Stubbornly high unemployment has been the bane of this economic recovery. Inflation has been creeping higher for months. And on Wednesday, data tied to a key manufacturing index was disappointing, to say the least.All of this turmoil has kicked up the volume on warnings that the U.S. is headed into a period of stagflation, a dreaded economic condition marked by sharply rising consumer prices accompanied by miniscule growth.
Consider what that would mean to the average consumer who has to pay more for everything from a gallon of milk to a new car, but can't expect a raise any time soon because his company is just getting by.
And that's assuming that the consumer has a job at all.
"To me the definition of stagflation is rising prices while there's a soft labor market. If those conditions were mutually exclusive we wouldn't have the word stagflation," said Larry Elkin, president of Palisades Hudson Financial Group, a financial planning and investment management firm in Scarsdale, N.Y.
Here are the numbers, just from today, that have reignited talk of stagflation: the Consumer Price Index, a widely watched inflationary gauge, rose 0.2% on a month-over-month basis. Economists had predicted the index would rise 0.1%. Minus food and energy prices, which are viewed as more volatile than the costs of other consumer goods, the index was up 0.3% compared with expectations of 0.2%. And year over year, overall inflation jumped 3.6%, while core inflation (minus food and energy) was up 1.5%. Economists had predicted 3.4% for overall inflation and 1.4% for core inflation.
So inflation numbers came in higher-than-expected across-the-board.
At the same time, the Empire State manufacturing index for June was an eye-opener. The index came in at -7.8 versus expectations of 12.
On top of it all, throw in unemployment, which jumped back over 9% in May.
"This is what a mild case of stagflation looks like, and it doesn't look very good," Elkin said.
Oh boy! Summer of Wreckovery II is well underway I see!