• What is the US economy? One cartoon character tells us it is an idea, a belief, while another character tells us it is stock markets. 

• My analysis focuses on consumer demand and employment, both indicated by the asterisk ladened US boxed beef markets. 

• For now, consumer demand still looks to be strong indicating employment held firm through the end of May. 

What is the US economy? This question can be viewed from a number of angles: Bullish or bearish? Strong or weak? Contracting or expanding? What I find interesting is that those that call themselves “economists”, I group I proudly say I’m not part of every chance I get, don’t seem to know the answer either. It doesn’t seem that difficult, but if you ask 12 economists to define “economy” you’re likely to get 13 different answers. What’s most telling is that most of the opinions don’t have anything to do with economics at this point but rather fall along political lines. That’s what makes the monthly release of US jobs data (Employment and Unemployment rate) so entertaining. Financial media networks like CNBC will have ever expanding tables of “experts” expressing praise of disbelief over the numbers every month. And it isn’t just the most recent set of figures, but the usual wide-ranging adjustments to past months as well. Taken as a whole, it’s what makes monthly employment report days the comic relief of the financial markets. (If that sounds familiar to what I say about WASDE Days in agriculture, good for you. It’s all the same nonsense.)

The best definition comes from the long-running cartoon series South Park. Back in season 13 (that ran from March through November 2009), the third episode was titled “Margaritaville”. The backstory has a number of angles, but the part I want to focus on is one of the main characters, an 8-year-old boy named Kyle, delivers this speech:

“Listen, this is all you need to know. The economy is not a supernatural, all-knowing entity. The economy is just an idea made up by people thousands of years ago. The economy is not real, and yet it is real. Nowadays they’ll give credit cards to practically anyone who applies for them. I applied for this yesterday (Kyle is 10 in the show and holds up a card to the crowd) to prove a point. It has no spending limit (the crowd gasps in horror). Do not be afraid! This is only plastic. It’s just something made up by people. Truly meaningless until we put our faith in it. Faith is what makes an economy exist. Without faith it is only plastic cards and paper money.”

Meanwhile, there is a soon to be 79-year-old man who continues to equate the economy to US stock markets. While both are generally viewed as cartoon characters, it’s the 8-year-old that seems to have a better grasp on the situation. 

No, the economy is not the same thing as the market. When I think of the term “economy”, my Blink reaction is consumer demand and industrial growth. As I’ve talked about recently, when it comes to consumer demand I tend to look at US boxed beef markets. Yes, I understand the irony of this given these prices are generated daily by USDA, meaning they immediately have an asterisk attached to them. But US consumers like to eat beef. A study I found online (so take it for what that’s worth) shows the US eats more total beef than any other country in the world, coming in reportedly at 12,857 kilotonnes (kt, 1,000 tonnes) with China following close behind at 11,855 kt while Brazil sits in third at 7,447 kt.

With boxed beef prices continuing to climb, recently hitting new highs of $366.85 (choice) and $358.11 (select), the implication is US consumer demand remains strong despite the increasing price at the counter. During the previous US administration, when the other side of the political aisle was forecasting an economic apocalypse, consumer demand reflected by the strong boxed beef markets indicated the reality. The same looks to be true with the current administration, at least so far. 

The strength of consumer demand through the boxed beef markets also indicates what the US employment situation is. During May, the choice market gained $21 while select was up $34 from the end of April. This tells us a couple things: First, US employment is still going strong. Choice doesn’t tend to skyrocket when people are losing jobs. Second, there looks to be a growing concern about inflation as the spread between choice and select narrowed dramatically. It should be noted the second read could be influenced by summer grilling season demand, a time when hamburgers are a more popular choice than higher priced steaks. However, just as my idea of the relationship between live cattle (LEM25) and S&P futures (ESM25) has recently been disproven, the idea of select gaining seasonally on choice isn’t as sound as it seems. Based on the previous 5 years, the choice-select spread tends to post its low monthly close at the end of April before increasing through June. 

What is the economy then? An idea that is both real and imaginary, an idea fed by countless statistics and a few indicator markets. Is it strong or weak? Based on the indicator markets I track (including industrial metals (SIN25) (HGN25)), the US economy still seems strong. But things can change quickly when the only certainty day-to-day is uncertainty.