Dough People - Art and the Economy

Corie was making and selling “dough people” when we started dating in 1989. As far as I knew, everything that went into the oven came out to be eaten until I saw Corie shape people out of “sculpy clay” put them in the oven to harden, pull them out, and place them on the window shelf. Forever art.

Corie continued to sell dough people throughout our college years to moderate success. She took a 3-year hiatus from the time we got married in 1995 through a stint teaching art in Wyoming. After the twins were born, she started painting scenes on furniture. For a very long time it looked like a hobby that could produce a little spending money. She might sell a piece or two of furniture a month. If she had the right inventory and the rain held off at an art show, she might make enough to buy a plane ticket for our spring trip to Florida. Corie was 90% artist and 10% business person. Her idea of accounting was to throw the receipts in the drawer and pull them out the following January, usually after a “discussion” between she and her engineer/financially minded husband about the importance of preparing for tax time. And these were early Internet days when social media and email marketing were concepts at best.

Fast forward to August of 2022. This past weekend, Corie had a blowout two day show in Lexington selling 10 windows and 3 pieces of furniture. She walked in the house on Sunday evening, only to hear the “cha ching” of her phone, telling her she registered another sale on https://www.etsy.com/shop/CorieKline. Her husband LOVES that sound. On Monday, she made a trip to a client’s home in West Chester and came back with a 3-piece wood furniture set to paint. What started out in the 80’s as a hobby at art shows in Nappanee, IN, Celina, OH and Brooklyn, MI has turned into a thriving regional and national business.?She is still the artist. She’s added savvy email marketer, e-commerce officer and expert shipping and logistics coordinator to her titles. And I would be re-miss, and maybe divorced, if I didn’t mention that requests for an accounting update are now met with answers in 5 minutes – complete with an official, up-to-date QuickBooks look at her profit for the year. No more drawers full of receipts!

Why tell this story? Corie and her business are an American-made success story of customer service, perseverance, flexibility and patience in growing a business. It’s also a story that’s relevant to today’s economy - a consumer boom brought about by lots of stimulus and now being reined in by the Fed (see below for perspective). If you want to learn more about Corie, you can visit her website here: https://www.coriekline.com/home

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Thoughts on the market: Corie’s thriving business is a result of the work she has done. It also remains a sign of the strength of the consumer. We continue to see strong demand both at art shows and online, remnants of the e-commerce boom during COVID lockdowns and the re-opening boom that followed. The Fed continues to signal more interest rate hikes in the fall to knock down this demand and the accompanying inflation. Here are a couple of charts that help explain their rationale, first with signs of progress:

Quick Note: The Consumer Price Index (CPI) is a measure of the prices you and I pay to live our lives. It includes everything: Food, Housing, Clothes, Recreation, Services (haircuts, massages, etc.), Medical Care and more. The “Core CPI” removes food and energy, areas viewed as more volatile and less trendworthy.

In the chart on the left, CPI inflation was slightly less than 0% in July (deflationary), certainly a good sign.?In the chart on the right, Core CPI inflation dropped in July (the shorter blue bar on the right chart) and the 3 month trend (orange line) dropped. According to Harvard professor Jason Furman, the Core CPI rate in July, if repeated for 12 months, would calculate to a 3.8% inflation rate. Significantly lower than where we’ve been, but well above the Fed’s 2% target. In summary, inflation was down in July, but still elevated based on what we collectively spend money on.

The next chart below shows an area of the economy, housing, that has begun to slow which will drive inflation down. Housing was arguably the first sign of inflation and the rate hikes have significantly slowed the purchase of new single family homes. The supply of new homes has now risen to levels last seen in 2008. New home sales have a big impact on the economy because new homeowners spend money on everything from carpet to TV’s. And new homes require considerable labor for drywall to roofing to HVAC systems. This chart likely says we are on our way to a slowdown.

While the CPI and housing data suggest the Fed is making progress, there are still certain parts of the economy which remain overheated. US Natural Gas futures reached a 14-year high this week. This is caused both by demand and continued unrest in Europe and will continue to drive inflation. The Fed is likely to continue raising rates until areas like this cool off:

I mentioned last time that we were going to wade back into bonds. We have done so as bonds are now returning north of 4% in many cases. We are still cautious on stocks as we see continued chop until the Fed is finished raising interest rates and the slowdown has run its course. We remain overweight value stocks that pay dividends and expect to move back toward growth stocks in the near future. If the Fed gets its way, we may all hear that enjoyable “cha ching” sound a little less until a recession clears the way for more growth.

Jared

Brian Kellett, [email protected]. Phone 513-312-6067

Dave Bodnar, [email protected]. Phone 513-258-6973

Jared Kline, [email protected]. Phone 513-768-2238

YCharts charts are created by me, Jared Kline. The Bureau of Labor Statistics charts are built by Jason Furman, Harvard Professor, and shared on his Twitter account.

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