Commonwealth

The focus of last week’s important economic data releases were on consumer inflation, industrial production, and August retail sales. Retail sales increased by more than expected last month, largely driven by a pickup in grocery and online sales. This will be another busy week for updates, including news on the housing sector and the results from the Fed’s September meeting.

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This coronavirus update will be shorter than those I have done previously for a couple of reasons. First, there is not much new news. While case growth at the national level appears to have rolled over, other national data is mixed. The case slowdown is by no means certain. Second, the national case data is significantly misleading for many areas, which continue to suffer much higher infection rates than the rest of the country. So, while it is worth taking a look at where we are, the medical situation remains uncertain.

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One question I get a lot is whether the market is overvalued. Or, to put the concern the way my son would, is the market crazy expensive? All year, even as the market continued to rise, many people called out high valuations. Now that the market has pulled back, at least for the moment, fears are rising that we may see valuations collapse—and the market with them. Should we be worried?

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Yesterday, I appeared on Fox Business’ Morning with Maria to discuss the markets, inflation, consumer spending, and what’s ahead for the fourth quarter. Listen in to hear more.

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After inflation, which we talked about yesterday, the next biggest set of questions I get focus on what the effect of the new tax law will be and whether the higher tax rates in it will derail both the economic recovery and the market. People generally make a good argument about how it will hurt confidence, take money out of consumer and business spending and investment, and generally take us back to a state of depression. I understand the arguments. But two things are missing that would make them convincing: facts and context.

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One of the most urgent and consistent questions I have been getting recently is around inflation. With the headline numbers high—and they are high—the concern is that we are moving back to the 1970s and that inflation will stay at the current 5 percent or run even higher. That conclusion seems reasonable, given the large federal deficit and spending over the past couple of years. When combined with the signs of slowing growth, it could point back to stagflation. The 1970s are calling. Maybe disco will come back as well?

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