To explain the weakness of US GDP in the first quarter that has just ended there is a lot of talk about the cold and, much less, about the dockers' strike on the west coast. Bad winter weather causes discussion every year because every year global warming stays away from North America, which remains in the grip of frost and wrapped up in the polar vortex. Therefore, two types of debates arise every year. The first is between those who maintain that the current winter is exceptionally cold and those who point out that at the moment all the previous winters also seemed exceptionally cold.
The second debate is among those who argue that the cold explains the disappointing GDP result and those who instead claim that the main macro data have always come out regularly seasonally adjusted, i.e. warmed up in winter and cooled down in summer, so it's useless to go around it and if a figure is bad, it's just bad. More interesting, given the quality of these debates, therefore appears the other issue, that of the strike which blocked the ports of the west coast for a few weeks and prevented the department stores of half of America from displaying the new collections produced in China, also slowing down industrial production, blocked in many cases by the lack of components imported from Asia.
We have seen interesting studies on the subject on the loss of competitiveness of expensive and unreliable Californian ports. We have seen reflections on the expansion of the Panama Canal (and on what the Chinese would like to dig in Nicaragua) which will allow many ships to avoid the port of Los Angeles in favor of Texan ports. However, we did not happen to see comments on the fact that that of the dockers is the first major strike of the post-crisis period. In fact, a quick search is enough to notice that the big strikes, a regular constant in American history, stopped in 2007-2008, when General Motors, Chrysler and Boeing were blocked. The last, epic for its harshness, was that of the 12 screenwriters of radio, cinema and television. Lasting four months, throughout 2009 it caused a drastic drop in the number of films distributed in theaters all over the world and the shortening, sometimes halving, of the number of episodes of television series.
In the 2009 series, if you've ever noticed, the last installment is jam-packed with events and twists because four months of stories had to be crammed into one week. After the writers' strike, nothing for six years. The long social peace of the past six years is naturally explained by the weakness of the unions, which the Obama administration has tried in vain to strengthen in all possible ways. This is perfectly explicable in the context of rampant unemployment, just as it is normal for union pressure to reach its maximum when there is full employment (as was the case in 2007-2008). The California dock workers strike it therefore has a high symbolic value because it marks the beginning of a new cycle in which the GDP of one or two quarters a year will happen to be "surprisingly" hit by an exogenous trade union. Now, if we put together the strike, the increase in minimum hourly wages (also decided by republican states), the large distribution chains that spontaneously increase wages so as not to lose employees and unemployment which has dropped in six years from 11 to 5.5 per cent, we see that the old business cycle mole has dug well and is now popping to the surface.
In these post-crisis years we have heard two great narratives. The former has constantly reminded us that economic cycles are still here. The second instead told us that this time we are dominated by the credit cycle, still oriented towards a deleveraging so powerful as to neutralize the ordinary economic cycle. The exponents of the first school of thought in turn divided into two currents. Those in black glasses have constantly warned us of the imminent rise in inflation and rates (never happened). The ones in the pink glasses have been constantly telling us about an imminent sharp acceleration in the economy (never happened). The exponents of the second school of thought, that of the credit cycle, have also split into factions. The Bank for International Settlements, loosely inspired by the Austrian school, has argued that the zombification of banks and sovereign debt through the Quantitative easing it will continue not to pull a spider out of the hole (a recent study by the Bri softly quantifies the decrease in unemployment caused by Qe at 0.13, i.e. nothing, per cent). Keynesians like Krugman or Koo argue for their part that it is the zero animal spirits that frustrate Qe and that only public spending, not monetary policy, will seriously relaunch the economic cycle.
We have the impression that they could all be right. The economic cycle is superimposed on the credit cycle. Deleveraging and depressed animal spirits disempower but, mind you, don't undo the economic cycle. If this is true, two important consequences follow. 1) The cycle is there. It's not strong, but it's there. Without much fanfare, America went from very high unemployment in 2009 to full employment at the end of 2015. Inflation is there too. It's not strong but it's there. Excluding oil, the CPI was 1.5 a year ago and is 1.9 today. If the most dovish Fed in its 102-year history is preparing to raise rates, it is because it recognizes that the cycle exists. The margins of companies, besieged by labor costs (for now more due to an increase in the number of employees than to an increase in wages) and by the cost of money which will soon begin to rise again, are under pressure for the first time. The transfer of income from wages to profits has ended and the reverse movement is about to begin. 2) The cycle exists but it is part of a credit cycle that weakens it. The mountain of money that banks park in central banks at zero interest will be withdrawn little and slowly. The economy will not overheat. Any US acceleration will be nipped in the bud by the stronger dollar. Bonds will sell but won't crash and will indeed have periodic violent backfires at the first sign of slowing growth. US equities will not benefit much from the further maturing of the cycle.
