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What is Stagflation?

Today we’ll look at what stagflation is, as well as how it impacts you and the broader economy. Keep reading to get started.
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Stagflation seems to be a word that we’ve been hearing a lot of recently. With the CPI report showing that inflation had slowed less than expected, stagflation concerns became even louder. However, for the average person, the term probably has never been defined. So, what is stagflation? Today we’ll look at what stagflation is, as well as how it impacts you and the broader economy.

Inflation

First things first, we should probably define what inflation is. The simplest way to define inflation is as the erosion of a currency’s purchasing power. Those moments where it feels like your dollar buys less than it used to  are examples of inflation. Under economic theory, inflation primarily occurs when the growth of the money supply outpaces economic growth. For this reason, when inflation becomes an issue, central banks will attempt to limit the money supply. Essentially if more money is introduced to an economy, without an equal introduction of goods and/or services, inflation occurs. Other contributing factors include rising cost(s) of goods, wages and labor. The U.S. Federal Reserve aims for an inflation rate of 2%, and has averaged that since 2011.

Stagflation Defined

So, now that we know what inflation is, we can address what stagflation is. If inflation alone has the power to impact markets and basic economies, what impacts can stagflation have? To simply define stagflation, allow me to present it as an equation or two:

  1. Stagflation = High Inflation + Slow Economic Growth + High Unemployment
  2. Stagflation = High Inflation + Decreasing GDP

Under the first equation, we aren’t yet in a period of stagflation. While inflation is high, the official unemployment rate is 3.6%. That level reasonably mirrors the level that we were at prior to the onset of Covid back in 2020. However, the labor participation rate is still below pre-pandemic levels by a full percentage point. While that may not sound like a lot, remember that equates to hundreds of thousands of people not participating in the labor force.

With that being said, based on the second equation, we are already experiencing a period of stagflation. The U.S. GDP declined by 1.4% in Q1 of 2022, when it was expected to grow by 1%.

An example of stagflation in the U.S. would be the America of the early to mid 1970s. During this time, the United States experienced two, separate, recessions. There were also four separate years of negative GDP growth, two of which being consecutive. Inflation skyrocketed from 3.6% in 1973 to 8.3%, incidentally, where we are now, to 1974. The closest unemployment was to the 3.6% we have now was 1970 and 1973, when it was 4.9%. In 1975, unemployment was 8.5%.

Impacts and Concerns

So, how does stagflation impact you? Well, first, through the basic inflationary impacts. Let’s say your investments are down 5% this year, better than the broader markets. Tack on 8.3% in inflationary costs, and your money is actually worth 13.3% less. Inflation and bonds have a well-defined history as well. Inflationary risks and different securities have well defined relationships such as the relationship with bonds and the inflation rate. If your bond pays 3%, but inflation rises from 2% to 6%, you are losing money on the investment. Let’s look at your paycheck too. If you got a 5% raise, but inflation went up from the 2% average to 8.5%, your real earnings went down 1.5%. In sum, high inflation hits you at every angle. You effectively make less, your investments return less/negative, and things get more expensive.

Second, looking at the other variable(s) in the equation. What do all of unemployment being high, GDP decreasing, and economic growth slowing mean? Essentially, it means that the average person is at risk of losing their job. Adding the increased costs of goods and services to a loss of income can cause incredible financial strife. Now, apply that on a national level. If more people are out of work, you would also expect less spending. If the average person is unable to stimulate the economy, via spending, it is hard to reverse poor economic growth.

There is also a less direct impact, though perhaps one even more impactful. With the national debt burgeoning in the last two years, financing that debt also becomes more difficult. Discussing the national debt in its current context is an issue deserving its own space. Thankfully, others have already attempted to broach the subject.

Solutions

There is no surefire way to solve or fix stagflation. The general consensus is to first engage in the policies that address inflation. Examples of that would be printing less money and increasing interest rates, as to make borrowing more expensive. Other, less popular, examples would be cutting different government programs/expenditures. Next would be efforts to stimulate the economy, with the simplest being lowering taxes. That is also a complex suggestion to make, and agreeing to a proper execution is usually quite difficult. In addition, without the aforementioned spending cuts, the potential impact is greatly reduced.

Conclusions on Stagflation

There is no question that inflation is currently negatively impacting people. Concerns about global conflicts, and potential recessions, do nothing to assuage the average person’s concerns. Depending on how we look at it, America is already experiencing a period of stagflation. On the inflationary front, the Fed has begun increasing interest rates. Whether or not tax breaks and spending cuts follow are unclear, though admittedly a more accurate term might be unlikely.

In times like these, having a financial plan is important. While you cannot control the rate of inflation, you can control things like your spending and your investments. Even if it doesn’t eliminate it, proper financial planning should help minimize the detrimental impacts of stagflation.

The post What is Stagflation? appeared first on Investment U.

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Economics

Expert on Bath & Body Works: ‘an easy double the next three years’

Bath & Body Works Inc (NYSE: BBWI) might have been painful for the shareholders this year, but the road ahead will likely be a rewarding one, says…

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Bath & Body Works Inc (NYSE: BBWI) might have been painful for the shareholders this year, but the road ahead will likely be a rewarding one, says the Senior Vice President and Portfolio Manager at Westwood Group.

BBWI separated from Victoria’s Secret

The retail chain separated from Victoria’s Secret in 2021, which, as per Lauren Hill, clears the way for a 100% increase in the stock price in the coming years. On CNBC’s “Closing Bell: Overtime”, she said:

[Bath & Body Works] has really strong pricing power. They have 85% of their supply chain in the United States and with the Victoria’s Secret brand now gone, I think it’s a wonderful buy; an easy double the next three years.

Last month, the Columbus-headquartered company reported results for its fiscal first quarter that topped Wall Street expectations.

Bath & Body Works is a reopening play

The stock currently trades at a PE multiple of 6.64. Hill is convinced Bath & Body works is a reopening name and will perform so much better as the world continues to pull out of the pandemic. She noted:

Customers have missed buying their scented products in store and as their social occasion calendars fill up, they are getting back out there and buying more gifts, including Bath & Body Works products.

Hill also dubbed BBWI a great pick amidst the ongoing inflationary pressures because of its reasonably priced products. Shares are down more than 50% versus the start of 2022.

The post Expert on Bath & Body Works: ‘an easy double the next three years’ appeared first on Invezz.

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Economics

Majority Of C-Suite Execs Thinking Of Quitting, 40% Overwhelmed At Work: Deloitte Survey

Majority Of C-Suite Execs Thinking Of Quitting, 40% Overwhelmed At Work: Deloitte Survey

Authored by Naveen Anthrapully via The Epoch Times,

A…

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Majority Of C-Suite Execs Thinking Of Quitting, 40% Overwhelmed At Work: Deloitte Survey

Authored by Naveen Anthrapully via The Epoch Times,

A majority of C-suite executives are considering leaving their jobs, according to a Deloitte survey of 2,100 employees and C-level executives from the United States, Canada, the UK, and Australia.

Almost 70 percent of executives admitted that they are seriously thinking of quitting their jobs for a better opportunity that supports their well-being, according to the survey report published on June 22. Over three-quarters of executives said that the COVID-19 pandemic had negatively affected their well-being.

Roughly one in three employees and C-suite executives admitted to constantly struggling with poor mental health and fatigue. While 41 percent of executives “always” or “often” felt stressed, 40 percent were overwhelmed, 36 percent were exhausted, 30 percent felt lonely, and 26 percent were depressed.

“Most employees (83 percent) and executives (74 percent) say they’re facing obstacles when it comes to achieving their well-being goals—and these are largely tied to their job,” the report says. “In fact, the top two hurdles that people cited were a heavy workload or stressful job (30 percent), and not having enough time because of long work hours (27 percent).”

While 70 percent of C-suite execs admitted to considering quitting, this number was at only 57 percent among other employees. The report speculated that a reason for such a wide gap might be the fact that top-level executives are often in a “stronger financial position,” due to which they can afford to seek new career opportunities.

Interestingly, while only 56 percent of employees think their company executives care about their well-being, a much higher 91 percent of C-suite administrators were of the opinion that their employees believe their leaders took care of them. The report called this a “notable gap.”

Resignation Rates

The Deloitte report comes amid a debate about resignation rates in the U.S. workforce. Over 4.4 million Americans quit their jobs in April, with job openings hitting 11.9 million, according to the U.S. Department of Labor. In the period from January 2021 to February 2022, almost 57 million Americans left their jobs.

Though some are terming it the “Great Resignation,” giving it a negative connotation, the implication is not entirely true since most of those who quit jobs did so for other opportunities. In the same 14 months, almost 89 million people were hired. There are almost two jobs open for every unemployed person in the United States, according to MarketWatch.

In an Economic Letter from the Federal Reserve Bank of San Francisco published in April, economics professor Bart Hobijn points out that high waves of resignations were common during rapid economic recoveries in the postwar period prior to 2000.

“The quits waves in manufacturing in 1948, 1951, 1953, 1966, 1969, and 1973 are of the same order of magnitude as the current wave,” he wrote. “All of these waves coincide with periods when payroll employment grew very fast, both in the manufacturing sector and the total nonfarm sector.”

Tyler Durden Sat, 06/25/2022 - 20:30

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Spread & Containment

Optimism Slowly Returns To The Tourism Sector

Optimism Slowly Returns To The Tourism Sector

Coming off the worst year in tourism history, 2021 wasn’t much of an improvement, as travel…

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Optimism Slowly Returns To The Tourism Sector

Coming off the worst year in tourism history, 2021 wasn't much of an improvement, as travel remained subdued in the face of the persistent threat posed by Covid-19.

According to the United Nations World Tourism Organization (UNWTO), export revenues from tourism (including passenger transport receipts) remained more than $1 trillion below pre-pandemic levels in 2021, marking the second trillion-dollar loss for the tourism industry in as many years.

As Statista's Felix Richter details below, while the brief rebound in the summer months of 2020 had fueled hopes of a quick recovery for the tourism sector, those hopes were dashed with each subsequent wave of the pandemic.

And despite a record-breaking global vaccine rollout, travel experts struggled to stay optimistic in 2021, as governments kept many restrictions in place in their effort to curb the spread of new, potentially more dangerous variants of the coronavirus.

Halfway through 2022, optimism has returned to the industry, however, as travel demand is ticking up in many regions.

You will find more infographics at Statista

According to UNWTO's latest Tourism Barometer, industry experts are now considerably more confident than they were at the beginning of the year, with 48 percent of expert panel participants expecting a full recovery of the tourism sector in 2023, up from just 32 percent in January. 44 percent of surveyed industry insiders still think it'll take until 2024 or longer for tourism to return to pre-pandemic levels, another notable improvement from 64 percent in January.

Tyler Durden Sat, 06/25/2022 - 21:00

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