Our Love/Hate Deflation Relationship

Plus: Big companies getting smaller. Small companies getting bigger. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

December 4, 2023

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TOGETHER WITH

Good morning and happy Monday.

Thanksgiving came just in the nick of time. St. Nick won't be so lucky.

Prices for a 16-pound turkey this November hit an average of around $27, or nearly 6% lower than last year, according to the American Farm Bureau Federation. But now a surge in bird flu cases is particularly devastating the supply of the holiday-season staple. Millions of turkeys were killed by the flu in November alone, according to CNN, meaning you better believe that turkey — or turkey prices, at least — can fly. This Christmas, ham might have to do.

Morning Brief

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Deflation is kicking in.

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Help wanted at America's small businesses.

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Avatars are replacing some of your favorite aging bands.

Inflation & Prices

Deflation Begins to Hit Durable Goods

With stuff like cars, slowing inflation usually means prices are rising, just not as fast as before. But now there is, like, actual deflation — or year-over-year price drops.

And it's happening to a large subset of "durable goods," long-lasting items like washing machines and aforementioned cars that ordinarily don't see much of it, according to a Wall Street Journal analysis published last weekend. The welcome phenomenon (to consumers, if not Detroit and elsewhere in the manufacturing universe) may help expedite the Fed's goal of a US economy chugging along with just 2% inflation.

Stay on Target

To be clear, economy-wide deflation is typically a big thing, often a harbinger of widespread economic contraction and subsequent doom. But deflation in the right categories can be fine and dandy, economists say. And durable goods are one of those rare right categories.As we remember all too well, a deluge of nasty post-pandemic supply-chain snarls coincided with a massive spike in demand for big-ticket durable goods last year and sent prices soaring — in February 2022, durable goods prices rose more than 10%, the biggest increase in roughly half a century. Fast-forward to this past October and prices fell 2.6% from a year earlier, marking the fifth straight month prices for durable goods experienced deflation, per the newest Commerce Department data.

Morgan Stanley economists expect the deflation trend to continue through at least the midway point of next year due in part to strengthened supply chains, a projection that jives with stabilization tracked by the New York Fed's Global Supply Chain Pressure Index. In fact, deflation may remain so strong, it unwinds much of overall inflation all on its own:

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Morgan Stanley economists are so confident durable goods deflation will continue that they see overall inflation falling to 1.8% by September of next year, per the WSJ, meaning the Fed could hit 2% inflation far before its 2026 internal projections. This past October, the annualized inflation rate fell to 3.5%.

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In October, new and used car part prices fell 0.4% month-over-month, while home furnishing prices fell 0.2% and recreational goods, which includes expensive items like computers, fell 0.4%.

Greedflation: In addition to strengthened supply chains, a long-gestating consumer snapback against profit-driven price hikes may well be playing a significant role in deflation, according to another Wall Street Journal report. As demand far outstripped supply last year, many companies hiked prices and witnessed windfall profits. Now, shoppers are exploring cheaper alternatives, likely pushing prices down. Walmart, for example, has seen a 50% increase in the number of items experiencing price cuts so far this year, CEO John Furner recently told analysts.

At Your Service: Still, Jerome Powell, among others, has stressed that rising prices for services like housing rent costs and car insurance still need to see a major slowdown to cool overall inflation. Service prices were still up 4.4% year-over-year in October, ahead of overall inflation. But the rent is still too darn high.

- Brian Boyle

Labor

As Job Market Cools, Small Businesses Scramble for Employees

Back when giant corporations were snapping up all the talent, it was hard to be a little guy. But it's their turn now.

As the country's largest companies have begun readjusting their balance sheets and slowing down hiring, small businesses are hanging up "Help Wanted" signs at a record pace, The Wall Street Journal reported.

Think Smaller

During the pandemic, many sectors — especially tech and finance — went on hiring sprees, offering increased wages and more attractive benefits to new workers. That meant smaller businesses just couldn't compete, as the "quiet quitting" phenomenon was in hindsight mostly people just trading up for higher-paying jobs.

It all came tumbling down rather quickly with the likes of Meta, Alphabet, Salesforce, Goldman Sachs, and more laying off tens of thousands of employees as covid fears eased and the world started to feel more like the before times. Overall, there's been a general cooldown in the labor market, and the unemployment rate, while still historically low, is on the uptick.

Now, the hiring patterns have shifted. While large companies take a wait-and-see approach before expanding their workforces, small businesses, which boomed in numbers post-pandemic as remote work sparked more companies into existence, finally have some wiggle-room to fill their own positions:

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Establishments with 1 to 9 employees accounted for 21% of all job openings in September, the highest share on record dating back to 2000, the WSJ reported. Meanwhile, hiring at businesses that employ anywhere from 10 to more than 5,000 workers dropped.

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But more open positions at small businesses doesn't mean they're getting filled. "Many of them are still experiencing lost sales opportunities because they're not staffed as they want to be," Holly Wade of the National Federation of Independent Business, told the WSJ.

The Fed Conundrum: With a widespread labor cooldown, wage gains are easing, too. Big companies are no longer fighting for workers, so they don't have to offer extravagant salaries and holistic benefits. In the 12 months through October, average hourly earnings rose just 4.1%, the smallest increase since June 2021. That's good news for the Federal Reserve, which wants to see inflation settle down toward 2%. But it's potentially bad for American households, especially those making less than $50,000, if wages stop outgrowing inflation.

- Griffin Kelly

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Media & Entertainment

Rock Band Kiss Plans to Join the Avatar Concert Trend

(Photo Credit: Nainoa Shizuru/Unsplash)

They can't rock n' roll all night and party every day anymore. But their avatars can, maybe even profitably so.

After 50 years of performing, world-renowned shock rock group Kiss just played its final show, but the members say the show will go on in a way that allows the musicians to go easy on the facepaint and tour buses.

Pixelated Glory

The current lineup of Kiss, who are all now in their 60s and older, plan to replace themselves with 3D avatars created by George Lucas' special effects company Industrial Light and Magic. Instead of seeing Gene Simmons and Paul Stanley in the flesh, concertgoers will watch giant screens with digitally de-aged, heightened, almost superhero versions of the actual band members. Simmons, who's always dressed with a demonic pastiche, will be depicted with giant bat wings and breathing fire.

To purists, it might sound like the cringy holographic Tupac at Coachella more than a decade ago, but recent examples of this type of experience have proven quite successful:

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Swedish pop band ABBA launched ABBA Voyage last year, with the show making more than $2 million a week, Bloomberg reported.

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The ABBA arena, which holds just 3,000 people, its effects rig, and a live 10-piece band, were custom-made for the show. And the entire arena can be flattened, packed up, and easily moved to the next town. The system also allows for multiple showings a day, like a film screening.

The Death of Live Music? Don't hate us, Kiss purists, for the ABBA comparison, but the avatar concept should work for other aging acts who have built massive followings. Instead of a punishing tour schedule, musicians can re-record songs at their own pace — while wearing motion-capture suits — and then have those performances shown to different audiences. If a young, spry guy like Drake hops on the avatar bandwagon in the next few years, then we'll know the tune has changed.

- Griffin Kelly

Extra Upside

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O Tannenbaum: Christmas trees are aplenty, but deals aren't.

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Aloha: Alaskan Air will buy Hawaiian Airlines for nearly $2 billion.

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