August 07, 2024
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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