The real economy

The real economy is suffering. Despite what we hear from government officials, about low inflation and healthy GDP growth, when you go granular, the story changes. You can see that in the charts below: in the top one, the share of small companies that produce no earnings has reached 40%, and it’s clearly trending up. And if you look at the bottom chart, bankruptcies are now at a 15 year high. We have not reached the levels of the GFC, but it’s clearly trending up as well. This has important implications for the labor market, as small business are responsible for more than three quarters of the hiring activity in the U.S., and that’s also why we have seen unemployment picking up. And this is probably what the Fed is seeing as well, and perhaps the only real justification behind tomorrow’s rate cut. The labor market well being is what can cost Trump the mid terms, and that’s why he’s putting pressure to the Fed to lower the financial burden to small companies so they can keep their employees. Lowering rates will also reduce the financial burden of debt (credit card, home equity loans, etc) that is squeezing the bottom 50% of the population.

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