviewer: So, you mentioned two indicators that have changed, but I know there’s another one that has your attention well.

Jeff Schulze: What we want to really highlight is our “Job Sentiment” indicator this quarter. It's from the Conference Board's Consumer Confidence Survey, and we're looking for two specific responses by respondents: the number of people that say that jobs are plentiful versus those that say are jobs are hard to get. And in a normal economic expansion, this differential gets larger with more and more people saying that jobs are plentiful. But before each and every recession, this differential shrinks very aggressively with more people saying that jobs are hard to get. Now, we're no longer at the record highs for this series that we saw in November, but we're just two points lower at 42.6. So, there's a very strong labor market that's out there. Now, our “Job Sentiment” indicator actually runs very closely with the University of Michigan's Consumer Sentiment Survey. They move lock and step with one another, meaning people's confidence or their optimism is really tied to the labor markets. And when you have a weak labor market, sentiment is usually pretty bad. But what we've seen here over the last year is a big divergence between the series, where you have very strong labor markets, but consumer sentiment is at recessionary levels. So, for the first time in my career, the labor market really isn't driving sentiment. It's actually inflation.

Interviewer: Very unusual, Jeff, and a perfect segue to the hot topic, pun intended, of inflation. With inflation running so hot, we’re seeing price increases in our everyday purchases of products and services. Break down what’s happening from your perspective, and what you think we can expect going forward.

Jeff Schulze: Well, inflation has certainly been running hotter than what most people anticipated and I think we've officially retired the word “transitory.” But I think, in order to determine how persistent this inflation is going to be, it helps to look and see what's actually really driving inflation underneath the surface. Now, if you look at inflation today compared to its pre-pandemic trend, all of the excess inflation is being driven by used cars and then goods ex-used cars. So, goods in general. And among the G7 countries, the US is responsible for 93% of the growth of goods consumption since the onset of the pandemic. And with goods inflation really being the biggest driver of inflation, and the US being the biggest consumer of goods, it's not a surprise that the US has much higher inflation levels versus the rest of the world. But I do think that is going to change in 2022, because I envision this year being a much more resilient year for the US economy, a much more consistent year for economic growth, as I think that we've seen the last disruptive wave of the variant. And I think that we're going to see the handoff from goods consumption back towards services consumption. This was a trend that was happening during Delta, and once Delta came, it disrupted that transition, but I think it's going to be much more durable, and that marginal dollar that's been going to goods is now going to be going to services. But also, if you have a global economy that's going to be less affected by variants, that means a lot of these supply disruptions are no longer going to be a part of the narrative in the upcoming years. So, with less demand for goods and more supply, that's a very strong concoction for goods deflation at the end of this year and into 2023 and into 2024. Also, to underrate a higher inflationary environment, you have to see the trend of goods inflation change that we've really been witnessing since the year 2000.

Now, 100% of Core CPI [Consumer Price Index] has been driven by services inflation. And goods inflation, up until the pandemic, has literally been zero. So, I know that people talk about deglobalization, but there hasn't been any meaningful deglobalization over the last couple of years. So as these supply disruptions alleviate themselves, and we go back to a more normalized economic environment. Again, I think the trend for goods inflation will be what we've seen over the last couple of decades.

And the last reason I'm not really concerned about inflation is, if you look at 5-Year, 5-Year Forward Inflation breakevens, this metric is really trading in the same trading range that it's been in over the last decade, which means the market hasn't and has never expected a meaningful transition in inflation over the long term. And if a global pandemic, unprecedented fiscal and monetary expansion, countless supply disruptions and inflation approaching 7%, if that can't get the market to reprice inflation over the long term, it's really hard to see what could lead to a shift in expectations. So, our view is that inflation's going to peak at the end of the first quarter, assuming that Omicron does not create supply disruptions like we saw with Delta over the next coming months and that inflation will move back towards the Fed's [US Federal Reserve] 2% target by the end of 2023.

Interviewer: Certainly, this all ties into the consumer. Do you feel like it’s having or will have a major impact?

Jeff Schulze: Well, with high inflation, you have to be concerned about the consumer because one of the reasons why we had this stagflation in the 1970s is that compensation was not keeping up with inflation, and you had demand disruption as consumers were foregoing their purchases, hoping that they would drop in price in the future months and years. This time around, we don't have that problem. If you look at aggregate weekly payrolls, which is the wage gains that you've seen over this year, times the increase of the hours of work that you've had, compensations up 9.5% compared to a year ago. And with CPI a little bit under 7%, even in this high inflationary backdrop, consumers are still taking home 2.5% more in real income, which means that there isn't going to be demand destruction, and it's going to be a healthy consumption environment in 2022. And there's a very strong correlation between what people make and what they spend. So, this is a really good dynamic. And as inflation comes down in the back half of the year, this is going to be an even greater number of how much compensation people are bringing home. Also from a consumer standpoint, household net worth is up $28 trillion versus where we were at the end of 2019. So, it's an increase of almost 24%, and that's a combination of more excess savings, stronger home prices, but also very robust financial markets. So, the consumer, which is the lifeblood of the US economy, the engine if you will, is in a very good position and arguably, in the best shape that we've seen over the last five decades.

Interviewer: Obviously, the Federal Reserve (Fed) plays a large role in the direction we’re heading. And Fed Chair Jerome Powell has shifted his views and actions. How are you looking at the Fed’s plans for tapering and raising rates?

Jeff Schulze: Now, a renominated Powell is a different Powell. Powell and the FOMC [Federal Open Market Committee] had a pretty hawkish pivot in December. Not a surprise as obviously inflation is way ahead of where the Fed had expected it to be coming into the year. But the key question is, ultimately, how many rate hikes are going to happen in 2022 and whether or not there will be quantitative tightening. Now, the Fed wants to see sufficient progress on its goals on maximum employment, and with the most recent unemployment rate coming in at 3.9%, which is lower than Fed's long-term expectation of 4%, I think the Fed will likely have rate lift-off in March and follow through with another two rate hikes in 2022. The other thing that I think will likely materialize next year, whether it's the second quarter or the third quarter, is quantitative tightening. Now, since we've already experienced quantitative tightening and the Fed has done this before at the end of the last cycle, this version of quantitative tightening is going to be much quicker, but also much more aggressive. And I think the economy is more than able to handle all of this tightening, especially considering all of the positive tailwinds that we have in 2022. Now, the one thing that I do want to be mention is that financial conditions have not tightened over the course of the last couple of months, as the markets have priced in an accelerated taper, and also three rate hikes. [Former Chair of the US Federal Reserve Alan] Greenspan had a similar conundrum back in the 2000s when he was raising rates, financial conditions never tightened. So, if this is a situation that continues in the back half of 2022, and Powell wants to throw some cold water on the hot economy, he may have to get a little bit more hawkish than what the markets are pricing in, which would ultimately cause some volatility and potentially some downward price pressure in the markets. But again, we're not at that point yet, but it's something that bears close monitoring as we move through this year.

Interviewer: Great insights, as always Jeff.

That’s Jeff Schulze, Investment Strategist with ClearBridge Investments and author of the Anatomy of a Recession program. You can get more of Jeff’s insight and check out the full program at Franklintempleton.com. Jeff, thank you for joining us.

Jeff Schulze:  Thank you.

Host: And thank you for listening. if you’d like to hear more Talking Markets with Franklin Templeton, visit our archive of previous episodes and subscribe on iTunes, Google Play, Spotify, or just about any other major podcast provider. And we hope you’ll join us next time, when we uncover more insights from our on the ground investment professionals.