In the US, Rising Input Prices are Symptoms of Deepening Malinvestments

The great Austrian economist Ludwig von Mises analogizes on how malinvestment develops. Professor von Mises:

The whole entrepreneurial class is, as it were, in the position of a master builder whose task it is to erect a building out of a limited supply of building materials. If this man overestimates the quantity of the available supply, he drafts a plan for the execution of which the means at his disposal are not sufficient. He oversizes the groundwork and the foundations and only discovers later in the progress of the construction that he lacks the material needed for the completion of the structure. It is obvious that our master builder's fault was not overinvestment, but an inappropriate employment of the means at his disposal.

Such “lack of the material needed for the completion of the structure” represents the developing resource crunch which will be expressed via higher input costs—and higher interest rates.

The New York Times/Associated Press reports:

Rising costs for materials and labor appear to be putting pressure on businesses, according to a quarterly survey by the National Association for Business Economics. During the first quarter, 31 percent of businesses surveyed reported higher material costs, more than double the 15 percent that said costs rose in the previous survey. In addition, 35 percent reported rising wages and salaries at their businesses in the last three months, up from 23 percent in the fourth-quarter survey. Yet those who said they raised their prices in the last three months remained unchanged at 20 percent, according to the survey, which was conducted from March 18 through April 1.

Oh by the way this comes as reports of more closure of retail outlets which the Zero Hedge says represents the “worst year for conventional discretionary spending since the start of the great financial crisis!” The Zero Hedge quotes a study from the Credit Suisse:

Since the start of 2014, retailers have announced the closure of more than 2,400 units, amounting to 22.6 million square feet, more than double the closures at this point in 2013…

Even dollar stores and drug stores, which combined have consistently built out hundreds of stores per year, are beginning to reel back on expansion, with Family Dollar and Walgreens both planning to shutter  underperforming stores.

While retail closures have partly signified changes in consumer preferences in terms of a shift towards online sales and on changes in physical location of retail outlets as previously discussed, a bigger force has been a reduction of disposable income due to deleveraging from previous debt financed consumption spree (chart from St. Louis Fed).

And depressed consumer spending can be seen via the durable goods spending as % of the GDP where spending has collapsed during the last recession as US consumers deleveraged or gave priority to paying down debt. 

So if businesses continues to get squeezed by higher input costs in the face of an unimpressive comeback by consumer still hobbled by debt, then whatever stock market boom we have been seeing will eventually be dealt with harsh reality.