The latest report from the World Trade Organization (WTO) is adding to the general sense of global malaise. None of the big think tanks are very happy with the state of things, as the International Monetary Fund has been reporting slow growth along with the Organisation for Economic Co-operation and Development, Group of 20, World Bank and so on. The trends have not been good ones, and there are more barriers in place than ever. The WTO has reported that trade patterns have not been this bad since the 1980s. There has rarely been such an expanded period of slow trade—five years with growth rates at 3% or below. This year the expected growth rate is just 2.8%—a very far cry from the 6% and 7% that marked the years before the recession.
Reasons for the slowdown are obvious enough, but the solutions aren’t. The most obvious issue is that consumers have slowed drastically in Europe as well as in the U.S. The expected break out in consumer demand keeps getting pushed out further and further, and each time this occurs, there is an admission that few really know what is happening. It was assumed that U.S. consumers would get fully engaged when the usual motivations fell into place. It was thought that decent employment numbers, cheaper import prices and perhaps some kind of encouragement stemming from lower inflation were all that was needed. We have all of that and still there is little movement.
The employment situation has improved—the rate of joblessness is now down to 5% at the U-3 rate and even the U-6 numbers have improved. The latest data suggests that people are migrating back to the workforce after having been classified as discouraged workers for the last few years. The prices of imports have been falling as the dollar gained strength, making prices fall to the point that people worry about deflation. There has been really no inflation to speak of for years—at least at the core rate. The headline rate is also not that high. There has even been some of that tried-and-true consumer motivation in dropping fuel prices. This has always been the surefire way to get the consumer off the couch, but even prices at $1.50 a gallon and less have not been enough to get people in the mood.
What is going on? Why have these motivators not had the desired impact? There is plenty of debate, but one idea that has emerged is also being used to explain the anger of the voter. What explains the popularity of Donald Trump and Marine Le Pen and political parties like Podemos, Syriza and Alternative for Deutschland among others? One suggestion is that it is all about wages. The average person has not seen a wage hike in almost a decade. Never mind that most people have not lost much economic ground, as the inflation rate has also been very low in that period. People see little opportunity for gain and plenty of opportunity for loss. They fear being replaced by some foreign worker or immigrant—or worse yet, a machine. The fear holds them back from consumption, and it also fuels their political anger. The perverse solution for many of the world’s ills right now would be a nice little controlled bout of inflation, but nobody has a clue how to provoke one.
- Chris Kuehl, Ph.D., NACM economist and co-founder of Armada Corporate Intelligence