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Employment-Population Ratio Revisited

I have been writing some manuscript comments about labour market capacity constraints and inflation, which I hinted at in my previous article. One tangent that came up that will not fit the manuscript is the behaviour of the employment-to-population ra…



I have been writing some manuscript comments about labour market capacity constraints and inflation, which I hinted at in my previous article. One tangent that came up that will not fit the manuscript is the behaviour of the employment-to-population ratio. Although the argument that the “labour market overheating is a major component of sustainable domestic inflation” is quite plausible, the problem is defining “overheating.” If we want to tell stories about the back history, we can pick and choose data as we wish. But it we want to make quantitative forecasts — which is what you need for a falsifiable theory of inflation — you need some variables to feed into your model.

The most popular model input variable historically was the unemployment rate, and it was part of the original “Phillips Curve” of Bill Phillips (although “Phillips Curve” has transmogrified into meaning almost any linkage between labour markets and inflation). The employment-to-population ratio (which I am mainly focussing on herein) was not popular historically because it moved a lot as women entered the workforce. As seen in the top panel of the chart above, we see the pronounced upwards trend from the 1960s to the 1990s. And in the post-2000 period, the ageing population means that there the older cohorts with early retirees drags down the workforce as a percentage of the total 18-65 year old population (which is what the chart above is based on).

The unemployment rate appears to correct for these structural changes — it is the percentage of the population that is looking for work. People who are not looking for work — stay-at-home spouses, people on disability payments, students, retirees, rich people — are not counted as part of the workforce. This explains why the unemployment rate is much smaller than 100% minus the employment-to-population ratio.

The problem with the unemployment rate is that is also affected by structural changes to the economy. (The count of claimants for unemployment insurance was affected by tightening of unemployment insurance policies, but that theoretically should not affect the unemployment rate determined by the BLS survey.) The argument made in the 2010s (which I agreed with) was that the labour market was stagnant, and people drifted out of the official “looking for work” status. They either stopped looking (because they knew there was no chance of being hired), or they entered into educational schemes (of varying quality), or else ended up taking jobs that offered less hours than they desired. Thus, there was increased interest in alternative labour slack measures — other than the people who were convinced that the economy was going to overheat “any minute now” throughout the entire 2012-2020 period. As jobs were created, people drifted into the workforce at roughly the same pace, and so the number of unemployed did not go to zero.

If we just look at the “prime age” (25-54 years old) cohort — which lops off the university and early retirement ages — we got a better picture of the state of the labour market. We just need to compare to post-1990 levels, since the effects of “Women’s Liberation” had largely made there way through the prime age cohort by then. Using this measure, ratio is near the pre-pandemic level, but below the 2000 boom level.

Since I am not offering a forecast for inflation, I will not comment further on the implications for what is happening next (are we truly running out of available workers?). Instead, I just want to point out that this measure made a lot more sense explaining the post-2000 dynamics than the unemployment rate, which misled a lot of people in the previous cycle. From an inflation theory point of view, the break down of various capacity metrics in response to structural changes in the economy makes it difficult to test quantitative models. An indicator might work in one cycle, but it might break down 1-2 cycles later, which is not that surprising given that recent business cycles are about a decade long.

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(c) Brian Romanchuk 2023

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NYC Struggles With Post-COVID Recovery As Foot Traffic Falls 33%

NYC Struggles With Post-COVID Recovery As Foot Traffic Falls 33%

Sidewalks lined with office workers, especially in lower Manhattan’s financial…



NYC Struggles With Post-COVID Recovery As Foot Traffic Falls 33%

Sidewalks lined with office workers, especially in lower Manhattan's financial hub around Wall Street and the Midtown area, home to Times Square, was a pre-Covid phenomenon as remote work trends hamper New York City's economic recovery. 

First reported by the New York Post, the University of Toronto has published new recovery metrics showing foot traffic in crime-ridden NYC is down 33% compared with 2019, before the pandemic, indicating a souring economic recovery. 

Researchers used location-based mobility data derived from smartphones to reveal foot traffic trends in metro areas. They explain that a recovery metric greater than 100% means the city's downtown foot traffic has recovered from pre-Covid levels and vice versa. 

NYC's recovery rate of 66% is ranked 54th out of 66 cities - this is embarrassing for the imploding metro area controlled by radical leftists. 

While researchers did not explain the cause for the decline, we have outlined remote and hybrid work trends are partially responsible for the fall of office workers in the metro area. 

Kastle Systems, the gold-standard measure of office occupancy trends via card-swipe data, shows NYC stands at 48.94% but is still far from the nearly 100% occupancy level before the pandemic.

Without office workers spending their disposable incomes, the local economy will suffer, resulting in a slow and painful recovery. 

Besides remote work trends, office workers have fled the progressive hellhole because of high taxes and out-of-control violent crime. Now, the migrant crisis has made things even worse. 

NYC's dismal recovery bodes well for bustling city streets in Miami - also known as the 'Wall Street of the South.' 

Tyler Durden Wed, 11/08/2023 - 07:45

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2020 vs 2023: Are Economists Making The Same Mistake?

The following headline from a July 2020 CNBC article is stunning: Here’s why economists don’t expect trillions of dollars in economic stimulus to create…



The following headline from a July 2020 CNBC article is stunning: Here’s why economists don’t expect trillions of dollars in economic stimulus to create inflation.

In hindsight, so many economists could not have been more wrong in 2020 about the path of inflation. Today, despite their spurious track record, scores of economists exude confidence in their forecasts for a sustained rate of higher-than-average inflation and a soft economic landing.

Because of their terrible forecasting errors in 2020, let’s review the CNBC article and find the flaw in their logic. The value of this exercise is not to put economists down. Instead, it helps us better appreciate their current logic and how much credence we should put into their projections.

Background July 2020

The fiscal and monetary responses to the COVID pandemic were enormous. The economy was essentially shut down and collapsing at a speed unwitnessed in American history. Even three and half years removed from the onset of COVID, the New York Times headline and graphic below, detailing the unprecedented loss of jobs, is still remarkable.

Within six months of the pandemic’s start, the Federal Reserve grew its balance sheet by $2.8 trillion and cut the Fed Funds rate from 1.50% to 0%. For context, the Fed’s balance sheet growth in the first half of 2020 was $1.6 trillion more than the emergency QE1 conducted in 2008.

fed balance sheet

The Fed’s actions were meant to support failing financial markets but even more so to allow the government to borrow as much money as it wanted and at meager interest rates.

As shown below, the second quarter 2020 deficit was $2 trillion, or over $500 billion more than the annual deficit used to combat the financial crisis. All other quarterly deficits pale in comparison. 

federal deficits

Despite the massive fiscal and monetary onslaught and a severe breakdown in supply lines and the production of most goods, many Wall Street economists were sanguine about inflation prospects.

The Fed was not worried either. As a result, on June 10, 2020, the Fed’s outlook for inflation was 0.8% for the remainder of the year, 1.6% for 2021, and 1.7% for 2022. Over the longer run, they expected inflation to settle in at 2%. As we highlight below, of the 16 FOMC members surveyed, the highest estimate for inflation over multiple future periods was 2.20%. Unfortunately, PCE inflation ultimately peaked at 7.11%!

fed expectations dot plot

2020 Logic

The following comes from the article:

Supply shocks have driven up prices for some goods in recent months. Yet many economists expect consumer prices will stay low despite trillions of dollars in government stimulus.

“While there certainly is quite a lot of disruption to the supply side of the economy, that’s likely to be dominated by the huge hit to aggregate demand,” said Evercore ISI Vice Chairman Krishna Guha.

Krishna Guha sums up a popular opinion among economists at the time and one on which the Fed based monetary policy. Despite the sizeable stimulus and enormous supply-side disruptions, price increases would apparently be muted due to the “huge hit to aggregate demand.”

Economists chose to ignore everything except demand. They feared the velocity of money was declining at such a rapid pace it would offset the stimulus, supply line problems, and the unprecedented increase in the money supply.

Monetary velocity measures how often money circulates in an economy. Therefore, the more velocity, the more demand for goods and services.

To expect little inflation, they must have assumed consumers would save the stimulus money for a long time.  

The graph below shows the massive surge in the money supply and the recent decline. The increase was unprecedented, as is the current decline.

money supply annual change

Velocity Was Misjudged

Per the article:

At this stage, even with the Fed doing as much as it can, it’s still not leading to an enormous increase in demand,” Olivier Blanchard, a senior fellow at the Peterson Institute for International Economics- CNBC.

Blanchard goes on to say that the $1,200 stimulus checks from the federal government were not extensive enough to stoke inflation.

Despite limitations on what they could spend on, consumers ramped up their spending.

The graph below shows the initial COVID-induced plummet in retail sales. However, a rapid catch-up quickly followed. More importantly, spending continued much faster than the pre-pandemic trend.

retail sales gdp

Economists ignored tremendous amounts of data pointing to growing inflationary pressures and wrongly predicted a continued decline in monetary velocity. Hence, the colossal underestimate of inflation in mid-2020. The highlighted box in the following graph shows that velocity initially tumbled but quickly stabilized and slowly started rising. Its recovery occurred as the money supply was still increasing. 

money supply and velocity

Review 2020’s Inflation Factors

Before considering today’s situation, let’s summarize the environment of July 2020

  • Money supply up 20% year to date – Inflationary
  • Monetary velocity down 18% year to date – Disinflationary/Deflationary
  • Fed Balance Sheet up 66% year to date – Inflationary
  • Fed Funds down from 1.50% to 0.00% – Inflationary
  • Government deficit January through July $2.45 Trillion – Inflationary
  • Supply lines and means of production broken – Inflationary
  • Personal Savings rate rose 468% – Inflationary
  • Crude oil fell below $0 in April – Inflationary (prices could only rise)

Monetary Velocity, a proxy for aggregate demand, was weak for a short period, but virtually everything else happening in the economy was inflationary. Once it stabilized, inflation took off.

Current Situation

Let’s start by bringing the inflationary factors above up to date (October 2023).

  • Money supply down 2.25% year to date – Disinflationary/Deflationary
  • Monetary velocity up 5% year to date – Inflationary
  • Fed Balance Sheet down 7% year to date – Disinflationary/Deflationary
  • Fed Funds at 5.33% – Disinflationary/Deflationary
  • Government deficit Jan. through July $1.20 Trillion – Less inflationary
  • Supply lines and means of production fully healed – No marginal effect
  • Personal Savings fell 9% year to date – Disinflationary/Deflationary
  • Crude oil hovering around $85, $20 above the 5-year average – Disinflationary/Deflationary (prices more likely to revert to average)

It is now three and half years after the pandemic shock, and almost all the factors above have become disinflationary or deflationary. However, there is one outlier- monetary velocity. It is currently inflationary.

Velocity Is Not All That Matters

Once again, the sole focus of economists and the Federal Reserve continues to be on aggregate demand. This time, however, they think it continues to stay red hot.

Can it continue? The base case for inflation to remain higher than the Fed’s 2% objective and a soft landing is to assume it does.

The problem with such a hypothesis is that the U.S. economy’s growth and the financial system’s health depend highly on debt growth. Credit drives our economy, and the health of the economy drives consumer spending.  

While the money supply has fallen for ten consecutive months, a feat not accomplished since the Depression, it is still moderately above pre-pandemic levels. For the economy to grow over extended periods, money supply growth must keep up with economic growth.

That aspect makes the graph below concerning. The solid black line is the ratio of M2 to nominal GDP. The dotted line shows its trend. While the ratio is above pre-pandemic levels, it’s well below the trend. Since 2000, when the ratio was below trend, a recession ultimately occurred.

money supply velocity gdp

Barring renewed growth in M2, which entails lower rates, a steeper yield curve, and the cessation of QT, a recession is likely.

With a recession, unemployment will rise, wage growth will falter, and consumers will cut back on spending.

The only question in our mind is when.


Might economists and the Fed be making the same mistake as in 2020: too heavy of a reliance on demand and insufficient consideration for other price factors?

In July of 2020, it was hard to imagine that consumers would spend at the rates they ultimately did. Today, consumers seem to continue to spend despite whatever the Fed does to slow the economy.

It’s easy to get caught up in recent trends and believe they can continue for long periods. Consequently, it’s hard to imagine how they end.

Given the likelihood that economists are again myopic in their inflation forecasts and bond traders are betting on such projections, we see a day soon when a disinflationary or deflationary reality hits the bond market and bond yields plummet.

The post 2020 vs 2023: Are Economists Making The Same Mistake? appeared first on RIA.

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Three Top Tech Stocks Recommended by Cathie Wood of Ark Invest

Three top tech stocks recommended by Cathie Wood, the chief executive officer of New York-based Ark Investment Management LLC, are climbing. The three…



Three top tech stocks recommended by Cathie Wood, the chief executive officer of New York-based Ark Investment Management LLC, are climbing.

The three top tech stocks recommended by Cathie Wood are key holdings in the ARK Invest flagship fund, Ark Innovation ETF (ARKK), featuring a video streaming company, an innovative electric vehicle manufacturer and a cryptocurrency exchange platform. All are showing strong upward momentum, said Wood, who acknowledged receiving criticism from the CNBC business news television channel, CNBC, for aligning her investment firm’s focus on the long-term growth of the disruptive innovation in technology sector rather than short-term trades.

Chart courtesy of

One of the three top tech stocks to buy is Roku Inc. (NASDAQ: ROKU), a San Jose, California-based streaming service that seeks to provide users with content they love and advertisers with unique ways to engage with consumers. The company offers Roku TV models, streaming players and TV-related audio devices that are available in various countries around the world through direct sales and licensing arrangements with original equipment manufacturer (OEM) brands.

Three Top Tech Stocks Recommended by Cathie Wood: Roku

Roku zoomed more than 30% on Thursday, Nov. 2, due to its strong earnings report that day, Wood told me when I interviewed her at the COSM Technology Summit in Seattle that evening. Roku offers a “streaming platform” and finally people are starting to understand that it does not compete with Netflix Inc. (NASDAQ: NFLX), she added.

Paul Dykewicz interviews Cathie Wood at COSM.

Roku, a digital video company, reported revenue of $912 million for third quarter 2023, ended Sept 30, beating Wall Street analysts’ estimates of $857 million. In addition, Roku’s management offered guidance of fourth-quarter revenue reaching about $955 million, a bit more than the $952 million analysts that are expecting, according to FactSet.

Roku branded televisions and Roku Smart Home products are sold exclusively in the United States, while the company operates its Roku Channel as the home of free and premium entertainment with exclusive access to Roku Originals. The Roku Channel is available in the United States, Canada, Mexico and the United Kingdom.

Three Top Tech Stocks Recommended by Cathie Wood: Tesla

Her second top technology stock right now is Austin, Texas-based Tesla Inc. (NASDAQ: TSLA), a stock she has championed for several years through good and bad times as founder Elon Musk has persevered amid adverse circumstances. Tesla has become a world leader in producing electric vehicles (EVs).

Chart courtesy of

“We really do believe that now that GM and Ford are backing away from EVs, as they can’t make them profitably… market share is opening even more for Tesla,” Wood said. “Then, on top of that, we believe that the autonomous taxi opportunity is probably going to be theirs to win.”

Tesla has collected more “real-world driving data” than all the other vehicle manufacturers put together worldwide, Wood continued. The Musk-led company has 5,000 robots, including a Model 3 and a Model Y that Wood told me she personally is driving to help Tesla collect data about the roads that she traverses, as well as all that can go wrong on the roads.

“Tesla, we believe, is in the pole position to become the biggest investment opportunity that is out there today,” Wood told me.

Worldwide, electric vehicles will become an $8-$10 trillion-dollar revenue opportunity, Wood opined. That equals roughly 10% of the U.S. gross domestic product (GDP), she added.

“We’re really excited about that one,” Wood said.

Three Top Tech Stocks Recommended by Cathie Wood: Fast Money

Telsa produced big profits in several of the trade recommendations from Mark Skousen, PhD, and stock pick Jim Woods in the Fast Money Alert advisory service that they lead together. The tandem has recommended Tesla several times, but the best results came during 2020 when the company’s financial survival was in jeopardy.

Mark Skousen is a co-head of Fast Money Alert.

They recommended the purchase of Tesla stock and options in 2020. An average gain of 404% was attained by Fast Money Alert subscribers who followed instructions to purchase call options and then sell them in two separate segments for profits of 579.4% and 428.6%, respectively.

Jim Woods is a co-head of Fast Money Alert.

Three Top Tech Stocks Recommended by Cathie Wood: Coinbase

Coinbase Global, Inc. (NASDAQ: COIN), originally based in San Francisco, is a cryptocurrency trading platform that now describes itself as a remote-first company. It gives investors a chance to access the broader crypto economy beyond just bitcoin.

Chart courtesy of

With $114 billion in assets, Coinbase employs more than 3,400 people and operators in 100-plus countries. With its extensive international reach, Coinbase is positioned to become involved in crypto worldwide.

“We think Coinbase is spreading its wings around the world and that it will get into everything crypto,” Wood said.

Coinbase is known as an exchange, but it also offers a digital wallet, Wood said. She continued that Coinbase should be expected to become involved in all kinds of financial services that the crypto community calls DeFi, or decentralized finance, an umbrella term for peer-to-peer financial services on public blockchains.

“We’re pretty excited about that as well,” Wood said.

Three Top Tech Stocks Recommended by Cathie Wood: Bitcoin Boost

Another driver of opportunity for Coinbase could be a rebound in bitcoin.

Interestingly this year, bitcoin became a risk-off asset as a flight to safety occurred amid market uncertainty with interest rates rising and some regional banks failing.

Seasoned Wall Street trader Bryan Perry recommended Coinbase in August for his Hi-Tech Trader subscribers and advised the sale of the shares less than three months later for a profit of 5.35%. He also recommends options in Hi-Tech Trader and still has such a Coinbase trade outstanding that has yet to close.

Bryan Perry heads the Hi-Tech Trader advisory service.

Three Top Tech Stocks Recommended by Cathie Wood: Bitcoin Bump

Bitcoin shot up earlier this year from $19,000 to $30,000 because there is no counter party risk in bitcoin like there is in the regional banking system, Wood said.

Wood expects the U.S. Securities and Exchange Commission will soon approve a bitcoin exchange-traded fund. That will be a key signal to validate bitcoin, she added.

Bitcoin still has its critics. One of them is Professor Dennis Ridley, an economist who has faculty positions at both Florida State University and Florida A&M University. Professor Ridley was a panelist at the COSM Technology Summit with George Gilder, co-founder and senior fellow at the Discovery Institute and head of the Gilder’s Technology Report investment newsletter.

“I do not trust Bitcoin,” Professor Ridley said. “I hope we can return to the gold standard.”

Gilder personally owns bitcoin, but he focuses on his passion of technology investing as one of the world’s foremost futurists. His Gilder’s Technology Report is a monthly publication but it is supplemented with updates in the weeks when the newsletter is not sent to his subscribers.

Paul Dykewicz meets with George Gilder, head of Gilder’s Technology Report.

Political Risk Mounts with Wars in the Ukraine and the Middle East

Even though the three technology investments to buy rebounded in the first part of 2023 after the sector fell more than 30% in 2022, they slid again in recent months before perking up lately. Investors need to withstand headwinds of higher-for-longer interest rates, runaway federal deficits and rising political risk with Russia’s unrelenting war in Ukraine amid escalating attacks in the Middle East following the murderous Oct. 7 rampage by Hamas inside Israel.

President Joe Biden invoked the Defense Production Act on Oct. 30 in a technology-related executive order only meant to be issued in the most urgent of moments, such as mobilizing the nation during war time or developing COVID vaccines amid a pandemic. His executive order about artificial intelligence (AI) applied the same authority to make companies prove that their most powerful systems are safe before allowing their use.

That means companies must tell the government about the large-scale AI systems they’re developing and share rigorous independent test results to prove they pose no national security or safety risk to the American people, President Biden said. At the same time, President Biden said he would direct the Department of Energy to ensure AI systems don’t pose chemical, biological, or nuclear risks.

In the wrong hands, AI can make it easier for hackers to “exploit vulnerabilities” in the software that makes American society run, President Biden said.

For that reason, President Biden said he was directing the Department of Defense and the Department of Homeland Security to develop “game-changing cyber protections” that will make computers and critical infrastructure more secure than today. As part of that response, President Biden said his administration would take “decisive steps” to prevent the use of cutting-edge AI chips that could undermine U.S. national security, he added.

Paul Dykewicz,, is an award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Crain Communications, Seeking Alpha, Guru Focus and other publications and websites. Paul can be followed on Twitter @PaulDykewicz, and is the editor and a columnist at and He also serves as editorial director of Eagle Financial Publications in Washington, D.C. In that role, he edits monthly investment newsletters, time-sensitive trading alerts, free weekly e-letters and other reports. Previously, Paul served as business editor and a columnist at Baltimore’s Daily Record newspaper and as a reporter at the Baltimore Business Journal. Plus, Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is a great holiday gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many other sports figures. To buy signed and specially dedicated copies, call 202-677-4457.

The post Three Top Tech Stocks Recommended by Cathie Wood of Ark Invest appeared first on Stock Investor.

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