February 3, 2023
The US economy adds 500,000 jobs (in today’s US Jobs Report) while those not part of the survey sample seem to be losing theirs. Sounds a lot like pride before the fall.
The Fed chair mentioned core non-housing services inflation about five times during his speech this week. He seems to have zeroed in on this measure as a key indicator. This puzzled me a bit as to why he fixated on this. I had to look it up.
Of those core (non-energy) non-housing services, this equates to about ~24.6% of the economy. Of that percentage, we can then zero in on the higher-weight sub-metrics containing higher percentage inflation. That means ignoring medical care, education, recreation, communication, and personal services. The higher weight and higher inflation outlier in that category is transportation services, comprising 6% of our economy and with 14.6% reported inflation. Zooming deeper into that category, motor vehicle maintenance and repair and motor vehicle insurance are the biggest contributors to inflation.
Therein lies the problem. Americans are driving increasingly older cars. Why are we driving older cars? Because consumers are maxed out and thus unable to afford new cars or manage a $1000/month payment. New cars are also over-engineered and poorly designed in my opinion. So, until we start buying new cars or stop driving altogether, the inflation in the vehicle repair category will run hot.
For motor vehicle insurance, source:
Rates are going up because repairing and replacing vehicles costs the insurance company a lot more. Accidents are increasing because people are returning to work post-covid. Insurance rates will go down when fewer drivers are on the road and there is an abundance of auto technicians.
The Fed chair claims to be data-dependent but blind to second and third-order effects of weights and measures. If you are going to rely on empirical evidence (data), then the data must fulfill information requirements and those information requirements must be specific enough to achieve an outcome.
Until the 400+ PhDs at the fed demonstrate more collective wisdom than a sophomore-level systems/process engineer college student, then I am convinced that their mission is of self-service and selective service to the banks.