A couple of decades ago a candidate for Copenhagen’s city council ran on a platform that if he won, the wind would always be at bicycle riders’ backs. In a country where many people use bicycles for commuting and shopping, this was an attractive promise. The proposal was put forward as a joke by a comedian running a farcical campaign for office. In the U.S., the media would likely have taken the idea seriously.
This is pretty much what we have in the continuing drumbeat of inflation stories where reporters acknowledge that inflation has fallen back to its pre-pandemic pace, but then tell us that “prices are still high.” While we would all like to pay less money for food, clothes, and other items, wages are 23 percent higher than before the pandemic. (Prices have risen 20 percent.) The idea that prices will somehow fall back to where they were four and a half years ago makes about as much sense as saying the wind will always be at bicycle riders’ back.
To be clear, there is some room for price declines or at least for inflation to lag wages by more than usual. Profit margins did increase in the pandemic, and it would be reasonable to expect that margins would shrink as the economy returns to normal. But the reduction in margins would be reducing prices by 1-2 percentage points, not returning prices to their pre-pandemic levels or anything close to them. (There may be larger declines for some items.)
The real question is why would people come to believe that something so obviously absurd is plausible? I’m sure that no one in Copenhagen went to the polls thinking that the comedian candidate was going to ensure that the wind was always at their back, why do people in the United States somehow think it makes sense that prices would fall back to their pre-pandemic level?
I can’t monitor people’s thought processes, but I do remember back to our last serious bought of inflation in the 1970s and 1980s. I do not recall anyone discussing the idea that prices would fall back to the levels they were at before inflation took off.
I’m sure there were some number of people in the country who thought something like that, but if a reporter doing a person on the street interview came across them, they likely would have thanked them for their opinion and gone on to find someone with a minimal grasp of economics. Then, as now, it simply was not plausible that prices were going to fall back to some prior level, in the absence of a catastrophic depression that sent wages tumbling. Since that was not in the cards, and almost no one wanted to see a catastrophic depression, public discussion focused on getting the rate of inflation down to an acceptable level.
However, that has not been the story of coverage of inflation under Biden. When inflation was high in 2021 and 2022 reporters anxiously highlighted the situations of people who consumed extraordinary amounts of whatever item (e.g. milk and gas) was rising rapidly in price. They also rarely mentioned government programs, like the expanded child tax credit, which would substantially or completely offset the impact of higher prices.
As inflation has come down and wage growth again outpaced prices the media have fixated on the assertion that people are upset that prices have not come back down. I assume that no one who reports on politics for a major media outlet is so ignorant to think that this is a plausible story. The question then is why do they keep feeding it by repeating the complaint endlessly like it is a serious way to talk about the economy?
We then get political figures like President Biden and Vice-President Harris who are pressed on why they can’t do the impossible. I suppose it would be bad politics, but they really should tell any reporter posing a question about prices still being high to go learn a little bit of economics and then come back and ask a more serious question.
Unfortunately, the media are dominated by unserious reporters who ask unserious questions which gives us an absurd national debate about bringing about the impossible. If the Danish comedian had run for office here, given the state of our media, he might have won.
A couple of decades ago a candidate for Copenhagen’s city council ran on a platform that if he won, the wind would always be at bicycle riders’ backs. In a country where many people use bicycles for commuting and shopping, this was an attractive promise. The proposal was put forward as a joke by a comedian running a farcical campaign for office. In the U.S., the media would likely have taken the idea seriously.
This is pretty much what we have in the continuing drumbeat of inflation stories where reporters acknowledge that inflation has fallen back to its pre-pandemic pace, but then tell us that “prices are still high.” While we would all like to pay less money for food, clothes, and other items, wages are 23 percent higher than before the pandemic. (Prices have risen 20 percent.) The idea that prices will somehow fall back to where they were four and a half years ago makes about as much sense as saying the wind will always be at bicycle riders’ back.
To be clear, there is some room for price declines or at least for inflation to lag wages by more than usual. Profit margins did increase in the pandemic, and it would be reasonable to expect that margins would shrink as the economy returns to normal. But the reduction in margins would be reducing prices by 1-2 percentage points, not returning prices to their pre-pandemic levels or anything close to them. (There may be larger declines for some items.)
The real question is why would people come to believe that something so obviously absurd is plausible? I’m sure that no one in Copenhagen went to the polls thinking that the comedian candidate was going to ensure that the wind was always at their back, why do people in the United States somehow think it makes sense that prices would fall back to their pre-pandemic level?
I can’t monitor people’s thought processes, but I do remember back to our last serious bought of inflation in the 1970s and 1980s. I do not recall anyone discussing the idea that prices would fall back to the levels they were at before inflation took off.
I’m sure there were some number of people in the country who thought something like that, but if a reporter doing a person on the street interview came across them, they likely would have thanked them for their opinion and gone on to find someone with a minimal grasp of economics. Then, as now, it simply was not plausible that prices were going to fall back to some prior level, in the absence of a catastrophic depression that sent wages tumbling. Since that was not in the cards, and almost no one wanted to see a catastrophic depression, public discussion focused on getting the rate of inflation down to an acceptable level.
However, that has not been the story of coverage of inflation under Biden. When inflation was high in 2021 and 2022 reporters anxiously highlighted the situations of people who consumed extraordinary amounts of whatever item (e.g. milk and gas) was rising rapidly in price. They also rarely mentioned government programs, like the expanded child tax credit, which would substantially or completely offset the impact of higher prices.
As inflation has come down and wage growth again outpaced prices the media have fixated on the assertion that people are upset that prices have not come back down. I assume that no one who reports on politics for a major media outlet is so ignorant to think that this is a plausible story. The question then is why do they keep feeding it by repeating the complaint endlessly like it is a serious way to talk about the economy?
We then get political figures like President Biden and Vice-President Harris who are pressed on why they can’t do the impossible. I suppose it would be bad politics, but they really should tell any reporter posing a question about prices still being high to go learn a little bit of economics and then come back and ask a more serious question.
Unfortunately, the media are dominated by unserious reporters who ask unserious questions which gives us an absurd national debate about bringing about the impossible. If the Danish comedian had run for office here, given the state of our media, he might have won.
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No one expects serious economic analysis from the Washington Post’s conservative columnists and Mark Theissen doesn’t let us down.
Theissen starts off by reminding of one of Larry Summers’ most embarrassing moments:
“Nonetheless, as president of the Senate, Harris cast the deciding vote to pass the catastrophically misnamed ‘American Rescue Plan’ with only Democratic votes — a reckless $1.9 trillion social spending bill that even former treasury secretary Lawrence H. Summers, who served in both the Clinton and Obama administrations, warned would ‘set off inflationary pressures of a kind we have not seen in a generation.’”
Summers almost certainly regrets this warning. He recently commented that the Biden-Harris administration has a “remarkable record” on the economy. Summers’ main concern was that we would get a wage-price spiral like we had in the 70s. This upward spiral only ended when the Fed pushed interest rates through the roof, and we got double-digit unemployment.
As it turned out, Summers was wrong. Inflation has largely fallen back to its pre-pandemic pace. We have not seen a wage-price spiral. While unemployment has risen from its 2023 low, its current 4.3 percent rate is still quite low by historical standards.
But this is only the beginning of Theissen’s shoddy economics. He tells readers that the saving rate has fallen to a near record low. Theissen actually can find support for this in the data, but only because he apparently does not understand it.
Saving is defined as the portion of household disposable income that is not consumed. In the last two years there has been a large gap between GDP as measured on the output side and GDP as measured on the income side. The two measures are by definition equal.
At this point, we don’t know which is close to the mark, but for calculating the saving rate it doesn’t matter. If output has been overstated that it almost certainly means consumption has been overstated. If true consumption is less than reported consumption then the saving rate is higher than is now reported.
On the other side, if income is understated then disposable income will be understated, which would also mean that the saving rate will be understated. When we adjust for this gap between output side GDP and income side GDP, the current saving rate is roughly the same as before the pandemic.
Theissen then tells us:
“Meanwhile, consumer debt has reached a record high of $17.8 trillion — a $3.15 trillion increase since Biden and Harris took office.”
The trick here is that, unless we are in a recession, household debt is almost always hitting record highs, as it did throughout the Trump administration, until the pandemic. Economists usually focus on net worth, which are assets minus debt, which is at a record high far above the pre-pandemic level.
He notes the rise in grocery prices, but somehow can’t get data on wage increases, which for production and non-supervisory workers have been roughly the same. Theissen also highlights the great economy when we were still in the pandemic recession and mortgage rates were low, but unemployment was high.
Anyhow, I realize no one expects serious economic analysis from Mark Theissen, and he didn’t let anyone down.
No one expects serious economic analysis from the Washington Post’s conservative columnists and Mark Theissen doesn’t let us down.
Theissen starts off by reminding of one of Larry Summers’ most embarrassing moments:
“Nonetheless, as president of the Senate, Harris cast the deciding vote to pass the catastrophically misnamed ‘American Rescue Plan’ with only Democratic votes — a reckless $1.9 trillion social spending bill that even former treasury secretary Lawrence H. Summers, who served in both the Clinton and Obama administrations, warned would ‘set off inflationary pressures of a kind we have not seen in a generation.’”
Summers almost certainly regrets this warning. He recently commented that the Biden-Harris administration has a “remarkable record” on the economy. Summers’ main concern was that we would get a wage-price spiral like we had in the 70s. This upward spiral only ended when the Fed pushed interest rates through the roof, and we got double-digit unemployment.
As it turned out, Summers was wrong. Inflation has largely fallen back to its pre-pandemic pace. We have not seen a wage-price spiral. While unemployment has risen from its 2023 low, its current 4.3 percent rate is still quite low by historical standards.
But this is only the beginning of Theissen’s shoddy economics. He tells readers that the saving rate has fallen to a near record low. Theissen actually can find support for this in the data, but only because he apparently does not understand it.
Saving is defined as the portion of household disposable income that is not consumed. In the last two years there has been a large gap between GDP as measured on the output side and GDP as measured on the income side. The two measures are by definition equal.
At this point, we don’t know which is close to the mark, but for calculating the saving rate it doesn’t matter. If output has been overstated that it almost certainly means consumption has been overstated. If true consumption is less than reported consumption then the saving rate is higher than is now reported.
On the other side, if income is understated then disposable income will be understated, which would also mean that the saving rate will be understated. When we adjust for this gap between output side GDP and income side GDP, the current saving rate is roughly the same as before the pandemic.
Theissen then tells us:
“Meanwhile, consumer debt has reached a record high of $17.8 trillion — a $3.15 trillion increase since Biden and Harris took office.”
The trick here is that, unless we are in a recession, household debt is almost always hitting record highs, as it did throughout the Trump administration, until the pandemic. Economists usually focus on net worth, which are assets minus debt, which is at a record high far above the pre-pandemic level.
He notes the rise in grocery prices, but somehow can’t get data on wage increases, which for production and non-supervisory workers have been roughly the same. Theissen also highlights the great economy when we were still in the pandemic recession and mortgage rates were low, but unemployment was high.
Anyhow, I realize no one expects serious economic analysis from Mark Theissen, and he didn’t let anyone down.
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In an effort to promote hysteria, the media have jumped on the proposals laid out by Vice-President Harris, telling their audience that they will increase the deficit by $1.7 trillion over the next decade. This estimate comes from the Committee for a Responsible Federal Budget and includes a lot of guesswork, like the cost of Harris’ proposal for a first-time homebuyer tax credit, which is not well-defined at this point.
However, the key point here is that almost no one knows how much money $1.7 trillion is over the next decade. When the media present this figure, they are essentially telling their audience nothing.
It would take all of ten seconds to write this number in a way that would be meaningful to most people. GDP is projected to be $352 trillion over the next decade, so this sum will be a bit less than 0.5 percent of projected GDP. The country is projected to spend $84.9 trillion over this period, so Harris’ proposals would increase total spending by roughly 2.0 percent.
If the point is to inform their audience, it is hard to understand why the media would not take the few seconds needed to put large budget numbers in context. On the other hand, if the point is to promote fears of exploding deficits, they are going a good route.
In an effort to promote hysteria, the media have jumped on the proposals laid out by Vice-President Harris, telling their audience that they will increase the deficit by $1.7 trillion over the next decade. This estimate comes from the Committee for a Responsible Federal Budget and includes a lot of guesswork, like the cost of Harris’ proposal for a first-time homebuyer tax credit, which is not well-defined at this point.
However, the key point here is that almost no one knows how much money $1.7 trillion is over the next decade. When the media present this figure, they are essentially telling their audience nothing.
It would take all of ten seconds to write this number in a way that would be meaningful to most people. GDP is projected to be $352 trillion over the next decade, so this sum will be a bit less than 0.5 percent of projected GDP. The country is projected to spend $84.9 trillion over this period, so Harris’ proposals would increase total spending by roughly 2.0 percent.
If the point is to inform their audience, it is hard to understand why the media would not take the few seconds needed to put large budget numbers in context. On the other hand, if the point is to promote fears of exploding deficits, they are going a good route.
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The July Consumer Price Index report showed a slightly lower inflation rate than had generally been expected. Coupled with a good report on the Producer Price Index on Tuesday, it seems very likely the Federal Reserve Board will now begin cutting interest rates, as the inflation rate is approaching its 2.0 percent target.
In the face of what seems like unambiguously good economic news, NPR chose to feature two people who are struggling in the economy. This is a bit hard to understand.
There are always tens of millions of people who are struggling in the economy even in the best of times, but the recent news is that inflation is slowing sharply and real wages are rising. Why would this be a good opportunity to highlight people showing the opposite story. It might have been more reasonable to feature some of the record number of people traveling by air or taking vacations by car this summer.
This decision by NPR is similar to a decision by the New York Times, which chose on July 4th weekend to highlight an admittedly atypical worker to advance its claim that we are seeing an increasingly bifurcated economy. In fact, the data show the economy has been getting less bifurcated since the pandemic, with the lowest-paid workers experiencing extraordinarily rapid wage growth over the last four years.
To be clear, low-wage workers are still struggling. Even if their wages outpaced inflation by 10 percentage points over the last four years, they still would have difficulty making ends meet. It is just odd that major media outlets would choose to highlight their plight when they are doing relatively well rather than when they are doing relatively poorly.
The July Consumer Price Index report showed a slightly lower inflation rate than had generally been expected. Coupled with a good report on the Producer Price Index on Tuesday, it seems very likely the Federal Reserve Board will now begin cutting interest rates, as the inflation rate is approaching its 2.0 percent target.
In the face of what seems like unambiguously good economic news, NPR chose to feature two people who are struggling in the economy. This is a bit hard to understand.
There are always tens of millions of people who are struggling in the economy even in the best of times, but the recent news is that inflation is slowing sharply and real wages are rising. Why would this be a good opportunity to highlight people showing the opposite story. It might have been more reasonable to feature some of the record number of people traveling by air or taking vacations by car this summer.
This decision by NPR is similar to a decision by the New York Times, which chose on July 4th weekend to highlight an admittedly atypical worker to advance its claim that we are seeing an increasingly bifurcated economy. In fact, the data show the economy has been getting less bifurcated since the pandemic, with the lowest-paid workers experiencing extraordinarily rapid wage growth over the last four years.
To be clear, low-wage workers are still struggling. Even if their wages outpaced inflation by 10 percentage points over the last four years, they still would have difficulty making ends meet. It is just odd that major media outlets would choose to highlight their plight when they are doing relatively well rather than when they are doing relatively poorly.
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The Trump campaign has made “drill everywhere” one of its main campaign slogans, implying that it will radically weaken environmental and other restrictions on oil drilling. This is supposed to be good for both the economy, since it would in principle mean lower gas and energy prices more generally, but also the oil industry since it won’t have to worry about government regulations in deciding where and how to drill. Increased oil production would be bad news for the environment since it likely means more local contamination, but more importantly, it will increase greenhouse gas emissions which will accelerate global warming.
The bizarre aspect to this story is that somehow lower oil prices is supposed to be a good thing for the oil industry. Predicting oil prices is not an easy thing to do, and as a practical matter the U.S. is already producing oil at record levels, so “drill everywhere” may not mean much additional oil production. But if the campaign’s promise comes true, and oil prices do fall sharply, that is not likely to be good news for the industry.
The figure below shows the combined profits for the oil and coal industry (the bulk of this oil) since 2013. The numbers are in 2017 dollars, so they are adjusted for inflation.
Source: NIPA Table 6.16D, Line 25.
As can be seen, profits fell from over $60 billion in 2014 to massive losses in 2016 and 2017. Profits recovered modestly in 2018 and 2019 but were still less than half the levels of 2014. The industry again took large losses with the pandemic shutdowns in 2020. Profits recovered in 2021, soaring to record highs in 2022 following Russia’s invasion of Ukraine. In more recent quarters profits have fallen back to roughly their 2014 levels.
This pattern closely tracks oil prices. Oil was selling for over $100 a barrel at the start of 2014. Prices fell sharply in the second half of the year, bottoming out at $44 a barrel in the middle of 2015. After briefly leveling off, they plunged again at the end of the year, bottoming out at less than $30 a barrel in early 2016. Prices then edged up staying mostly over $60 a barrel until the pandemic hit.
The pandemic shutdowns sent prices to record lows. They then recovered with the economy, before soaring to peaks of more than $120 a barrel following the invasion of Ukraine. Prices have since fallen back to the $70-$80 a barrel range, which is comparable to pre-pandemic prices after adjusting for inflation.
Again, the future path of oil prices is not easy to predict, but there does seem a contradiction between the idea that allowing the industry to drill everywhere will both be a profits bonanza and also mean cheap gas for consumers. If a large increase in U.S. production does send oil prices sharply lower, the oil industry is not likely to be very happy.
The Trump campaign has made “drill everywhere” one of its main campaign slogans, implying that it will radically weaken environmental and other restrictions on oil drilling. This is supposed to be good for both the economy, since it would in principle mean lower gas and energy prices more generally, but also the oil industry since it won’t have to worry about government regulations in deciding where and how to drill. Increased oil production would be bad news for the environment since it likely means more local contamination, but more importantly, it will increase greenhouse gas emissions which will accelerate global warming.
The bizarre aspect to this story is that somehow lower oil prices is supposed to be a good thing for the oil industry. Predicting oil prices is not an easy thing to do, and as a practical matter the U.S. is already producing oil at record levels, so “drill everywhere” may not mean much additional oil production. But if the campaign’s promise comes true, and oil prices do fall sharply, that is not likely to be good news for the industry.
The figure below shows the combined profits for the oil and coal industry (the bulk of this oil) since 2013. The numbers are in 2017 dollars, so they are adjusted for inflation.
Source: NIPA Table 6.16D, Line 25.
As can be seen, profits fell from over $60 billion in 2014 to massive losses in 2016 and 2017. Profits recovered modestly in 2018 and 2019 but were still less than half the levels of 2014. The industry again took large losses with the pandemic shutdowns in 2020. Profits recovered in 2021, soaring to record highs in 2022 following Russia’s invasion of Ukraine. In more recent quarters profits have fallen back to roughly their 2014 levels.
This pattern closely tracks oil prices. Oil was selling for over $100 a barrel at the start of 2014. Prices fell sharply in the second half of the year, bottoming out at $44 a barrel in the middle of 2015. After briefly leveling off, they plunged again at the end of the year, bottoming out at less than $30 a barrel in early 2016. Prices then edged up staying mostly over $60 a barrel until the pandemic hit.
The pandemic shutdowns sent prices to record lows. They then recovered with the economy, before soaring to peaks of more than $120 a barrel following the invasion of Ukraine. Prices have since fallen back to the $70-$80 a barrel range, which is comparable to pre-pandemic prices after adjusting for inflation.
Again, the future path of oil prices is not easy to predict, but there does seem a contradiction between the idea that allowing the industry to drill everywhere will both be a profits bonanza and also mean cheap gas for consumers. If a large increase in U.S. production does send oil prices sharply lower, the oil industry is not likely to be very happy.
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Most of us might consider it good news that companies are being forced to roll back their pandemic price increases. Many major consumer product companies took advantage of the pandemic-induced supply chain crisis to raise their prices in excess of their cost increases to fatten their profit margins. This is what University of Massachusetts economist Isabella Weber identified as “sellers’ inflation.”
Following NPR, the NYT decided it is really bad news for the economy that companies like McDonald’s, which saw its profits rise by more than 30 percent during the pandemic, are being forced to roll back price increases. Unless someone believes that the pandemic rise in profit shares should persist indefinitely, these sorts of price reductions are exactly what we should want to see as the economy normalizes in a post-pandemic era.
The piece is also misleading in pushing other evidence of supposedly hard-pressed consumers. It tells us that, “household debt has swelled.” But its source, the New York Fed, shows that consumer debt rose at just a 2.4 percent annual rate in the second quarter, considerably slower than the 3.6 percent rise in disposable income in the quarter.
Rather than being unusual, this rise in consumer debt is very normal. Consumer debt almost always rises, unless the economy is in a recession.
The article also misleads readers by making a statistical fluke into a crisis. It reports:
“Pandemic-era savings have dwindled. In June, Americans saved just 3.4 percent of their after-tax income, compared with 4.8 percent a year earlier.”
In fact, the drop in the saving rate is easily explained by a statistical quirk. There is a large gap between GDP measured on the output side and GDP measured on the income side. This gap, which in principle should be zero (they are measuring the same thing), expanded to 2.3 percent of GDP in the first quarter, the most recent quarter for which we have data.
It is not clear which side is closer to the mark, but regardless of which side has the larger measurement error, the saving rate will rise. In short, there is no evidence of a real fall in the saving rate.
This should be treated as yet another entry in the “bad economy” series where major media outlets are determined to push stories of a bad economy even when they are not grounded in reality.
Most of us might consider it good news that companies are being forced to roll back their pandemic price increases. Many major consumer product companies took advantage of the pandemic-induced supply chain crisis to raise their prices in excess of their cost increases to fatten their profit margins. This is what University of Massachusetts economist Isabella Weber identified as “sellers’ inflation.”
Following NPR, the NYT decided it is really bad news for the economy that companies like McDonald’s, which saw its profits rise by more than 30 percent during the pandemic, are being forced to roll back price increases. Unless someone believes that the pandemic rise in profit shares should persist indefinitely, these sorts of price reductions are exactly what we should want to see as the economy normalizes in a post-pandemic era.
The piece is also misleading in pushing other evidence of supposedly hard-pressed consumers. It tells us that, “household debt has swelled.” But its source, the New York Fed, shows that consumer debt rose at just a 2.4 percent annual rate in the second quarter, considerably slower than the 3.6 percent rise in disposable income in the quarter.
Rather than being unusual, this rise in consumer debt is very normal. Consumer debt almost always rises, unless the economy is in a recession.
The article also misleads readers by making a statistical fluke into a crisis. It reports:
“Pandemic-era savings have dwindled. In June, Americans saved just 3.4 percent of their after-tax income, compared with 4.8 percent a year earlier.”
In fact, the drop in the saving rate is easily explained by a statistical quirk. There is a large gap between GDP measured on the output side and GDP measured on the income side. This gap, which in principle should be zero (they are measuring the same thing), expanded to 2.3 percent of GDP in the first quarter, the most recent quarter for which we have data.
It is not clear which side is closer to the mark, but regardless of which side has the larger measurement error, the saving rate will rise. In short, there is no evidence of a real fall in the saving rate.
This should be treated as yet another entry in the “bad economy” series where major media outlets are determined to push stories of a bad economy even when they are not grounded in reality.
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CNN’s coverage of the economy under President Biden has been unrelentingly negative, even as we have seen the longest stretch of below 4.0 percent unemployment in more than 70 years, the fastest pace of real wage growth for low-paid workers in decades, the highest measure of job satisfaction ever, and a huge surge in new business openings. Today it pontificated on who should get blamed for an economic slump that has not happened.
It ran a piece headlined “Here’s who to blame — and who not to blame — for the slumping U.S. economy.” On the blame side, it tells us overspending by politicians (no names) is responsible. On the who not to blame side, we’re told it is the Fed, because it has to do clean-up duty.
The division of blame can be questioned. As many of us have argued, the Fed could have started lowering rates earlier this year or even last year and still seen inflation moving towards its 2.0 percent target.
More importantly, we are not currently seeing a slump. The second quarter’s growth was considerably higher than what most economists view as the sustainable pace for the US economy. Early projections for the third quarter show growth coming in strong again, a 2.9 percent rate as of August 7th.
CNN has for some reason chosen to highlight a slump that does not exist. It is of course possible that the US economy could go into recession. The July jobs report was weaker than most of us expected, but the economy still added 114,000 jobs and the employment to population ratio for prime-age workers (ages 25 to 54) hit its highest level in more than two decades. These are not typical features of a recession.
It is a bit strange that a major news outlet is devoting space to allocate blame for a slump that does not yet exist.
CNN’s coverage of the economy under President Biden has been unrelentingly negative, even as we have seen the longest stretch of below 4.0 percent unemployment in more than 70 years, the fastest pace of real wage growth for low-paid workers in decades, the highest measure of job satisfaction ever, and a huge surge in new business openings. Today it pontificated on who should get blamed for an economic slump that has not happened.
It ran a piece headlined “Here’s who to blame — and who not to blame — for the slumping U.S. economy.” On the blame side, it tells us overspending by politicians (no names) is responsible. On the who not to blame side, we’re told it is the Fed, because it has to do clean-up duty.
The division of blame can be questioned. As many of us have argued, the Fed could have started lowering rates earlier this year or even last year and still seen inflation moving towards its 2.0 percent target.
More importantly, we are not currently seeing a slump. The second quarter’s growth was considerably higher than what most economists view as the sustainable pace for the US economy. Early projections for the third quarter show growth coming in strong again, a 2.9 percent rate as of August 7th.
CNN has for some reason chosen to highlight a slump that does not exist. It is of course possible that the US economy could go into recession. The July jobs report was weaker than most of us expected, but the economy still added 114,000 jobs and the employment to population ratio for prime-age workers (ages 25 to 54) hit its highest level in more than two decades. These are not typical features of a recession.
It is a bit strange that a major news outlet is devoting space to allocate blame for a slump that does not yet exist.
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The effort to bring back manufacturing jobs has been a major theme in the 2024 election. Both parties say they consider this a high priority for the next administration. However, there is a notable difference in that the Biden-Harris administration has actively supported an increase in unionization, while the Republicans have indicated, at best, neutrality if not outright hostility towards unions.
This distinction is important in the context of manufacturing jobs. Many people seem to assume that manufacturing jobs are automatically good jobs, paying more than non manufacturing jobs.
While that was true four decades ago, before the massive job loss of manufacturing jobs due to trade, it is not clear this is still the case. The figure below shows the average hourly pay, in 2024 dollars, for production and non supervisory workers in manufacturing and elsewhere in the private sector.[1]
Source: Bureau of Labor Statistics and author’s calculations.
As can be seen, workers in manufacturing had a substantial edge in pay at the start of this period, earning a premium of more than 5.0 percent over their counterparts in other industries. However, this flipped in 2006, and since then pay for non manufacturing workers has outpaced pay for workers in manufacturing. In the most recent data, non manufacturing workers get almost 9.0 percent more in hourly pay than workers in manufacturing.
To be clear, this is not a comprehensive comparison of relative pay. A full comparison would have to incorporate benefits and also adjust for differences in the workforce, such as education and location. An analysis done by Larry Mishel at the Economic Policy Institute in 2018 found that there was still a substantial premium for manufacturing workers over the years 2010-2016 when controlling for these factors. A more recent analysis from the Federal Reserve Board found that this premium had disappeared altogether, even when controlling for these factors.
While further research may produce different results, there is little doubt that the manufacturing premium has been sharply reduced, if not eliminated altogether, over the last four decades. The main reason for the decline in the premium is not a secret. There has been a huge drop in the percentage of manufacturing workers who are unionized.
In 1980, 32.3 percent of manufacturing workers were union members. This compares to a unionization rate of 15.0 percent for the rest of the private sectors. By comparison, in 2023 just 7.9 percent of manufacturing workers were union members, only slightly higher than the 5.9 percent rate for the private sector as a whole.
The implication of the loss of the wage premium coupled with the decline in unionization rates is that there is little reason to believe that an increase in the number of manufacturing jobs will mean more good jobs unless they are also unionized. It is not the factories that make these jobs good jobs, it is the unions.
[1] The category of production and non supervisory workers includes roughly 80 percent of the workforce. It excludes managers and highly paid professionals, so changes in pay at the top end will not have much impact on these data.
The effort to bring back manufacturing jobs has been a major theme in the 2024 election. Both parties say they consider this a high priority for the next administration. However, there is a notable difference in that the Biden-Harris administration has actively supported an increase in unionization, while the Republicans have indicated, at best, neutrality if not outright hostility towards unions.
This distinction is important in the context of manufacturing jobs. Many people seem to assume that manufacturing jobs are automatically good jobs, paying more than non manufacturing jobs.
While that was true four decades ago, before the massive job loss of manufacturing jobs due to trade, it is not clear this is still the case. The figure below shows the average hourly pay, in 2024 dollars, for production and non supervisory workers in manufacturing and elsewhere in the private sector.[1]
Source: Bureau of Labor Statistics and author’s calculations.
As can be seen, workers in manufacturing had a substantial edge in pay at the start of this period, earning a premium of more than 5.0 percent over their counterparts in other industries. However, this flipped in 2006, and since then pay for non manufacturing workers has outpaced pay for workers in manufacturing. In the most recent data, non manufacturing workers get almost 9.0 percent more in hourly pay than workers in manufacturing.
To be clear, this is not a comprehensive comparison of relative pay. A full comparison would have to incorporate benefits and also adjust for differences in the workforce, such as education and location. An analysis done by Larry Mishel at the Economic Policy Institute in 2018 found that there was still a substantial premium for manufacturing workers over the years 2010-2016 when controlling for these factors. A more recent analysis from the Federal Reserve Board found that this premium had disappeared altogether, even when controlling for these factors.
While further research may produce different results, there is little doubt that the manufacturing premium has been sharply reduced, if not eliminated altogether, over the last four decades. The main reason for the decline in the premium is not a secret. There has been a huge drop in the percentage of manufacturing workers who are unionized.
In 1980, 32.3 percent of manufacturing workers were union members. This compares to a unionization rate of 15.0 percent for the rest of the private sectors. By comparison, in 2023 just 7.9 percent of manufacturing workers were union members, only slightly higher than the 5.9 percent rate for the private sector as a whole.
The implication of the loss of the wage premium coupled with the decline in unionization rates is that there is little reason to believe that an increase in the number of manufacturing jobs will mean more good jobs unless they are also unionized. It is not the factories that make these jobs good jobs, it is the unions.
[1] The category of production and non supervisory workers includes roughly 80 percent of the workforce. It excludes managers and highly paid professionals, so changes in pay at the top end will not have much impact on these data.
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After arguing for over a year that it was time for the Fed to start lowering rates to avoid an economic slowdown, I feel a need to give a bit of pushback against all the folks who are now rushing to agree with me. To be clear, I absolutely think the Fed should lower rates, and the sooner the better (a between meetings reduction would be fine by me), but the talk of an economic collapse and impending recession are more than a bit over the top.
First, let’s catch a breath and look at the actual numbers. The unemployment rate for July was 4.3 percent (4.25 percent going to the next decimal). That is still low by historical standards, but it is up by nearly a percentage point from the 3.4 percent rate hit last April. More importantly, it is up from a rate of 3.7 percent in January. An increase in the unemployment rate of 0.6 percentage points in six months is definitely cause for concern.
But there is reason to believe that weather may have played some role in this increase. While a note from BLS said that there was no clear evidence of a weather effect from Hurricane Beryl in response rates, that doesn’t mean that the hurricane had no effect on the data. Most obviously, 461,000 people reported that they had a job but were unable to work due to the weather. That compares to 83,000 in June and 55,000 in July 2023.
Another 1,089,000 reported they worked fewer hours than normal. That compares to 206,000 in June and 164,000 last July. In a similar vein, the number of people who reported being on temporary layoff increased by 249,000 in July, accounting for more than 70 percent of the reported rise in unemployment. This would support the view that the hurricane played a considerable role in the rise in unemployment in July.
It’s also worth noting that not everything in the household survey for July was not bad. Most importantly, the employment to population ratio (EPOP) for prime-age workers (ages 25 to 54) actually rose 0.1 percentage points in the month to 80.9 percent, tying the peak for the recovery. We don’t usually see EPOPs for this group of workers rising in a recession.
The data from the establishment survey is also mixed rather than uniformly bad. The 114,000 jobs created for the month are low compared to what we have been seeing, but it’s not clear that it is much lower than what we should be expecting. The last economic projections from the Congressional Budget Office before the pandemic showed job growth of just 250,000 a year from 2023 to 2025, as the retirement of the baby boomers was expected to sharply limit job growth.
Even the projections from June of this year show the economy adding just 1.8 million jobs, or 150,000 a month, between the second quarter of this year and the second quarter of 2025. The July figure is obviously somewhat below this number, but the 170,000 average for the last three months is comfortably above it.
These qualifications of the bad news in the July report should not be taken as questioning whether the labor market is weakening. It clearly is, and that is supported by a large amount of other data, such as the drop in the job opening, hiring, and quit rates in the JOLTS data. We also have private data sources such as Indeed and ADP that tell a similar story. And, we know that wage growth has slowed almost back to the pre-pandemic pace in the Average Hourly Earnings series, the Employment Cost Index, and the Indeed Wage Tracker.
A Weaker Labor Market Is Not a Recession
However, it is important to distinguish between saying we see a weaker labor market and we are on the cusp of a recession. The economy is still creating jobs at a respectable pace, even if it may not be rapid enough to keep the unemployment rate from rising. It is especially worth noting that the two most cyclical sectors, construction and manufacturing, are still adding jobs, although very slowly in the latter case. In prior recessions, these sectors began losing jobs before the official start of the recession.
The two sectors together lost 110,000 jobs in the six months prior to the 1990 recession, 237,000 jobs in the six months before the 2001 recession, and 360,000 jobs in the six months leading up to the Great Recession. In the last six months, these sectors have added 133,000 jobs. If we are on the edge of a recession, it clearly is going to look very different from prior recessions.
It is also worth noting that this is not just an issue of correlation. There is a logic whereby job loss in these sectors led to a recession. These sectors tend to pay more than the overall average, both at an hourly rate (this is less true today for manufacturing, as the wage premium has been seriously eroded) and also because these jobs have considerably longer average workweeks.
When there is substantial job loss in these sectors, it translates into less purchasing power in the economy, leading to the sort of cascading effect that gives us recessions. We are clearly not on this path at present.
We also can look at weekly filings for unemployment insurance. These always rise sharply before the start of a recession, as shown below. (I have not included the pandemic recession because it would wreck the scale of the graph.)
There has been a modest rise in the number of weekly claims since the lows hit in 2022, but the most recent four-week average of 238,000 is still low by historical levels and even below levels hit last summer. In short, it is hard to look at these data and see an economy on the brink of recession.
The Fed Should Still Lower
As Fed Chair Powell has repeatedly noted, the Fed has a dual mandate for stable prices and full employment. It seems as though the Fed has maintained a single-minded focus on the price stability part of the mandate for the last year, even as inflation has slowed sharply and the labor market has weakened. At this point, it is hard to justify a 5.25 percent federal funds rate.
Expectations of inflation are now slightly above 2.0 percent, which means that the real federal funds rate is over 3.0 percent. That is seriously contractionary. Through most of the period prior to the pandemic, the real rate was close to zero and often negative.
An excessively contractionary policy from the Fed may not push us into recession any time soon, but it could mean hundreds of thousands of people are being denied jobs due to a weak labor market. And millions of people who might otherwise leave jobs for better ones, or push for higher pay at their current job, are being denied this opportunity. And high mortgage rates continue to take a huge toll on the housing market.
We don’t have to start yelling that the sky is falling. None of the data supports that story. But the labor market is clearly weaker than it has to be, and the Fed can help to turn it around with an aggressive set of rate cuts in the second half of this year.
After arguing for over a year that it was time for the Fed to start lowering rates to avoid an economic slowdown, I feel a need to give a bit of pushback against all the folks who are now rushing to agree with me. To be clear, I absolutely think the Fed should lower rates, and the sooner the better (a between meetings reduction would be fine by me), but the talk of an economic collapse and impending recession are more than a bit over the top.
First, let’s catch a breath and look at the actual numbers. The unemployment rate for July was 4.3 percent (4.25 percent going to the next decimal). That is still low by historical standards, but it is up by nearly a percentage point from the 3.4 percent rate hit last April. More importantly, it is up from a rate of 3.7 percent in January. An increase in the unemployment rate of 0.6 percentage points in six months is definitely cause for concern.
But there is reason to believe that weather may have played some role in this increase. While a note from BLS said that there was no clear evidence of a weather effect from Hurricane Beryl in response rates, that doesn’t mean that the hurricane had no effect on the data. Most obviously, 461,000 people reported that they had a job but were unable to work due to the weather. That compares to 83,000 in June and 55,000 in July 2023.
Another 1,089,000 reported they worked fewer hours than normal. That compares to 206,000 in June and 164,000 last July. In a similar vein, the number of people who reported being on temporary layoff increased by 249,000 in July, accounting for more than 70 percent of the reported rise in unemployment. This would support the view that the hurricane played a considerable role in the rise in unemployment in July.
It’s also worth noting that not everything in the household survey for July was not bad. Most importantly, the employment to population ratio (EPOP) for prime-age workers (ages 25 to 54) actually rose 0.1 percentage points in the month to 80.9 percent, tying the peak for the recovery. We don’t usually see EPOPs for this group of workers rising in a recession.
The data from the establishment survey is also mixed rather than uniformly bad. The 114,000 jobs created for the month are low compared to what we have been seeing, but it’s not clear that it is much lower than what we should be expecting. The last economic projections from the Congressional Budget Office before the pandemic showed job growth of just 250,000 a year from 2023 to 2025, as the retirement of the baby boomers was expected to sharply limit job growth.
Even the projections from June of this year show the economy adding just 1.8 million jobs, or 150,000 a month, between the second quarter of this year and the second quarter of 2025. The July figure is obviously somewhat below this number, but the 170,000 average for the last three months is comfortably above it.
These qualifications of the bad news in the July report should not be taken as questioning whether the labor market is weakening. It clearly is, and that is supported by a large amount of other data, such as the drop in the job opening, hiring, and quit rates in the JOLTS data. We also have private data sources such as Indeed and ADP that tell a similar story. And, we know that wage growth has slowed almost back to the pre-pandemic pace in the Average Hourly Earnings series, the Employment Cost Index, and the Indeed Wage Tracker.
A Weaker Labor Market Is Not a Recession
However, it is important to distinguish between saying we see a weaker labor market and we are on the cusp of a recession. The economy is still creating jobs at a respectable pace, even if it may not be rapid enough to keep the unemployment rate from rising. It is especially worth noting that the two most cyclical sectors, construction and manufacturing, are still adding jobs, although very slowly in the latter case. In prior recessions, these sectors began losing jobs before the official start of the recession.
The two sectors together lost 110,000 jobs in the six months prior to the 1990 recession, 237,000 jobs in the six months before the 2001 recession, and 360,000 jobs in the six months leading up to the Great Recession. In the last six months, these sectors have added 133,000 jobs. If we are on the edge of a recession, it clearly is going to look very different from prior recessions.
It is also worth noting that this is not just an issue of correlation. There is a logic whereby job loss in these sectors led to a recession. These sectors tend to pay more than the overall average, both at an hourly rate (this is less true today for manufacturing, as the wage premium has been seriously eroded) and also because these jobs have considerably longer average workweeks.
When there is substantial job loss in these sectors, it translates into less purchasing power in the economy, leading to the sort of cascading effect that gives us recessions. We are clearly not on this path at present.
We also can look at weekly filings for unemployment insurance. These always rise sharply before the start of a recession, as shown below. (I have not included the pandemic recession because it would wreck the scale of the graph.)
There has been a modest rise in the number of weekly claims since the lows hit in 2022, but the most recent four-week average of 238,000 is still low by historical levels and even below levels hit last summer. In short, it is hard to look at these data and see an economy on the brink of recession.
The Fed Should Still Lower
As Fed Chair Powell has repeatedly noted, the Fed has a dual mandate for stable prices and full employment. It seems as though the Fed has maintained a single-minded focus on the price stability part of the mandate for the last year, even as inflation has slowed sharply and the labor market has weakened. At this point, it is hard to justify a 5.25 percent federal funds rate.
Expectations of inflation are now slightly above 2.0 percent, which means that the real federal funds rate is over 3.0 percent. That is seriously contractionary. Through most of the period prior to the pandemic, the real rate was close to zero and often negative.
An excessively contractionary policy from the Fed may not push us into recession any time soon, but it could mean hundreds of thousands of people are being denied jobs due to a weak labor market. And millions of people who might otherwise leave jobs for better ones, or push for higher pay at their current job, are being denied this opportunity. And high mortgage rates continue to take a huge toll on the housing market.
We don’t have to start yelling that the sky is falling. None of the data supports that story. But the labor market is clearly weaker than it has to be, and the Fed can help to turn it around with an aggressive set of rate cuts in the second half of this year.
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The network ran the second piece in three days blaming a weak economy for the fact that restaurants can’t sustain their inflated pandemic profit margins. The basic story here is that many restaurant chains took advantage of the supply chain crisis to increase their profit margins.
To be clear, this means that they raised their prices by more than their costs. This is what University of Massachusetts economist Isabella Weber called “sellers’ inflation.” More commonly it is known as “greedflation.”
We can argue over the exact mechanism, but the basic point is pretty clear in the data. The profit share of national income increased at the expense of wages.
In the case of the restaurant sector, after seeing a big jump in profits during the pandemic, many of the big chains now appear to be losing customers and are feeling pressure to cut prices. Rather than presenting this as a positive development, NPR is presenting it as evidence of a weak economy where consumers can no longer afford to eat out.
Their piece on Thursday presented this as a widespread problem. In addition to McDonald’s, which is discussed in a piece on Monday, it also talked about Starbucks, Dennys, and a number of other chains, all of which are apparently seeing a drop in sales.
As noted in my earlier piece, profits at McDonald’s are up more than 30 percent since the pandemic. Starbucks profits have risen from $18.4 billion in the four quarters ending in the fourth quarter of 2019 to $25.2 billion in the most recent 12 months, a 37 percent increase. Cumulative inflation over this period was just over 20 percent.
These chains would be happy to keep their profit margins, but apparently, the conditions of competition are preventing them from doing so and now they are lowering their prices. Most people would probably view this as a positive story. It means lower prices for consumers or at least lower inflation.
Incredibly, NPR literally never mentioned profit margins in either piece. It presented this news as a bad economy story where people no longer have the money to eat out.
It seems that no matter what the economy does, much of the media is determined to present a bad economy story. That is pretty incredible when we just had the longest stretch of low unemployment in 70 years and real wages are rising at a healthy pace, in spite of the disruptions created by the pandemic and Russia’s invasion of Ukraine.
The network ran the second piece in three days blaming a weak economy for the fact that restaurants can’t sustain their inflated pandemic profit margins. The basic story here is that many restaurant chains took advantage of the supply chain crisis to increase their profit margins.
To be clear, this means that they raised their prices by more than their costs. This is what University of Massachusetts economist Isabella Weber called “sellers’ inflation.” More commonly it is known as “greedflation.”
We can argue over the exact mechanism, but the basic point is pretty clear in the data. The profit share of national income increased at the expense of wages.
In the case of the restaurant sector, after seeing a big jump in profits during the pandemic, many of the big chains now appear to be losing customers and are feeling pressure to cut prices. Rather than presenting this as a positive development, NPR is presenting it as evidence of a weak economy where consumers can no longer afford to eat out.
Their piece on Thursday presented this as a widespread problem. In addition to McDonald’s, which is discussed in a piece on Monday, it also talked about Starbucks, Dennys, and a number of other chains, all of which are apparently seeing a drop in sales.
As noted in my earlier piece, profits at McDonald’s are up more than 30 percent since the pandemic. Starbucks profits have risen from $18.4 billion in the four quarters ending in the fourth quarter of 2019 to $25.2 billion in the most recent 12 months, a 37 percent increase. Cumulative inflation over this period was just over 20 percent.
These chains would be happy to keep their profit margins, but apparently, the conditions of competition are preventing them from doing so and now they are lowering their prices. Most people would probably view this as a positive story. It means lower prices for consumers or at least lower inflation.
Incredibly, NPR literally never mentioned profit margins in either piece. It presented this news as a bad economy story where people no longer have the money to eat out.
It seems that no matter what the economy does, much of the media is determined to present a bad economy story. That is pretty incredible when we just had the longest stretch of low unemployment in 70 years and real wages are rising at a healthy pace, in spite of the disruptions created by the pandemic and Russia’s invasion of Ukraine.
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