- by New Deal democrat
There are times when the economy is undergoing such a profound shift that there is suddenly a lot to say. This is one of those times. I have been meaning to put up a post like this for several weeks. Let me at least make some of the important points today.
Sixteen months into this (mal-)Administration the fundamentals of the paradigm shift are apparent. It is:
(1) inflationary, and
(2) K-shaped (i.e., the top 10% or so is doing very well, while the lower 50% or more are just barely holding their heads above water, if that).
It helps to think of the T—-p economy as a mafia bust-out, where the “mark” is the US Treasury. In a bust-out, the mafia takes control of a legitimate business, runs up credit as much as they possibly can, they and their cronies profit handsomely, and then they leave the mark with a bankrupt shell. Translated to the US economy, the nation’s credit (i.e., the national debt) is being run up with wild abandon. T—-p, his family, other insiders, and the GOP zealots he needs to keep on board are profiting handsomely. Ultimately it is the mass of US taxpayers who will be left with the bill.
Let’s start with the inflationary aspect, beginning with this morning’s producer price index report. In the month of April alone, the price of goods used in production increased 2.0%, services increased 1.2%, and the total index increased 1.4%. Again, that is for one month alone. On a YoY basis, goods prices increased 6.3%, services prices increased 5.5%, and the total (blue in the graph below) increased 6.0%. Further back in the supply chain, the prices of raw commodities (gold) increased 2.7% in April alone, and 9.8% YoY. The below graph also includes YoY headline CPI (red) for comparison:
All of these are on the upswing, and sharply so. In each case, the YoY increase has been the highest since at least three years ago.
Further, because at least some of the producer prices increases have yet to make their way to consumer prices, even if producer price inflation were to halt here, we could expect a continuing spike in consumer inflation in the months to come.
The sources of this surge in inflation are not hard to spot: the closure of the Strait of Hormuz and all the products flowing through it due to the monstrously foolish Iran war; and also the continuing effects of T—-p’s tariffs (remembering that even though the Supreme Court struck down the first batch, the Administration immediately used another source of purported authority to impose a second batch).
And the 800 pound financial gorilla in the room, the Treasury bond market, has noticed. Here is a graph of interest rate yields on the 10 year (red) and 30 year (blue) Treasury bonds for the past 4 years since the Fed started to increase interest rates:
The 10 year bond closed yesterday at 4.42%, and as I write this is trading at 4.48%. And the 30 year bond closed yesterday at 4.98%, and is at this moment trading at 5.04%. With the exception of a brief period during late 2023, both of these since T—-p started office in January 2025 are at levels not seen since 2007.
Simply put, bond traders are demanding a higher return for taking the risk of holding on to longer dated US Treasurys.
Now let’s turn to where this cornucopia of new debt is winding up. And the answer is, into the pockets of those uppermost on the income scale — hence, the “K-shaped” economy.
Let’s start with a graph of the labor share of income for all workers (blue) vs. corporate profits as a percent of GDP (red):
In this Millennium, the corporate share has surged from 5% to 12% of the entire GDP, currently very close to its highest level, while the labor share has declined by 15% to it lowest ever level as of Q1.
And consumer spending has become ever more concentrated in the hands of the 10% of highest incomes, now accounting for almost half of all spending:
Indeed, as of this week, consumer spending YoY increased by 9.6%, the highest such comparison since the Boom year of 2022:
Further, not even counting March, since the middle of last year, real spending by lower income consumers has actually been in a declining trend, while upper income consumers spending made new highs at the end of last year:
And in March, upper income consumers real spending declined much less than that of lower income consumers.
Specifically as to gas purchases, upper income consumers simply added the increase to their credit cards, while lower income consumers cut back on gas purchases the most:
Meanwhile, on the other side of the ledger, profits as reported by the S&P 500 companies made a new all-time high:
Further, just 5 companies, all associated with AI, have accounted for half of all of the growth in the past year:
This is the most concentrated advance ever.
Finally, let me pan back to focus of aggregate real payrolls. The below graph shows real aggregate payrolls for all workers (blue) and nonsupervisory workers (red). The thin blue and red lines show the same information, but adding 0.2% to YoY inflation as a result of the undercounting of shelter prices during the government shutdown last autumn. Which means you can ignore those lines before that time, but can compare them with the thicker lines predating the shutdown to see the more likely trajectory of real aggregate payrolls:
If there is a faltering of nominal payroll growth, and/or more months of big increases in consumer prices, these will both be negative YoY within several months, and based on past experience over the past 60+ years, that would almost certainly mean that a recession is imminent.
