Headed for the Frisco Bay
Submitted by Atlas Indicators Investment Advisors on September 30th, 2022
A sittin’ statute of Otis Redding resides in San Francisco’s Gateway Park. It was built to commemorate the King of Soul and his posthumously released hit The Dock of the Bay which he co-wrote with Steve Cropper. As the story goes, Otis played the city’s Fillmore and was staying on a houseboat in Sausalito, California where he could watch ships roll in and then watch ‘em roll away again.
Ebbs and flows of the economy are not unlike traffic in a bay. Vessels make their way in and must eventually head back out to sea. Similarly, expansions do not stay forever. At some point, an economy reaches a capacity it cannot maintain. And like the frequency of bay traffic, economists and pundits argue back and forth about the condition of America’s economy daily.
Our central bank has a branch in San Francisco. Like the others, it’s equipped with a raft of economists and researchers to explore concepts related to output. In this recent release, Sylvain Leduc, executive vice president and director of research provided his views of the economy’s current state. In short, he sees an economy with decelerating inflation which is moving back to more normal spending patterns after the typical sequence was disrupted by the pandemic. Atlas agrees with his conclusion that this means more of the consumer’s wallet share is being spent on services and a shrinking amount on durable goods.
Mr. Leduc also offered some thoughts on the timing of inflation. His model projects America’s economy will fall to the central bank’s target trend of 2.0 percent in the beginning of 2025, citing growing wage pressures combined with falling productivity. He indicated that the odds of a recession are rising but does not have one as his base-case scenario.
Kind of like Otis’ perspective, it looks like nothing’s gonna change. The business cycle comes and goes; at times it’s like watching the tide roll away. Whether you’re reading this in the mornin’ sun or when the evenin’ comes, enjoy your weekend, maybe even wasting time.
