Control Panel: End of cheap stuff

Investment Analysis Clubs Macro Economic Trends and Risks
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I’m still astonished when I can buy a T-shirt for the price of a cup of coffee. I remember when clothes and other stuff were really expensive (compared with wages). Before the rise of international manufacturing and trade, especially China.

I also remember the impact of constant inflation. It has taken decades for inflation expectations to subside. This is a key issue for the Federal Reserve since they will not cut the fed funds rate if consumer inflation expectations rise.

https://www.wsj.com/economy/the-era-of-cheap-stuff-was-already-ending-now-comes-the-tariff-threat-e9ba23df?mod=hp_lead_pos2

The Era of Cheap Stuff Was Already Ending. Now Comes the Tariff Threat.

Goods prices are rising after decades of deflation, and Trump’s tariffs will give an added push

By Matt Grossman, The Wall Street Journal, March 30, 2025

President Trump’s tariffs threaten to amplify a big inflation challenge: Even before the new levies landed, a long run of everyday stuff getting cheaper was coming to a close…

Prices of core goods in the consumer-price index—that is, excluding food and fuel—fell 1.7% between December 2011 and December 2019. Over the same period, prices of core services like housing, healthcare and education rose 2.7% a year. The combined effect of rising service and falling goods prices was a core inflation rate of 2% a year overall…

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Not only are import prices no longer falling, Trump’s tariffs could make them more expensive. He has already imposed 25% steel and aluminum tariffs, an additional 20% tariff on China, plus 25% tariffs on most goods from Canada and Mexico that aren’t covered by a previous trade deal and a 25% tariff on all imported cars starting April 3. He has promised an even broader slew of new tariffs starting April 2, which he says are meant to restore fairness against other countries’ trade barriers…

A survey of 400 chief financial officers, released this past week by the Richmond Fed, the Atlanta Fed and Duke University, found that companies that don’t import from Canada, Mexico and China expect to raise prices 2.9% this year. But companies that rely heavily on these tariffed countries plan to raise prices 5.1%… By reducing competition, trade barriers allow domestic producers to raise prices more…[end quote]

I’m wondering if I should buy a new dishwasher the next time sales come around. DH says, reasonably, that our 1987 dishwasher is still working. But our range, refrigerator and microwave broke down and needed replacing. Should I act before inflation and get a new dishwasher?

The Cleveland Fed’s Inflation Nowcast is far above the Fed’s desired 2%.

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We also have to worry about a slowing economy. The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 is -2.8 percent on March 28, down from -1.8 percent on March 26. The alternative model forecast, which adjusts for imports and exports of gold as described here, is -0.5 percent. After recent releases from the US Census Bureau and the US Bureau of Economic Analysis, the nowcast of the contribution of net exports to first-quarter real GDP growth declined from -3.95 percentage points to -4.79 percentage points in the standard model and from -1.92 percentage points to -2.53 percentage points in the alternative model.

The markets are responding negatively to the current situation. The Fear and Greed Index is in Extreme Fear. The trade is strongly risk-off as stocks and junk bonds are falling faster than the 10 year Treasury. Gold is rising to record levels.

The Treasury yield curve is showing an unusual signal. Over the past week or so the 2 year Treasury yield fell while the 20 year and longer were stable. This is a recessionary signal. The bond market does well in recessions since interest rates usually fall, increasing the value of existing bonds.

The stock market did poorly last week, especially the NAZ. The economy as a whole is moving toward recession.

The Cyclically Adjusted P/E Ratio is declining but still in bubble territory. The Chicago Fed’s National Financial Conditions Index (NFCI), which provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems, is stable in the loose range so a financial crisis isn’t in the cards.

https://www.morningstar.com/portfolios/best-investments-own-during-recession?utm_source=eloqua&utm_medium=email&utm_campaign=improvingfinances&utm_content=none_62417&utm_id=32311&elqTrackId=04068c2100044456a89e2575febb647f&elq=24152aeacf37432f81c698f70d1ac5c7&elqaid=62417&elqat=1&elqCampaignId=32311&elqak=8AF5195553AD184E755570384A881B95DCEA271179F790B088589CE0EF8C7DBA8C98

The METAR for next week is rainy. I don’t see a fierce storm but a slow, relentless deterioration. At some point the bubble will collapse but it’s hard to predict exactly when.

Wendy

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It was never deflation. It was disinflation. Matt needs to go back to study this some more.

China currently has had 2 years of deflation.

We will get deflation. Matt misinforming the public is par for the course. He works or whatever you want to call it for the WSJ.

I wish reporters would quit in disgrace from time to time.

Rainy is an understatement.

The tax cut will be a monsoon.

We are in some serious trouble.

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And yet the yellow line for “core goods” prices actually does go down between 2012 and 2020. That does exclude food and energy. (The price of oil dropped by more than half over that period.)

DB2

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You can go back into almost any period of a decade or so and find somethings rising and others falling.

In aggregate, we had disinflation from 1981 to 2020.

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You should replace it, and not necessarily because of inflation. Your 1987-era dishwasher probably uses 8 to 15 gallons per cycle. Starting in 1992, the meddling stooges at the Department of Energy took away our freedom to have inefficient appliances, and so today a new dishwasher uses 3-5 gallons per cycle and about 75% less energy.

You can punch in the numbers yourself, but a new unit will likely save you $100-200/year in energy and water costs. So there is a non-trivial opportunity cost to running the old one.

As a bonus, new washers clean significantly better and are a lot quieter too. An an extra bonus, the inflation-adjusted price of a new model is about half of the 1987 version. One thing new washers don’t do as well is get your dishes dry, so definitely ask the appliance guy about that.

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Syke, I agree with all you wrote to Wendy except that last bit. Wonderfully, many dishwashers now have an automatic “pop the dishwasher door open a couple inches while dishes still hot from rinse option” that leaves my dishes super clean and wonderfully dry with no effort.

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I expect the stock market to further decline.
Consumer sentiment at an all time low.
I view this as a buying opportunity.
I will be slowly adding to my stock portfolio.
I have zero debt and adequate income.
Methinks in 10 years I will be happy I did. We’ll see.

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Down markets are when you make your money. I’m not sure we’re in a down market yet, but the government’s twin policies of decreasing employment and increasing inflation will probably put a damper on things.

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Is that a commentary on the cheapness of Bangladeshi labor, or the exorbitant price of the foo-foo coffee some people think they “need”? A medium, plain coffee at Tim Horton’s costs over $2.50, and it isn’t as good as the free coffee at the VW dealer in Ann Arbor. Coffee I like best at home? Folger’s instant. No fancy drippers or k-cup thingies. Just heat water and stir in a spoonful…but Mrs Olson doesn’t stick her head in the window anymore.

Steve

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I do that myself. When I notice the thing isn’t making noise anymore, I look around the corner into the kitchen to see if the cycles is done. If so, I open the door a couple inches.

Steve

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Ours (about 5 years old, Whirlpool EnergyStar, blah blah blah) cleans much better, dries worse. (Of course we don’t use the “energy dry” setting or whatever that is, because that’s just burning electrons.) But it doesn’t pop open when done, so it’s humid inside there, hence, wet dishes. I wish there was an alternate setting for Really EnergyStar, opening the door and letting them dry naturally.

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I am sitting here this morning for 2.5 hours working and talking to a friend for 2.5 hours. I will have 4 decaf coffees for $3.17.

At the next table are two Miss Porter’s school girls with $8 drinks. They have not worked one day in their lives. They do not know this yet but they are geared to pile on the pounds.

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If I am out and about I go thru the McDonald’s drive thru for a 54 cent senior coffee. But then I am not a coffee afficionado.
At home I use the 10 buck WalMart brand drip coffee maker.

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It could be both. I clearly remember that in 1985, when we didn’t have free coffee at the office yet, a coffee was 45 cents, and we would go down to get a coffee every day at around 10am or so and again sometimes at 3pm or so. I remember the year roughly because when they raised the price to 50 cents, a bunch of us got annoyed and we bought a coffee brewer for our department, then we would either kick in a dime or two into a cup next to the Mr. Coffee to cover the expenses, or we would periodically go to the supermarket and buy a bag of coffee and a pack of filters and a bottle of powdered coffeemate. Nobody objected to the coffee maker because it saved A LOT of our time … it was a huge building and going down to get coffee and back up to our office area literally took more than 10 minutes. So if 30 of us shared the coffee maker, that is roughly 30 people x 1.5 (times per day) x 12 minutes, or 540 minutes of extra work each day. This was before the mythical man month was popularized.

I nearly forgot my train of thought while recounting this story. So 45 cents in 1985 is equivalent to $1.36 today. Meanwhile, even the least expensive coffee at a typical coffee place is much higher than that today. Of course, most offices have free coffee anyway so it’s moot.

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The last place I worked had free coffee, but it was Maxwell House. About like drinking battery acid. Took a lot of imitation creamer to make it drinkable.

Steve

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We used to get Maxwell House (or whichever coffee was on sale that week/month) and it was good enough. But I think we mostly used coffee medicinally (for the caffeine) and socially rather than for the taste.

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I hadn’t heard of that feature. My ~25 year old Bosch just washes and when done just sits for about 15 minutes while the heat from the hot water rinse causes most of the stuff to dry via evaporation…then it turns on the pump for a minute and drains out more water.
Whether you open it right away or an hour later all the glasses, silverware, plates and other stuff with any mass to them are totally dry…but plastic stuff (like those little sandwich size containers) are still a bit wet in the grooves.

I agree with the rec to replace any dishwasher from the 1980s.

Mike

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Same here. One day, I thought I’d fix that, so I ground up some fresh beans and made a pot at the office. They hated it. Lol

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Hmmm… doesn’t that fill your kitchen with humidity? Isn’t that bad for a house? Isn’t that why we run the exhaust in the bathroom when we take a shower?

Just askin’…
Wendy

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In the winter, I have trouble maintaining humidity in the house so a little extra from the dishwasher is welcome. In the summer, the windows are open, so any excess humidity from the dishwasher blows right out the window.

Steve

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