The Deregulation Revolution Is Real, But Is It Enough?

I’m not much of a fast-food guy. I’ll pull into McDonald’s for an Egg McMuffin when I’m traveling, but typically I stay away from such fare… except for Chick-fil-A.

Occasionally, I’ll lose restraint and drive through the Chicken Shack, but I think that’s part of my DNA. The combination of fried chicken and friendly service is a weakness for most people raised in the South.

But, several years ago, I gladly drove through a nearby McDonald’s for lunch. I wasn’t drawn in by a promotional campaign or the seasonal McRib sandwich.

I was lured by a protest.

The Service Employees Internrnational Union (SEIU), an organization that serves as a voice for two million working-class people, had recently started a campaign to raise the minimum wage paid to fast-food restaurant workers to $15 per hour.

In a free market, I’m not a fan of minimum wage.

I believe it acts more as an anchor than a support for workers. If the rate nearly doubled to $15, businesses would be motivated to adopt new technology instead of paying people higher wages. (This proved to be true as McDonald’s recently rolled out self-order kiosks across the country.)

So, on the appointed day when the SEIU called for a boycott of McDonald’s nationwide to bring attention to their cause, I specifically chose to risk indigestion and drive through, to show support for franchise owners.

My counter protest was small, but why not?

The SEIU didn’t win that fight, but they didn’t lose, either. Several states and many cities raised their minimum wages in recent years in no small part due to the union’s efforts.

But the federal governrnment didn’t take the bait. At least, not in Congress.

The last administration provided the Department of Labor with informal guidance to view franchise employees as joint employees with the main business. This meant that the federal governrnment would a view a worker at a McDonald’s in “Anywhere, USA,” as an employee of both the franchisee and McDonald’s corporation.

The effect of this policy was ballooning risk for large corporations with many franchise owners. Big companies, like McDonald’s, would be on the hook for all HR decisions made by franchisees.

Conversely, small business owners that operated one or two restaurants would have to comply with, and pay for, additional oversight and prevailing wages from other, higher-cost regions.

All of this has changed under the Trump administration.

Recently, the Trump White House reversed the previous guidance to the DOL, allowing the prevailing view (that workers are only employees of the franchise owners) to remain.

This is a huge win for small businesses, and highlights why business optimism – as well as market optimism – remains so high.

Despite the crazy headlines and political machinations, the Trump administration, like it said it would, is cutting regulations and not issuing new ones. It’s a welcome change for American companies, large and small.

Business owners would no doubt love to see tax reform, and it would be fabulous for all Americans to develop a working system for healthcare. But simply knowing that Washington isn’t planning its next regulatory tax is a win that shouldn’t be dismissed.

The American Action Forum (AAF), which monitors federal regulations, puts this in perspective.

According to the group, in Trump’s first several months in power, he’s issued 8% of the number of regulations put in place by the Obama administration over the same timeframe. While that’s an eye-catching reduction, the dollars attached are even bigger.

The average cost of new regulations in the first five months of the year of each year since 1994 (covering the Clinton, Bush, and Obama administrations) was $26 billion.

Trump’s new regs clock in at a miniscule $33 million, or just over one-tenth of one percent of the average.

So far, the young administration is hesitant to even consider any new rules. The three previous administrations reviewed 190 rules on average in the first five months of each year, whereas the Trump group reviewed 39.

With this perspective, it’s easier to see why business owners and investors are more bullish on the future than they’ve been in some time.

But they are most likely getting ahead of themselves.

Look at the big picture.

Retirees typically cut their spending by about 37.5%. With 1.5 million Boomers turnrning 70 each year for the next 15 years, we’ve got a lot of aging consumers that will spend less in the years ahead.

Usually we’d see the younger generation, the millennials, ramping up their spending to take the place of the Boomers. But so far, this hasn’t happened.

Maybe it’s the student loan debt they carry, or the lack of rising wages, or perhaps the memories of what happened to their parents during the financial crisis.

Whatever the reason, the millennials haven’t yet put down the roots that would start them down the path of predictable consumer spending, which could dramatically affect economic growth – and the markets – in the years ahead.

We still hold out hope that the situation will reverse.

Recent home sales data shows that first-time buyers were 38% of the market in 2016, the first time this group has been above the long-run average of 35% in a decade.

Buying a home is part of starting a family, which is the biggest driver of consumer spending, and one that’s hard to turnrn off.

It will be a few years before we have enough data to know for sure if the baton of consumer spending has passed from the older to the younger generation.

For now, we’ll have to be content with a lighter regulatory burden.

Rodney Johnson

Follow me on Twitter @RJHSDent

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Rodney Johnson

Rodney’s investment focus tends to be geared towards trends that have great disruptive potential but are only beginning to catch on to main-stream adapters. Trends that are likely to experience tipping points in the next 5 years. His work with Harry Dent – studying how people spend their money as they go through predictable stages of life and how that spending drives our economy – helps he and his subscribers to invest successfully in any market.