Let’s start with what should be an unobjectionable point: The Covid-era recovery has been very unbalanced. I can already hear the screaming, but bear with me for a bit. In fact, given the dislocations associated with a continuing pandemic, we ran what was in effect a Goldilocks economy, one that was neither too cold nor too hot. We’re running a long race, and we don’t want to run too hot or too cold, but instead trot along with slow, steady growth.If I’m right on both counts, however, a surprising conclusion follows: Economic policy in 2021 was actually pretty good. Remember that the middle ground is always better than extremes, especially when it comes to our nation’s economy.
And the Fed continues to cultivate a healthy economy, and will for the near future. Stocks are in a perhaps unexciting but effective environment. This is a real-life fairy tale where things are going, well, just right. The labor force participation rate (LFP) is holding steady at around the 63% level, after a slight increase and subsequent stabilization. The unemployment rate held steady at 3.8%, while wage growth (also known as the black widow of economic data) moderated to 3.2% year-over-year. We gained 196,000 new jobs for the month in a follow up to February’s dismal number of only 20,000 jobs (which was later revised higher to 33,000, but still). Right now, we’re experiencing a taste of a Goldilocks economy, after last Friday’s Jobs Report. Now, while “just right” doesn’t translate to “perfect,” it does mean the economy is well-positioned to maintain at least a low level of growth, with the help of a patient and accommodating Fed. We’re looking for sustainable growth as indicated by not too hot, not too cold economic data. We don’t need zero unemployment, remember, nor do we need record growth, either. That’s why they aim to keep inflation at around 2% and work for stable employment. The Fed’s primary goal is to create an environment that fosters a Goldilocks economy. Economically speaking, it’s the role of the Federal Reserve (Fed) to keep us out of harm’s way – from bear markets or recessions. Remember, in the story, Goldilocks escapes harm from the bears by fleeing out the door and back into the woods. When it comes to wage growth, we want that just right place of around 3%, not too hot 6% or too cold 0%.Īnd as for housing starts, if we need one million to stay even, then the Goldilocks rate is at about 1.2 million. In this case, between 4% to 5% is perfect. And who doesn’t want that?Īs examples, to have 0% unemployment would be too hot, while a 7% or 8% rate would be too cold. When we’re in the Goldilocks zone, it means that we have the ability to keep plowing new economic ground while maintaining stability for a more extended period of time. We want economic stability, so we want numbers that aren’t too hot (causing inflation) or too cold (causing recession). In a Goldilocks economy, we want things to be “just right.” Hot data isn’t always good news, because often it isn’t sustainable. When the subject is the economy, the middle is, indeed, a very good thing. We should swing towards the mid-point of the pendulum, no matter what the subject. Extremes on either end of the spectrum aren’t necessarily a good thing. If something is too expensive or too cheap, get the thing that’s just right. So, aside from the fact that you should run away from bears, the story teaches us that it’s best to find a happy option in the middle. Eventually, the three bears that live in the house come home and find a sleeping Goldilocks, but she wakes and escapes back into the forest. Feeling sleepy after her meal, she finds three beds – one too hard, one too soft, and one just right, so she settles down and goes to sleep. One is too hot, one is too cold, and one is just right. When no one answers, she meanders in and finds three bowls, and she samples each in turn. Remember, Goldilocks is wandering the forest when she stumbles upon a house, and the smell of porridge wafting from inside makes her decide to knock on the door. The 19th-century British fairy tale Goldilocks and The Three Bears is a perfect (and thus often used) analogy for how we’d like the economy to run – and for how it’s operating right now. That’s too bad because many classic fairy tales contain timeless truths about love, loyalty, courage and, in one instance, economics. “Telling fairy tales” is a term often used these days to sugarcoat an accusation of lying.