For the last few months we discussed the idea that demand is not there.  So while we are told that the economy is strong, there are underlying issues that are going to short-circuit it.  At the same time, the Fed is making a major policy mistake since they are overlooking this fact.

A great deal of this viewpoint comes from the University of Michigan Consumer Sentiment Reports.  Since the Spring, the numbers are at or near all time lows.  How can anyone presume that consumers are going to spend in large quantities when the sentiment is in such shape?  This makes no sense yet this is what the Fed and financial media will have us to believe.

We also got a glimpse of this from the Black Friday numbers.  Here are a few headlines that highlight what took place.

<center>![blackfriday.png](https://images.hive.blog/DQmYPJ1hSxxdqv8oBGv6rAzDHhrw6AYGjfPcixaGgFrEGsD/blackfriday.png)</center>

This is a horrific number.  While it was an improvement over a year ago, the fact that it is still trailing the pre-pandemic number is very telling.  The logical thought would be that people simply moved to online shopping.  Unfortunately, this would be wrong also.

>Online, retailers rang up $8.9 billion in sales on Black Friday, down from the record of about $9 billion spent on the Friday after Thanksgiving a year earlier, according to data from Adobe Analytics. It marked the first time ever that growth reversed from the prior year, Adobe said. Adobe analyzes more than one trillion visits to U.S. retail sites, with over 100 million items in 18 different product categories.

<center>[Source](https://www.cnbc.com/2021/11/27/black-friday-shopping-in-stores-drops-28percent-from-pre-pandemic-levels.html)</center>

People aren't out shopping at physical retail locations and online sales drop, for the first time since they were tracked, this is very telling.  It is also in alignment with what the sentiment data was telling us.

### Decline In Productivity

We also have a lot of noise about jobs.  There is a supposed shortage of workers with [the number of job openings in the US crossing 11 million](https://www.investing.com/economic-calendar/jolts-job-openings-1057).  On the surface, this looks like anyone who wants to work can.

If this is the case, why are workers facing a large amount of layoffs after the beginning of the year?  One would think that with numbers like these, employers would be crazy to lay anyone off.

Once again, the narrative does not match the data.  There is a reason why so many jobs are going unfulfilled: employers are not willing to hire.  We saw the latest jobs report barely cross 200K jobs, about 1/3 the number required for a strong employment report.

So why is this?  Is there a way to determine what is taking place?  Fortunately, we got some insight in the last couple days.

Here is the [Unit Labor Costs](https://www.investing.com/economic-calendar/unit-labor-costs-303):

<center>![laborcost.png](https://images.hive.blog/DQmf7AcAfudPRXAtbeyir52MFPk1mGnpEB4cvJxPdRYEn4X/laborcost.png)</center>

That is pretty impressive.  Essentially, wages are going up which is a good thing.  Here is where the Fed is starting its mantra that inflation is not transitive.  With rising wages, due to increased inflation, that will only spur on more price increases as employers have to cover their costs. 

Sadly, this is another area the Fed is mistaken.

Here is the [Nonfarm Productivity](https://www.investing.com/economic-calendar/nonfarm-productivity-228) numbers:

<center>![productivity.png](https://images.hive.blog/DQmeTLe2WUPioLWq8Szygd8nBJFrxFRcrCqduJh9fVVbCTk/productivity.png)</center>

The unit labor costs are up almost 10% yet the productivity is down for the second month in a row, more than 5%.  This is a huge gap.

So what is going on?

Simply put, employers started to hire believing the story that the economy is rebounding and demand is strong.  However, the data is telling us that, even though wages are going up, there is a lot of standing around.  In short, the demand is not there to keep each employee busy.  The expected rush of demand simply is not materializing.

Which brings up the question of how long will companies go with the numbers are they are?

We can guess that if we close out the year and things do not improve, there will be many people laid off come January.  These entities simply are not going to tolerate low productivity for the money they are spending.  With companies finding they are being allocated due to supply shortages, this all makes sense.

The reality is the supply chain issues are not going to vanish anytime soon.  We are likely looking at issues throughout 2022, and that is without more lockdowns.  If countries go that route, we can expect to see more disruptions.

Say what you want, the Build it Back Better is getting one thing right: they are excelling at tearing the economy down.  It is likely the peak of the post-lockdown recovery is behind us, a level that topped far below the pre-pandemic levels.

And now we watch as things head back down.  

___
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