The 1970s Revisited - Stagflation | WT Wealth Management White Paper

It's been 50 years since we've seen bell bottoms, tinted eyewear, sweater vests or serious concerns about a stagflation driven economy. But they all may be making a comeback.

The stagflation phenomenon — which describes a period of high inflation, high unemployment and low economic growth — is always a difficult period for Fed policymakers, because they are left with few options to rein in higher prices without dramatically slowing the economy. From the late 1970s to the early 1980s, Federal Reserve Chair Paul Volcker was ultimately forced to raise interest rates to unprecedented levels to bring inflation under control, which had the effect of severely curbing economic growth during the period.

Five decades later, talk of stagflation is back. Have today's investors even heard of stagflation, much less do they understand it? We doubt it, so we've broken it down. Stagflation is defined by low growth coupled with high inflation and high unemployment. Sadly, there is no definition of "low" or "high". So we'll define low and high as "uncomfortable levels," potentially causing action from the government or Federal Reserve officials to counter them.


One can make a case that moderate stagflation has already arrived. Growth, as measured by GDP, appears to be moderating (although perhaps not yet low). Inflation, as measured by the Fed's preferred "Personal Consumption Expenditures" price index (PCE), is rising (although perhaps not yet high). And unemployment has been stubbornly persistent and may begin climbing again (although perhaps not yet high).


Economic growth has recently been hindered because of the Delta variant. We have observed that economists are downgrading predictions for economic growth over the next few quarters – a departure from the prediction of a "pent-up-demand" explosion we had all anticipated.

In the previous stagflation period from 1979 through 1982, GDP hung around 0.0%, sometimes fluctuating wildly on either side of the flat line. Over the past 2 years, the Covid 19 pandemic brought about the largest negative GDP results in history, which was quickly recovered. Growth has remained strong through Q2 2021 at 6.7%. However, as mentioned above, projections for future quarters are lowering as the pandemic continues to impact our economic lives.

Any uncertainty in tomorrow, next week or next month gives the consumer a reason to wait and not spend. However, we do see growth that was projected in the second half of this year not being lost forever but instead delayed into 2022.


For months, prices have been rising as the U.S. economy has recovered from the COVID pandemic and central banks have clung to the view that elevated inflation would be "transitory" and likely subside. But a recent government report showed U.S. inflation hit a 30-year high as of August (1). Central bankers appeared to begin capitulating this week, with Federal Reserve Chairman Jerome Powell saying that high inflation could run into 2022.

Inflation could encourage workers to demand higher wages and employers would have no choice in order to fill persistent job openings. If consumers are paid more, their purchasing power grows, and businesses may raise prices as demand accelerates — to cover the higher wages they were forced to pay — starting the entire cycle of inflation pressures over-again.

During the previous stagflation period from 1979 through 1982, inflation was consistently above 6%, reaching as high as 9.7% at the end of 1980. Over the past 2 years, inflation was low during the start of the pandemic but reached its highest level since 1991 during Q2 2021 at 3.4%. That's not yet high, but it's relatively higher than recent years and the trend appears to be increasing.

Demand pushing forward will keep inflation pressures higher for longer but not for a period which we would consider substantially longer than transitory (i.e., 12-18 months). We believe supply chains will naturally fill in, and inflation pressures will abate as demand is never endless and neither are consumers' wallets.


The Delta variant of the coronavirus led to a second straight month of disappointing job growth as the Labor Department reported on October 8th that U.S. employers added 194,000 jobs in September. The 194,000 jobs added in September was down from 366,000 in August and far below the more than one million jobs added in July, before the more contagious Delta variant led to a spike in coronavirus cases across much of the country. The leisure and hospitality sector, which had been a main driver of job growth before Delta emerged, added fewer than 100,000 jobs for the second straight month (2).

During the previous stagflation period from 1979 through 1982, unemployment ranged from just under 6.0% to as high as 10.8% at the end of 1982. Over the past 2 years, the Covid-19 pandemic brought an initially dramatic spike in unemployment that, fortunately, quickly reversed itself. September 2021's 4.8% unemployment rate feels acceptable, but as indicated above, job growth is slowing and the unemployment trend could move the other way.

By natural selection, outdated jobs will be replaced with more contemporary roles within the labor force. With the development of more work from home and hybrid positions, these jobs can be less interrupted by future Covid variants. We wrote in last month's Special Market Update that the post-pandemic economy will not resemble the pre-pandemic economy and no place will that be more felt than in the job market. However, a rotation of jobs takes time and job seekers get new training for new careers, this transformation in the job market could take years to resolve.


Are we moving into a period of stagflation?

It's the Investment Committee's role at WT Wealth Management to pay close attention to what's unfolding throughout the economy in order to best position our clients for the months ahead. When we can explain what we are seeing in easy to digest snippets or memorable terms, we attempt do so.

The combination of some lost 2021 GDP growth delayed into 2022 and supply chains filling in during the middle or 2nd half of 2022 will allow for continued inflation pressures throughout the economy as we enter the first half of 2022. Persistent inflation pressures could cause the Federal Reserve to act sooner to raise interest rates than previously anticipated.

However we believe the Federal Reserve will remain incredibly patient so as not to upset the current economic expansion under way. The combination of U.S. inflation moderating in late 2022 and economic growth improving with a more fully vaccinated and adaptive population should allow for more traditional economic picture in late 2022 and beyond.

Early hints of possible stagflation are out there - although nowhere near the levels seen from 1979 to 1982. It's something worth tracking, but not something we're overly concerned about in the near term. Nevertheless, we'll keep our eyes peeled for you.

  1. Key inflation gauge watched by the Federal Reserve hits another 30-year high

  2. September's jobs creation comes up short with gain of just 194,000


There are no warranties implied.
Any opinions expressed on this website are the opinions of WT Wealth Management and its associates only. Material listed on this website is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. You should always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETF’s carry certain specific risks and part or all of your account value can be lost.

At WT Wealth Management we strongly suggest having a personal financial plan in place before making any investment decisions including understanding your personal risk tolerance and having clearly outlined investment objectives.

View Disclosure
WT Wealth Management is an SEC registered investment adviser, with in excess of $100 million in assets under management (AUM) with offices in Flagstaff, Scottsdale, Sedona and Tucson, AZ along with Jackson Hole, WY and Las Vegas, NV. WT Wealth Management is a manager of Separately Managed Accounts (SMAs). With SMAs, performance can vary widely from investor to investor as each portfolio is individually constructed and managed. Asset allocation weightings are determined based on a wide array of economic and market conditions the day the funds are invested. In an SMA, each investor may own individual Exchange Traded Funds (ETFs), individual equities or mutual funds. As the manager we have the freedom and flexibility to tailor the portfolio to address an individual investor's personal risk tolerance and investment objectives – thus making the account “separate” and distinct from all others we manage. An investment with WT Wealth Management is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Any opinions expressed are the opinions of WT Wealth Management and its associates only. Information offered is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. Always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETFs carries certain specific risks and part or all of an account's value can be lost. In addition to the normal risks associated with investing, narrowly focused investments, investments in smaller companies, sector and/or thematic ETFs and investments in single countries typically exhibit higher volatility. International, Emerging Market and Frontier Market ETFs, mutual funds and individual securities may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability that other nations experience. Individual bonds, bond mutual funds and bond ETFs will typically decrease in value as interest rates rise. A portion of a municipal bond fund's income may be subject to federal or state income taxes or the alternative minimum tax. Capital gains (short and long-term), if any, are subject to capital gains tax. Diversification and asset allocation may not protect against market risk or investment losses. At WT Wealth Management, we strongly suggest having a personal financial plan in place before making any investment decisions including understanding personal risk tolerance, having clearly outlined investment objectives and a clearly defined investment time horizon. WT Wealth Management may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. WT Wealth Management's website is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of WT Wealth Management's website should not be construed by any consumer and/or prospective client as WT Wealth Management's solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the internet. Any subsequent, direct communication by WT Wealth Management with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. A copy of WT Wealth Management's current written disclosure statement discussing WT Wealth Management's registrations, business operations, services, and fees is available at the SEC's investment adviser public information website (www. or from WT Wealth Management directly. WT Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to WT Wealth Management's web site or incorporated therein, and takes no responsibility therefor. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

Contact Us Today

Reach us directly at 800-825-0616
or by using the contact form below.

Your message has been sent. Thank you!