
The US is the strongest G7 economy right now, having performed best since the pandemic, yet more than half of Americans think the country’s in a recession. The unusual findings were released last week in a Guardian-Harris poll. 56% of respondents believe the US is in a recession, and more surprisingly, 49% believe the stock market is down for the year. US GDP is of course not only strong, but may be overly strong. Elevated interest rates continue to confirm such strength. And the stock market has been hitting successive, new all time highs—which tends to create alot of broad news coverage. After a brief period of healing starting late last year—in which consumer sentiment seemed to be re-coupling with reality—it appears Americans are once again unmoored.
Cold Eye Earth addressed this phenomenon last Fall, when surveys of consumer sentiment remained detached from an economy that was gathering momentum. | see: We Are Unhappy. At the time, the dominant explanation set its sights on the media, and its supposed failure to ably summarize and report on the economy. But this is an odd, if not old-fashioned perspective to apply. No one really knows what the media represents in the current era. Alot of online frustration for example is directed towards the New York Times and cable news for their failures, and that’s entirely justified. But the news landscape is so fractured, and so intertwined now with social media, that it shouldn’t be a surprise that Americans today form their opinions not after watching the NBC nightly news, but rather, after dipping their toes daily into thousands of online communities. If a New York Times story awkwardly downplays good news about the economy—a strange and more frequent occurrence these days—that reflects a bias that’s simply not widely distributed enough to drive national sentiment, even if it seems so to a frustrated Biden supporter.
The conditions which continue to aggravate Americans appear to be interest rate sensitive prices; goods and services prices that soared well above average inflation; and the lagged effect of wages as they catch up to prices. Let’s start with the last of those three. To be sure, you have seen the charts showing that US wages are absolutely catching up to inflation and are starting to exceed it. All good. However, against the cumulative inflation that’s occurred since the pandemic year, it’s probably the case that many American workers have not seen their pay packages adequately compete with all the price increases. This is a point made recently by former Obama advisor, David Axelrod. And we know what some of those prices are: car insurance, and housing in particular, to name two big ones. (Ironically, gasoline prices, which draw constant ire in the US, are actually quite normal on a wage-adjusted basis. See: the FRED chart showing that an average hour’s worth of work once again buys 8-9 gallons of gasoline.)
Anecdotally (always a risky path to take, but let’s see if I can make it useful), my two recent college-tour trips—last October to Southern California and this April to New York State, Ohio, and Pennsylvania—revealed a nasty little dividend of inflation: the abysmally low quality of service and value which accompanies the high prices. Hotels, rental cars, food. Three pretty straightforward categories that the US has never struggled to deliver adequately to consumers. These days, however, these three seem to be under pressure, to put it mildly. It is disappointing for sure to pay higher nominal prices, but when the goods sold or the services provided are just not even up to a normal standard, that’s when a bewildering if not depressing set of emotions comes into play. Americans may feel that whenever they step out into the marketplace, they’re getting fleeced.
While it’s understandable that Americans may be moderately unhappy, it strains credibility that they are miserable—especially so miserable as to believe the economy is in a recession. Obama won reelection in 2012 under a very different economy: inflation was non-existent, but so was economic strength. Is the full employment economy of 2022-2024 really as frustrating as the painfully slow recovery of 2010-2012? Please. And yet, it’s worth remembering that Romney looked very competitive against Obama at various points leading up to the 2012 election. A reminder that incumbents get half the credit for good things, and twice the blame for bad things.
This suggests we should neither be dismissive of the reality that many Americans are experiencing some measure of economic anxiety, nor should we credit this anxiety as being borne of struggle and real suffering. We should also remember that a large cohort of Americans have been seriously uninformed about facts for a long time. People often can’t remember that George Bush was president on 9/11, that Obama wasn’t President at the outset of the great recession when the stock market crashed, and even more recently, that the pandemic rolled on for nearly a year before Biden became president. Before The Tonight Show with Jay Leno went off-air in 2014, his crew delighted in getting Jay out to the streets of Los Angeles to ask tourists to name the vice-president, one of their senators, and their state capital. You don’t even need to be told the results of this experiment, do you? Let’s just say, Leno hit the streets of that gold mine for years.
Sometimes societies become unhappy and materialism doesn’t provide a great explanation as to why. It seems unrigorous to say something like: America is getting old, and along with that comes impatience and perhaps some bitterness. But perhaps it’s not so out of bounds to suggest that America, which is exceedingly rich and now bringing young people along into that wealth, is bored and restless and suddenly lacking in purpose. Are you old enough to remember this exchange, from the 1953 Marlon Brando film The Wild One. Mildred : Hey Johnny, what are you rebelling against? Johnny : Whadda you got?
Here is a much fuller meditation on this phenomenon, and one wonders that this is the current mood of America:
“But supposing the world has become “filled up”, so to speak, with liberal democracies, such as there exist no tyranny and oppression worthy of the name against which to struggle? Experience suggests that if men cannot struggle on behalf of a just cause because that just cause was victorious in an earlier generation, then they will struggle against the just cause. They will struggle for the sake of struggle. They will struggle, in other words, out of a certain boredom: for they cannot imagine living in a world without struggle. And if the greater part of the world in which they live is characterized by peaceful and prosperous liberal democracy, then they will struggle against that peace and prosperity, and against democracy.”
― Francis Fukuyama, The End of History and the Last Man
For an even broader measure of American sentiment, let’s check in on the haters. The chart below, constructed by the Washington Post’s data editor Andrew Van Dam, uses YouGov polling data to paint what’s likely a pretty good portrait right now of the sour mood dominating the country. More discussion at Van Dam’s article, “When America was ‘great,’ according to data.”
Well designed government investment programs do not crowd out but instead release private capital. The strong job market in the US is fortified currently not by government spending but rather the private spending that’s been unleashed by government legislation. The actual dollar outlay by the government so far is small, in fact, by comparison. Cold Eye Earth took an initial swipe at this topic in the last letter, noting that one accounting (which includes The American Rescue Plan, 2021) found that the government had spent just about 1/10th of its approved total, so far.
A different accounting from Rhodium Group and MIT, as reported by the New York Times, finds that the Inflation Reduction Act alone has driven roughly $332 billion of private investments since the law passed in 2022, compared to about $48 billion in government incentives.
The chart below, from the Rhodium/MIT Clean Investment Monitor offers yet another view, this time a longer one, showing the evolution of clean investment from 2018, well before the advent of the legislation sequence of IRA, IIJA, and CHIPS Act. The United States is currently building out transmission infrastructure and capacity in cleantech manufacturing. Private capital is hungry and willing to participate.
Talking heads on financial TV have quickly integrated the theme of soaring power demand on the back of data center growth. OK, sure. But, this hasn’t happened yet. A better description of the current landscape is that US national power demand has started to gently lift over the past four years, as it slowly pulls away from the 4000-4200 TWh level which dominated for so long. Let’s not get ahead of ourselves. For example, the CEO of Emerson on a recent conference call described it as a “generational increase in power demand.” Really? Because the slide Emerson provided showed US data center growth increasing 277 TWh in the seven years from 2023 to 2030, an average advance of 39.6 TWh per year. As a reminder, US data center growth has historically been streaky, with growth spikes leading to lulls.
Is US power demand growing? You bet. As Cold Eye Earth relentlessly points out, you should expect global electricity demand to grow above historical rates, not because of data center demand, but because of electrification. On the bright side, if AI hype and the chattering classes of the US power sector wind up scaring policy makers into smoothing and accelerating grid growth and transmission, then it will be a win, frankly. Data center growth or not, we are going to need more power—and deployment is already quite bottlenecked due to regulations.
We just got Q1 2024 US power data and it looks like US total demand will reach 4328 TWh this year, if projections stay true. That represents a modest but real increase of 1.8% from 2023. But it’s only an 0.8% increase from 2022, which reminds that 2023 was a weak year, in which US power demand actually fell.
When discussing this topic, Cold Eye Earth likes to express the totals in a chart that does double-duty by tracking total wind+solar. 2024 is shaping up to be a year of solid but not spectacular renewables growth, but nothing special yet in total system growth.
The downside of the data center growth story is that it’s likely to wind up like the crypto story in its ability to trigger low stakes/high emotion arguments, in which people battle over 200-400 TWh in a world consuming 30,000 TWh, and growing.
The industrial metal with a PhD has started to flash the supply signal that forecasters have been warning about the past two years. We speak, of course, of Doctor Copper. The industrial metal has risen nearly 20% this year, and hit an all time high just recently at $11,000 per ton. But what’s concerning in this development is that it doesn’t arrive amidst booming demand. Rather, it’s the realities on the supply side that finally seem to be expressing themselves. (Along with the usual speculation.)
What gives? Well, there has been a structural supply constraint looming in copper for several years now, and it’s not complicated. As with most natural resources, time is required to develop extractable supplies, and if the industry doesn’t put in that time, then the lack of investment shows up later. This was pretty well explained by metals analyst Nick Snowden just two years ago, on the Odd Lots podcast.
While inflation itself is in the mix here, the function of the market is to trigger more supply. That’s how new, all time price highs work—by sending a signal to the future. If the supply side doesn’t respond, well, then calls for $40,000 copper will proliferate.
A number of US states have lagged behind the rest of the country in the buildout of solar, but here comes Wyoming. The state just approved a massive, 771 MW (.771 GW) solar farm to be built near Cheyenne. And, the buzz is that it’s largely to serve data centers. That said, the project will join the mega-class of US solar alongside other giants like the 794 MW Mt Signal Solar and the recently operational 875 MW Edwards and Sanborn project, both in California.
Bloomberg New Energy Finance (BNEF) has admitted that they too have consistently underestimated global solar growth. While Cold Eye Earth does not have access to BNEF research, a few charts have leaked out from the recent forecast. The one below was shared by someone from the Quadrature Climate Foundation. Let’s take a look:
Essentially, the chart shows that every time a forecast was made (the color bars) the path that global solar growth actually followed turned out to be higher. It must be said: BNEF has been extremely good, however: the underestimates are exceedingly small compared to the IEA, for example. Oof! The thematic takeaway is uncomplicated though. Solar has built up a real head of steam, and is starting to blow its top. This happens as myriad long-term factors coalesce, and as you can see, BNEF is currently forecasting the world will deploy about 650 GW of new capacity this year. As always: wind and solar must grow fast. They must storm the ramparts, and they must consistently and without faltering grow fast to outrun total global power demand growth.
—Gregor Macdonald