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Market Recon: Amazon Has Changed Not Just Retail, but the Whole Economy

"Motivation will almost always beat mere talent." -- Norman Ralph Augustine

Table Setters. After Monday's half day of volatility, equity markets appeared to stabilize toward the highs of the day after the release of the Fed's minutes from their June meeting. There is no doubt that these minutes paint a picture of an FOMC that remains in a hawkish mood. However, there does appear to be uncertainty at the central bank concerning the timing of the kick-off of its planned quantitative tightening program (the management of the balance sheet) that will likely run alongside continued increases in benchmark interest rates.

The last two weeks of June were marked by increased volatility in the equity marketplace, as some weakness in sovereign debt resulted in rising yields as not only officials of the Federal Reserve Bank, but also at the European Central Bank, the Bank of England, and the Bank of Canada all appeared to favor some tightening, or at least set the table to tighten monetary conditions at some point in the future.

Employment vs. Inflation

With the domestic macroeconomic data being reported in most inconsistent fashion year to date, this becomes a tug of war for the U.S. central bank between the labor market and consumer level inflation. Some Fed officials fear that the prolonged "undershooting" of unemployment rate projections could eventually lead to a rapid rise in inflation as well as an overall overheating of the U.S. economy. There are reasons why those at the FOMC are a bit off on this thinking (in my opinion). This is conventional textbook economics (the Phillips curve), which I've got to think does not apply as sharply in this modern era as perhaps it once would have.

For one, too many laborers in this economy are either underemployed, or not participating. The participation rate is far lower than it was during better times, and average workweek is now lower than it was earlier in this very recovery. Then there are the legions of folks who in the wake of the "great recession" went back to work at far lower levels of compensation than they had become accustomed to earlier in their careers. That kind of damage leaves scars on the consumer's ability and/or willingness to spend. There simply is more slack in labor markets than central bankers either realize, or are willing to admit. I am not downplaying the progress made. I just think that this recovery is far less mature, as well as far more fragile than do our policy makers.


This unmentioned and unrecognized slack in the labor markets has produced a chilling effect on consumer level inflation, but there's one more condition not mentioned in the textbooks. One that matters greatly. We speak often of which retailers have been, or are going to be "Amazoned". The changed environment in commerce brought on by the e-commerce giant Amazon (AMZN) has not just changed...