Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Factory Floor
Transcript
- Lucas: So the factory floor is shrinking — fast. S&P Global just reported that factory job cuts in June are on pace to hit levels we haven't seen since the financial crisis and the early days of Covid. Luna: That's a stunning statistic. We're talking nearly two hundred thousand job cuts in a single month? Lucas: Potentially even higher. The S&P sector data shows that June cuts are approaching two hundred thousand, which is a rate we only saw in 2008 and again in April 2020. And it's not just one industry — it's across machinery, metals, automotive, even some segments of aerospace. Luna: And yet the headline unemployment rate is still at 4.3 percent, basically flat. How do we square that? Lucas: That's the puzzle of stagflation, right? The labor market is still tight in services — healthcare, hospitality, government — but manufacturing is in its own recession. Real GDP growth annualized was just 1.6 percent in the first quarter, up from a measly 0.5 percent in the fourth quarter of 2025, but that's still well below potential. Luna: So we've got this split economy: services hang in there, but the goods-producing side is getting hammered. And inflation is still stubborn — CPI hit 334 in May, up from 332 the month before. Core CPI is even higher. Lucas: Exactly. And that's the 1970s echo I keep coming back to. Back then, you had oil shocks and food price spikes, but also a manufacturing sector that was getting squeezed by global competition and rising input costs. Today we've got supply chain disruptions from the Hormuz situation, plus higher labor costs, plus uncertainty about tariffs. Luna: The Hormuz relief we saw last week might ease some energy costs, but analysts are saying the economic toll is already baked in. And factory job cuts aren't going to reverse overnight. Lucas: Right. And the regional data tells a story too. One headline this week: 'Struggling to find a job? Try looking in Nevada.' That state is booming — construction, data centers, entertainment. But the Rust Belt? Michigan, Ohio, Pennsylvania — those factory job cuts are concentrated there. Luna: So we've got a geographic mismatch. The jobs are in the Southwest and Mountain West, but the displaced workers are in the Midwest and Northeast. Moving isn't cheap, especially when your house might be underwater. Lucas: And when you look at the JOLTS data, job openings actually rose to 7.6 million in April from 6.9 million, which sounds good. But the quality of those openings matters. A lot of them are in low-wage services or require skills that factory workers don't have. Luna: Plus, average hourly earnings ticked up to $37.50 an hour in May. That's a 2.4 percent annual increase — barely keeping up with inflation, if at all. For factory workers who are being laid off, the new job might pay less. Lucas: That's the stagflation squeeze: prices are still rising, wages aren't keeping pace, and now the jobs themselves are disappearing in key sectors. The Fed is stuck. They can't cut rates because inflation is still above target, but they can't hike because growth is fragile. Luna: And the market is already pricing in that uncertainty. The S&P 500 is down 1 percent in the last five days, the NASDAQ is off 2.4 percent. But the Dow is actually up — maybe a rotation into value? Lucas: Could be. The small-cap Russell 2000 is up 2 percent in the same period, so maybe some optimism that the worst is over for domestic-focused companies. But the factory data argues otherwise. Luna: You know, I keep thinking about the 1970s — back then, it took a brutal recession in the early 80s to break the cycle. Are we looking at something similar? Lucas: That's the fear. Paul Volcker raised rates to 20 percent to kill inflation. The Fed today is nowhere near that, but the dynamic is similar: you can't have both full employment and price stability when supply shocks keep hitting. Something has to give. Luna: And what gives first? Jobs or prices? Lucas: Historically, it's jobs. The unemployment rate is a lagging indicator. Factory job cuts are the canary. If this continues, we'll see it spill over into services by the fall. Luna: If today's conversation helped clarify why factory job cuts matter for the broader economy — even if you don't work in a factory — that's exactly why we do this show ad-free. Listener support at buy me a coffee dot com slash fexingo keeps it going. Lucas: And it really does make a difference. We don't run ads, so it's just you and us, working through this stuff. That link again: buy me a coffee dot com slash fexingo. Luna: Yeah. So, looking ahead, what should listeners watch for in the next few weeks? Lucas: The July factory ISM report will be critical. If it dips below 45, that's recession territory. Also, keep an eye on initial jobless claims — they just dropped to 226,000, but that could reverse if factory layoffs accelerate. Luna: And on the inflation front, the next CPI print in July will tell us if the sticky parts — services, rent — are finally cooling. Lucas: Right. Because if inflation stays hot and jobs get cold, we're in the stagflation playbook for real. And that's a script nobody wants to follow. Luna: But at least we're reading it together. Thanks, Lucas. Lucas: Thanks, Luna. We'll keep watching.