Time To Pay the Piper

 Popular Economics Weekly

 “The time to repair the roof is when the sun is shining. [State of the Union Address January 11 1962]” President John F Kennedy

Wikipedia

Two of our largest domestic economies are heeding President Kennedy’s words, “when the sun is shining”; it’s time to begin paying our national debt during this record-breaking stock market run that is currently benefiting the wealthiest Americans.

We are drowning in a federal debt that is endangering our good faith and credit while crowding out domestic spending on the public services that make life more bearable for ordinary Americans. We have a federal debt that is now 120% of the annual output of the U.S. economy (Gross Domestic Product).

New York City’s Mayor Zohran Mamdani, and California Governor Gavin Newsom have announced that it’s possible to balance a budget. Maybe that’s something Republicans should also heed if they want to remain relevant to America’s future by offering more than tax cuts and bloated military budgets.

New York City is the largest U.S. city with an 8.5 million population, and the State of California has the fourth largest economy in the world behind the U.S., China and Japan.

Mayor Mamdani announced the $124.7 billion Fiscal Year (FY) 2027 Executive Budget, putting New York City on firm financial footing while protecting the services working people rely on. “Through strong fiscal management, Mayor Mamdani balanced the budget through a combination of aggressive savings, new tax revenue, partnership with Albany and critical new investments.”

California’s 2026-27 budget, as revised by Governor Gavin Newsom on May 14, 2026, “projects no deficit for that year and the next budget year (2027-28), with a structural deficit eliminated through July 2028.”

It’s a sign that Americans in Democratic states at least want to move on from the trickle-down economic policies that Republicans have practiced since 1980, resulting in five recessions including the Great Recession on their watch.

It has perpetrated the greatest income and wealth inequality of all—red states depriving their own citizens of a livable minimum wage and social services that make their lives bearable, with no minimum wage higher than the national minimum wage of $7.25 per hour (portrayed in the Wikipedia map), or state taxes to pay their bills and provide adequate health care.

That’s a reason most Republican-led, so-called red states, have fallen far behind in growth compared to Democrat-led blue states –many with surplus tax revenues that go to many of the red states in the form of benefit payments to balance their budgets.

California, for instance, has the largest tax ‘imbalance’ in the nation. Varying estimates show Californians pay between $83billion and $275billion more to the IRS than the federal government returns to the state in the form of Social Security, healthcare, military contracts, and disaster aid.

Whereas red states like Kentucky require $Billions from the federal coffers to meet their budget needs. For instance, 10 red states have no Medicaid health insurance for their low-income residents.

The results show the glaring damage the minimal, ‘bare bones’ red state budgets wreak on the health and safety of their citizens. Red states exhibit higher premature mortality rates and higher incidences of death from major internal causes, such as heart disease, cancer, and stroke. Blue state citizens on average live longer.

NIH research shows a clear partisan health divide in the United States, with "blue" (Democratic-leaning) states consistently outperforming "red" (Republican-leaning) states across major public health metrics, including life expectancy, infant mortality, and preventable chronic illnesses.

The New York City and California examples show that state and federal governments know how to balance a budget that benefits all Americans, not just the wealthiest. The Clinton Administration even created four consecutive years of budget surpluses in the 1990s that paid down the federal debt.

A consensus is building that our national debt must be dealt with. Balancing budgets are the responsible way to deal with it, not the trickle-down economic policies that have created the monstrous debt from the many Republican tax cuts that have deprived red states’ citizens of a decent standard of living.

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

It's the Pandemic, Stupid!

 Popular Economics Weekly

Economists are beginning to say enough is enough. The Fed might continue to pause from another rate hike in their November FOMC meeting because the latest inflation data show a continued decline, but not in December.

“Although inflation has come down from the peak reached last year, it is still too high,” New York Fed President John Williams said in a prepared speech. “We still have a ways to go to fully restore price stability.”

To borrow from some economists who fear the Fed is getting the causes of inflation wrong and thereby keeping interest rates too high, the current inflation surge was caused by the pandemic, stupid!

Major economists such as former White House Chief Economist Jason Furman and Nobel laureate Paul Krugman have spoken about the dangers of prolonging higher interest rates, despite the rapid inflation decline.

“The question now is whether we’ll get a recession anyway — basically, whether Fed tightening will produce an unnecessary recession,” says Krugman. “And the picture there is very muddy. Milton Friedman’s famous line about “long and variable lags” has come in for a lot of questioning lately, with some suggestions that the lags may have gotten a lot shorter. If the lags are long, we may stumble into a recession; if not, not.”

@JasonFurman

Furman’s assertion is that wage growth can’t be a major determinate of inflation as it was in the 1970s, since it is still below the longer-term trend line.

“How are real wages doing? Most measures show they are up since prior to the pandemic but are still 3-5% below their immediate pre-pandemic trajectory.”

Yet listening to Fed Chair Powell, you would think most of the Fed Governors believe it was caused by higher wages, since Econ 101 postulates that wages comprise some two-thirds of product costs, therefore costs will rise or fall in line with wages.

That has been an economic truism since the 1970s, even though there was an Arab oil embargo in 1973 that brought shortages and sky-high gas prices leading to the so-called wage-price spiral that has traumatized the Fed since then.

The real question should be why are so many meetings necessary to make the point that inflation should come down further?

The Federal Reserve Governors convene eight official vote-taking meetings per year after which they broadcast their intentions for policy—whether to raise, lower rates, or stand pat. This is really interfering with Wall Street’s own internal processes and the actual time lag needed for policy actions to take effect that determine the direction of inflation, causing the wild price fluctuations we see today.

Would the markets behave differently with fewer Fed pronouncements? Fed officials have been acting preemptively before seeing the results of their policies for decades, which let us not forget includes maximizing employment as well as price stability.

Yet today we have the COVID pandemic causing the product shortages that led to the current inflation spike, followed by the Ukraine-Russian war causing further shortages. But inflation has been declining anyway, much more so than in the 1970s.

FREDpce

The favored measure of inflation, the Personal Consumption Expenditure Index (PCE) that measures a broad spectrum of products and services, has been declining fast. From the same month one year ago, the latest PCE price index for August increased 3.5 percent, per the FRED (St. Lous Fed) graph, down from its 7.1 percent peak in June 2022.

The danger with comparing it to the only analogy the Fed seems to come up with, the 1970s and the Arab oil embargo, is the damage it causes to wage and salary earners which comprise almost 80 percent of the adult work force.

Could the fear of not being taken seriously be the reason for so much Federal Reserve jawboning and unnecessarily high interest rates? Raising interest rates too high for too long has precipitated at least eight of the ten recessions since 1960, harming economic growth as well as household incomes.

Harlan Green © 2023

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

What Happened to Inflation?

 Popular Economics Weekly

FREDppifinaldemand

What happened to the inflation problem? The latest wholesale inflation data show the Fed has more than succeeded in its campaign to tame inflation.

The wholesale Producer Price Index (PPI) for final demand in wholesale goods and services barely grew at all (see the FRED graph above) in the Bureau of Labor Statistics latest release.

Wholesale prices rose just 0.1 percent in June, extending a string of weak readings that suggest inflation in the U.S. is likely to continue to decelerate. Over the past 12 months the PPI plunged to 0.1 percent from 1.1 percent in the prior month. That’s the lowest reading since September 2020.

This is while Americans are still fully employed. The Fed consensus had postulated at least a 5 percent unemployment rate would be needed to bring inflation down to their 2 percent target rate. And former Treasury Secretary Larry Summers infamously said unemployment could go as 7 percent with the loss of several million jobs to tame the inflation tiger.

It will only intensify the debate among economists whether there will be a ‘soft landing’, or whether there will be no landing at all—a ‘no landing’ scenario in which economic growth continues to be positive into next year, regardless of the predictions that higher interest rates must ultimately lead to a recession (i.e., negative growth).

In fact, wholesale inflation (mainly the cost of raw materials) is in danger of turning negative, which means retail prices could also fall. (This would be a danger sign if not for other factors, since falling prices are a deflationary trend if passed on to retail prices, which usually means a looming recession.)

But with the current 3.6 percent unemployment rate, and $trillions being invested in modernizing US infrastructure this decade, this is unlikely. Americans will be employed in better-paying jobs for years to come.

Even the so-called core prices the Fed loves to cite as a more stubborn indicator of inflation decelerated to 2.6 percent from 2.8 percent, marking the smallest increase since March 2021.

Why this sudden deceleration in inflation, after all the predictions that it will remain high and become embedded in consumers’ expectations?

Firstly, the supply-chain shortage has disappeared, and every country is racing to resupply themselves from the effects of the pandemic,

I earlier cited a Global Finance Magazine article that touted the increased capital spending everywhere today, not just in the US, since the pandemic:

“Despite concerns that economic growth may slow as central banks tap the brakes to combat inflation, companies around the globe are in a spending boom for capital such as factories and for things like digitalization and automation, 5G networks and the transition to clean energy.”

The other concern has been that wage increases might cause inflation expectations to become ‘embedded’ in prices for years to come.

FREDwagesandsalaries

Yet household incomes haven’t kept up with inflation since the 1970s, as portrayed in the FRED graph dating from 1950. They are now rising at just 1.2 percent quarterly, seasonally adjusted, in the face of full employment, according to the latest FRED data.

So now we have the means and opportunity to begin the process of renewing the American economy with governments spending again, and maybe avoiding any recession with a ‘no landing’ outcome.

Harlan Green © 2023

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Wrong Lessons Learned From 1070s

 Financial FAQs

Much talk has been made of what the Chairman Powell and US Fed officials say they learned from the inflation spiral of the 1970s. Keep employees’ wages from rising too fast, since they are that part of the inflation equation the Fed can control.

That is, by raising interest rates the Fed hopes to pressure employers to restrain hiring practices and wage hikes by making it more expensive to do so.

But the problem is Fed economists know that many other factors affect inflation—e.g., corporations inhibit competition with monopolistic practices, supply-chains are not always dependable providers, and geopolitical events like wars and pandemics create major scarcities, as has happened since 2020.

FREDwagesandsalary

The above St. Louis Fed (FRED) graph dating from 1950 shows how successful the Fed’s main monetary policy has been of suppressing wages to keep inflation moderate.

Wages and salaries rose on average 5-10 percent annually until 1980, when Paul Volcker began his reign as Federal Reserve Chairman. Employees’ incomes then began the long descent to averaging less than 5 percent since.

Inflation was tamed, the inflation battle was won, but at what cost? Did it make most Americans better off? No. There were a series of recessions culminating in the Great Recession of 2017-19 in which they lost a greater share of total wealth generated by their employers.

Inequality.org

The picture is startling per this popular graph.

Income disparities are now so pronounced that America’s richest 1 percent of households (orange line in graph) averaged more than 84 times as much income as the bottom 20 percent in 2019, according to the Congressional Budget Office. Americans in the top 0.01 percent (brown line) tower stunningly higher. With average household income of $43 million, they bring in 1,807 times more income than the bottom 20 percent. 

Of course, globalization and the lowering of trade barriers that moved higher paying wages overseas have been the orthodox explanations for why workers lost such a share of the wealth pie. But also lost in the discussions was the Fed’s monetary hand of quickly raising interest rates when inflation heated up and dropping them when a recession resulted.

That has been the Fed’s pattern since the Volcker era. Keep inflation down at all costs, even if it harms employment. Yet we know since the pandemic that a war and COVID-19 scarcities have been most responsible for the sudden inflation spike.

The post-pandemic era has therefore created new opportunities with the need to rebuild the US economy since the pandemic. Trillions are being spent in a ‘new’ New Deal era of governments coming to the rescue as they did in the 1930s.

The result is a fully employed American economy with rising wages and salaries for years to come—unless the Fed attempts once again to tamp down this activity with its outdated policy goals.

It could right the imbalance that has always benefited employers in the name of price stability since the 1980s by allowing its mandate of maximum employment to continue by restraining further rate hikes.

Harlan Green © 2023

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Inflation or Deflation Next Year?

 Financial FAQs

FREDpersonalconsumption

The Fed’s favored personal consumption expenditures price index (PCE) has been on a sharp downward trend since June 2022 when it reached its 7 percent inflation high. Both its overall headline indicator (blue line) and core index without gas and energy prices (redline) are now rising in the 4 percent range.

A leading business economist that I like says inflation could plunge below the Fed’s 2 percent inflation target sometime next year. And that would mean a recession, so the Fed should begin to lower interest rates later this year.

“The forces that drove up inflation since the onset of the Covid pandemic are reversing rapidly,” said Ian Shepherdson, chief economist at Pantheon Economics, in a recent Barron’s article. “Over the next year, both the headline and core rates—the latter excludes food and energy prices—will drop sharply. By the end of 2024, inflation is likely to be below the Federal Reserve’s 2% target, and policy makers will be trying to stop it falling too far.”

This happened before under Fed Chair Alan Greenspan when the Fed’s prolonged rate hikes busted the housing bubble in 2007 and precipitated the Great Recession.

The inflation rate then sank below 2 percent for a prolonged period, which required Greenspan’s successor as Fed Chair, Ben Bernanke, to begin the various Quantitative Easing programs that pumped excess dollars into the economy to begin a slow recovery.

The main cause of inflation has been the supply shortages due to worldwide shutdowns from the COVID-19 pandemic. We know what happened to inflate grain and oil prices with the Ukraine War. But auto prices also skyrocketed with the shortage of chip supplies that are in all new cars.

Residential rents also soared, as work-from-home use also increased during and after the pandemic. Now rents are also returning to more normal levels.

To make his point, Shepherdson states, “Almost all of the eightfold increase in global container shipping costs has reversed, and domestic shipping costs also are falling rapidly. Semiconductor supply is back to normal, more or less, so vehicle production in April was higher than before the pandemic. About a third of the increase in auto dealers’ margins already has reversed.”

The labor market is the other shoe about to drop. The unemployment rate rose from 3.4 percent to 3.7 percent in May, with 339,000 new nonfarm payroll jobs created. This was because there are more workers in the workforce now than before the pandemic, which will slow the wage increases, another part of the inflation picture.

Most of the major economic indicators are either flat or declining, so now would be a good time for the Fed to anticipate what will happen next—a growing surplus of supplies as countries ramp up production that will further depress prices—rather than wait too long to react to changes as it did under Greenspan and during the pandemic.

It would be nice if the Fed allowed employees to keep their higher wages by not seeing rising wages in a tight labor market as the main cause of inflation. It would alleviate the record income inequality—the worst in developed countries—which in turn would help to calm the red state-blue state partisan divide, among other benefits.

We now have both hot and cold wars to win, so there’s no good reason to induce another recession.

Harlan Green © 2023

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

More Jobs Available Than Ever

 The Mortgage Corner

BLS.gov

A preview of December’s official unemployment report was given today. Employers continued to fight the Fed by offering more jobs in the December Bureau of Labor Statistics JOLTS report, its Job Openings and Labor Turnover Survey.

The number of job openings increased to 11 million from 10.4 million in November, signaling employers still see a huge demand for their products and services—mainly in retail and leisure activities.

“On the last business day of December, the number and rate of job openings increased to 11.0 million and 6.7 percent, respectively,” said the BLS. “In December, the largest increases in job openings were in accommodation and food services (+409,000), retail trade (+134,000), and construction (+82,000). The number of job openings decreased in information (-107,000).”

The Fed Governors probably won’t like the JOLTS report, as they believe it means inflation won’t continue to decline—or will decline too slowly. They seem to believe almost religiously that full employment is synonymous with high inflation.

So does former Treasury Secretary Larry Summers, apparently, on Bloomberg News, who has been leading the inflation hawks.

“We need five years of unemployment above 5% to contain inflation -- in other words, we need two years of 7.5% unemployment or five years of 6% unemployment or one year of 10% unemployment,” said Summers said in a speech in London Monday. “There are numbers that are remarkably discouraging relative to the Fed Reserve view.”

His remarks are based on s a horrific thesis of so-called classical economic theory that no longer applies, and which even some Fed Governors are saying they no longer believe.

In fact, the swift decline in inflation since last June occurred in the face of continuing full employment and a record-low unemployment rate.

Then why is inflation now declining so fast? Lets’ return to an even more basic economic theorem: the Law of Supply and Demand. Supplies are now catching up to said demand for goods and services, which is reflected in falling commodity (like oil and food grain) prices.

Inflation came from the aftereffects of accelerating growth after the COVID shutdowns in early 2020 getting ahead of supply-chains, hence the sudden shortages were due to the pandemic shutdowns, the Ukraine war, and China’s ongoing COVID problems.

And because world trade has become global, we are finding alternatives to these shortages.

EPI.org

So rising wages of employees are no longer the major inflation threat. The Economic Policy Institute, a labor think tank, provides a simple graphic to explain why—the widening gap between what employees produce and what they earn from their labor since 1980.

Until 1979, labor’s compensation rose in tandem with labor productivity. But then the gap widened so that labor productivity has increased 64.7 percent from 1979 to 2021, whereas a typical worker’s compensation increased just 17.3 percent, not even keeping up with inflation.

Where did the rest of the wealth end up that has been generated since 1979? It’s the reason corporate profits as a percentage of GDP were the highest ever in the summer of 2022.

The good news is that Fed Chairman Powell’s remarks after this Wednesday’s announcement of its one-quarter percent rate hike is indicating that the Fed Governors are not listening to Larry Summers.

But are they listening to wage-earners who will suffer most from a recession?

Harlan Green © 2023

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Fed's Inflation Target Too Low

 Financial FAQs

FREDhourlywages

Why is the Federal Reserve enforcing a 2 percent inflation rate target? Such a monetary policy has meant Fed Governors have endangered economic growth by holding to a target rate that I believe is too low.

Whatever the basis for their fears of inflation—whether it be that so-called inflation expectations are too high, or product costs (such as worker’s wages) rise too fast, the result of their credit[-tightening measures has been that household incomes have been kept lower than inflation historically, increasing income and wealth inequality.

It has thus denied workers earning hourly wages as shown in the above FRED graph (gray bars inflation) the chance to ever catch up to historical inflation and better their financial well-being.

But shouldn’t the prime goal of a well-functioning Democracy be to decrease income inequality? Especially when there are so many American voters—especially high-school educated wage earners--questioning whether American-style democracy is serving their needs.

Former Chairman Ben Bernanke said in 2012 keeping a 2 percent cap enabled the Federal Reserve to better balance its twin mandates to maintain stable prices with maximum employment.

Why? It seems 2 percent is a common target throughout advanced economies, rather than based on empirical studies that verified it in fact maintained stable inflation and maximum employment, the Fed’s twin mandates.

Economists will tell you the 2 percent figure is based on their belief that the measured inflation rate overshoots actual inflation by something like 2 percent, which means they were really trying to get back to zero inflation! If so, that sounds like a great way to tempt actual deflation and a serious recession.

Brookings

This is what happened in the Great Recession that lasted from 2007-09. The Fed had jacked up their fed funds overnight rate charged to banks to 5 percent. It was when Fed Chair Alan Greenspan killed the housing market by the Chinese drip torture method, raising the fed funds rate by one-quarter percent 16 consecutive times, thus busting the housing bubble and causing the Great Recession (after Greenspan suggested that an adjustable-rate mortgage might be desirable in such times).

Greenspan’s Federal Reserve busted the housing bubble and inflation for sure. CPI inflation dropped to 0 percent by 2015, and EU countries such as Denmark had to offer negative interest rates on home mortgages to revive their housing market. This meant that a mortgage lender had to literally subsidize the mortgage borrower to induce them to take out a mortgage loan.

Household incomes suffered even more during this time. Average hourly wages didn’t begin to increase until 2015 and inflation return to its longer-term 2 percent range in 2017 when new Fed Chair Ben Bernanke began the Fed’s policy of buying treasury and mortgage securities to inject liquidity back into the markets to stimulate growth. (He was nicknamed ‘helicopter Ben’ for the huge boost it gave to the money supply).

This is but one example of what happened when the Fed clamped down too hard on inflation. It has been the Fed’s bias since the 1970s that resulted in keeping household income from ever catching up to inflation.

Progressive labor economist Jared Bernstein opined on this matter in the Washington Post shortly after Bernanke announced the Fed’s decision.

“The fact is that the target is 2 percent because the target is 2 percent. Were the target 3 percent or 4 percent, you’d be reasonably asking me, why 3 or 4? To the extent that there’s an anti-inflation bias among economic elites (and thus an anti-full-employment bias), and I think that’s often the case, I’d reiterate arguments I made here…that the debates over full employment and Federal Reserve policy are generally dominated by the interests of the minority who worry more about inflation and asset values than those who worry about jobs and paychecks.”

It has in fact become a tool to suppress the incomes of average households and worsen income inequality; just as hourly wages are accelerating. But will that change their minds?

Harlan Green © 2023

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Too Many New Jobs??

 Popular Economics Weekly

FREDavghourlywages

The Fed Governors won’t like this morning’s unemployment report. The U.S. Census Bureau just reported that 263,000 nonfarm payroll jobs were created in November and average hourly wages are still rising 5.1 percent annually.

To make matters worse for the Governors, jobs were created in every job category except retail/trade and transportation/warehousing.

“The unemployment rate was unchanged at 3.7 percent in November and has been in a narrow range of 3.5 percent to 3.7 percent since March. The number of unemployed persons was essentially unchanged at 6.0 million in November,” said the Census Bureau.

What is going on, as I said recently? Short-term interest rates (e.g., that control credit card and auto loan rates) have risen from essentially zero during the pandemic to 4 percent, and the Fed Governors keep threatening to boost them further until consumers cry uncle with their spending and companies stop hiring so many workers!

Top this sign of economic health with third quarter GDP growth just revised higher, and economists now predicting even higher fourth quarter growth—as high as 4.3 percent with the Atlanta Fed’s latest GPNow estimate?

The unemployment rate of 3.7 percent was unchanged and stayed close to a more than a half-century low (really the 1950s). Hourly pay rose 0.6% last month to an average of $32.82. That’s the biggest advance in 13 months, but isn’t that also a result of many states raising their minimum wages to $15 or more from the national 7.25 percent rate that has prevailed since the 1990s (not the red states, unfortunately)?

Hourly pay rose as high as 8 percent in April 2020 when corporations suddenly ramped up production, as portrayed in the enclosed FRED graph, and it started last year’s record growth spurt of 5.7 percent, not seen since the 1960’s high times.

Average wages had been rising no more than 2-3 percent since the Great Recession (large gray bar in graph), and wages make up some two-thirds of production costs, historically. So the Fed is targeting workers’ wages as the main culprit as it has always done. And corporations must stop hiring so many workers, even though the demand for their goods and services is still soaring.

Some (progressive) economists, however, maintain that the main inflation culprit isn’t the workers in wanting higher wages when household incomes are catching up to inflation for the first time since the 1970s. Rather, it’s excessive profiteering of companies, particularly the energy companies riding the wave of higher demand with scarcer resources; but also the supply shortages due to the COVID-19 pandemic that is still limiting supplies and hampering supply chains.

And, we now have a European war causing even more shortages of food and energy supplies.

So, what is the Fed to do with its threats to businesses and consumers that if they don’t stop their spending spree the Fed will cause a recession by raising interest rates too high?

Harlan Green © 2022

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Too Many Job Openings

 Financial FAQs

Calculated Risk

The Labor Department’s JOLTS report showed the labor market as tight as ever, which could be bad news for Friday’s Labor Department unemployment report.

Employers can’t hire enough employees in several industries, with the largest increase in openings in accommodation and food services (+133,000), information (+40,000), and nondurable goods manufacturing and state and local government education (+31,000 each). Job openings decreased in finance and insurance (-89,000) and in wholesale trade (-48,000).

It means there is still a huge gap between the supply of workers willing to work and what businesses have been able to hire in many industries.

“The number of job openings was little changed at 10.9 million on the last business day of December, the U.S. Bureau of Labor Statistics reported today. Hires and total separations decreased to 6.3 million and 5.9 million, respectively. Within separations, the quits rate was little changed at 2.9 percent. The layoffs and discharges rate was little changed at 0.8 percent, a series low.”

The growing demand for workers in leisure activities, however, is a good sign that consumers are beginning to venture out as the Omicron variant wanes.

This is while manufacturing activity has slowed ever so slightly per the ISM’s Institute for Supply Management Manufacturing Index, slipping to a 14-month low of 57.6 percent in January from 58.8 percent because of the Omicron variant and ongoing shortages of labor and supplies that have slowed production.

The index of new orders dropped 3.1 points to 57.9 percent, the lowest level in a year and a half, and reflecting higher costs. The supply bottlenecks are reflected in the index of prices paid that rose to 76.1 percent from 68.2 percent in December, erasing some of the big decline at the end of 2021.

The U.S. economy is glowing red-hot now, and maybe overheating with soaring prices if supplies don’t catch up to demand soon. GDP grew 5.6 percent last year, the fastest growth rate in 40 years, and predicted to grow as much as 4 percent in 2022. This is far above the 2 percent average growth rate that prevailed since the end of the Great Recession in 2009.

AtlantaFed

The worker shortage is boosting workers’ wages, per the Atlanta Fed, as mentioned recently by Nobel Laureate Paul Krugman. A 3-month average of hourly wages has been growing at 4.5 percent, more than double the 2 percent rise that prevailed since 2010.

Will inflation cool because consumers spend less in the New Year as the pandemic aid dries up, and supply chains speed up deliveries, or must the Fed raise interest rates in the hope of taming it?

So what happens next?

Today’s ADP private payrolls report showed -301,000 jobs were lost in its January survey that precedes Friday’s unemployment report, with most losses in leisure activities due to the Omicron variant. This will surely downgrade current estimates of 150,000 added nonfarm payroll jobs in Friday’s report.

Harlan Green © 2022

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

COVID-19 is Making US Richer

Financial FAQs

FREDdisposalbleincome

More Americans are richer, thanks to the COVID-19 pandemic, believe it nor not. The pandemic has spurred congress and the Biden administration to act as if we are coming out of another Great Depression.

The U.S. is growing faster than in other developed countries that haven’t invested as much in the recovery. And those investments are going to Americans that need it the most.

Just since the American Rescue Plan passed in March 2020, 4.3 million more people have found employment. Wages and real disposable income are up, especially for low-wage workers, who are disproportionately women and people of color and who have experienced consistent wage growth since April 2021, say Rose Khattar and Andres Vinelli of the Center For American Progress, a progressive think tank.

It’s the New Deal all over again, but instead of the 1930s and a looming World War Two, congress and the Biden administration have acted to save the U.S. economy from the worst pandemic since the Spanish flu pandemic of 1918.

FREDgdp

“The U.S. is the only leading advanced economy to have exceeded its pre-pandemic levels, according to the Organization for Economic Co-Operation and Development,” say Khattar and Vinelli. “In fact, data from the most recent quarter shows that our real GDP—which is GDP adjusted for inflation—is around 13% larger than the end of the COVID-19 recession.”

It is largely due to Biden’s American Rescue Plan of last March that especially raised the lowest income brackets. Economist Gene Sperling, its White House Coordinator, says such growth not only helps lower-income folk, but children most of all with the child tax credit that alone has halved the child poverty rate.

And don’t forget the $1400 payments sent out to most Americans at a time when the pandemic lockdowns were in full force.

More evidence of the record post-pandemic growth is that service-oriented businesses making up two-thirds of economic activity---such as banks, retailers and drug stores—grew in November at the fastest pace on record, even as companies grappled with major shortages of labor and supplies.

The Institute for Supply Management’s services PMI climbed to 69.1 percent last month from 66.7 percent in October, when 50 percent is break-even growth, marking the biggest increase on record.

In a rarity, all 18 of the service sectors tracked by ISM said they grew in November. The biggest problem is supplying all the services that customers want. Companies can’t find enough people to fill a near-record number of open jobs. They’ve also struggled to obtain badly needed supplies.

“It goes back to the pent-up demand,” said Anthony Nieves, Chair of the Institute for Supply Management® Services Business Survey Committee. “You can look at other tangible things such as mall traffic and online distribution increasing, which are contributing factors to business activity being up. Many people are going back to work, and consumer confidence is up.”

And if the newest Omicron variant proves less deadly, as initial test results are showing, then there’s nothing to hold back consumers and businesses from building America back better than ever.

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

 

Where are the Truck Drivers?

 Financial FAQs

@PaulKrugman

If one picture can save 1,000 words, then maybe Nobel Laureate Paul Krugman’s citing of the huge decline in average hourly wages of Production and Non-supervisory Employees in Transportation and Warehousing since the 1970s goes a long way to explaining the current supply-chain bottleneck and concurrent inflation surge.

It explains even more—why so many Americans are refusing to return to their workplaces. The COVID pandemic has exposed the consequences of the overall decline in working Americans’ wages and standard of living that has shrunk the middle class and endangered our democracy.

Of course, the coincidence of declining wages and truck-driver shortages doesn’t necessarily spell causation, but at a time of soaring demand by consumers and producers for the products they deliver, they have one of the most demanding 24/7 jobs for less than college-educated workers.

And there is much anecdotal evidence from independent truckers that confirms the existing pay scale is not worth it. In October, the American Trucking Association said the U.S. needed 80,000 more truck drivers.

Shauntai Robinson, an owner operator out of the ports in South Carolina, in a post on Medium cited by Yahoo News, said that after 16 years in the industry, she was beginning to question the viability of a career as a truck driver.

"There are thousands of valid class A CDL holders, across the United States, who have elected to not drive a truck anymore," Robinson wrote. "These people have not relinquished their credentials. Instead, these valuable people have been forced to seek alternative forms of employment in order to be able to provide for their families."

On average, truck drivers working full time, year-round, earn about $43,252 annually, lower than the median for all full-time workers ($47,016), but exceed those of other blue-collar jobs, says the US Census Bureau.

FREDwages

The huge decline in transportation and warehousing wages actually mirrors the sharp decline in average hourly wages of all production and non-supervisory workers that began in 1980, as can be seen from the above FRED graph (gray bars are recessions).

That was when Big Business began its lobbying campaign to influence economic policies—morphing into what came to be known as trickle-down economic policies with the election of President Ronald Reagan in 1980.

Reaganomics accelerated the deregulation of whole industries that began in the 1970s, with directly suppressing the collective bargaining rights of workers to such an extent that there are now 26 so-called right-to-work (red) states that say a worker can work in a company employing unionized workers, and enjoying its benefits, without having to pay union dues!

The millions of workers holding back from reentering the workforce because of the worst pandemic in 100 years has perhaps awakened more than truck drivers to the need to hold out for a better economic system that has impoverished them since the 1980s, when conservative economic policies took away workers’ rights as well as drastically reduced their incomes.

President Biden’s $1.2 trillion Infrastructure Investment and Jobs Act (IIJA) was passed just in time to make a difference for working families by providing jobs that can support families.

“The bill is a significant down payment on the $2.5 trillion infrastructure investment gap that was identified in the 2021 Report Card and will benefit American businesses and families for years to come,” according to the American Society of Civil Engineers (ASCE), as I reported last week.

The COVID pandemic is bringing about a wholesale transformation of American capitalism, including an opportunity for American workers to have a voice in transforming it.

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

What Is Real Inflation?

 

Financial FAQs

FREDcpi

“The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in August on a seasonally adjusted basis after rising 0.5 percent in July, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 5.3 percent before seasonal adjustment.”

The above FRED cpi graph shows the most recent spike in retail inflation, but also its relative insignificance compared to past inflationary surges, especially in the 1970s and 1980s.

Then why so much worry about its recent spike? Because Wall Street investors like cheap money, and bond holders’ low inflation, and they worry that the Federal Reserve might react too soon to such an inflationary surge by tightening credit, when it’s primary goal should be to keep people employed and consumers happy.

Is inflation one of the major problems facing the US economy today? You would think so listening to major commentators and some economists. Zanny Minton Bedoes, Editor in Chief of The Economist, said it was the major problem for sustainable economic growth if prolonged on Fareed Zakaria’s Sunday TV cast recently.

Consumers and businesses also like cheap money to buy homes and things, but they aren’t so worried at present because lots of COVID-19 recovery money is available and in circulation.

Therefore, it’s a little early to be worrying about what I call real inflation—prices rising faster than wages for more than a few months. And the August CPI showed its first decline in 8 months from 5.5 to 5.3 percent August.

Economists have little to say about what causes long term inflation in the US. They only have the 1970s as an example. The FRED cpi graph shows when it really peaked. It was during the 1975 and 1980 recessions largely because the 1973 Arab oil embargo cut off Middle Eastern oil on our very oil dependent, auto-driven economy—before we began switching to renewable energy sources and more energy efficient regulations on homes and businesses.

Labor unions in the 1970s were able to push their wage demands to keep up with skyrocketing prices; oil was more than $100 per barrel, and there were long lines at gas stations—those stations that still had gas to sell. It was a hectic time, but is hardly the problem today, even with fewer workers and disrupted supply chains to meet the surging economic recovery.

The Fed’s Jerome Powell has said they will be vigilant if it remains high for too long, but that would mean labor costs, which are approximately two-thirds of product costs, continue to increase as they have since the end of this pandemic-induced recession in April, 2020.

FREDwagessalaries

Wages and salaries rose 10.1 percent annually in July 2021, per the latest available data on the above FRED graph, an uncomfortable level if prolonged. It reached its highest level in the 1970s, per the FRED graph on wages and salaries that dates from 1960. But as the Federal Reserve tightened inflation controls in 1980 by initially raising interest rates to double digits, and labor lost much of its bargaining clout as union membership declined, inflation began its long descent to the 2 percent average that has pretty much prevailed since the 1990s.

In fact, it has declined so much that the problem since the end of the Great Recession has been how to keep a healthy level of inflation. This was motivated by the fear of a repeat of Japan’s decades long era of deflation when its economy was shrinking.

So what inflation should we worry about? Inflation caused when businesses and government aren’t investing in productive enterprises, which has been the case in recent decades—with a strong safety net that makes consumers feel safe and not on the verge of bankruptcy with every unexpected downturn; such as the Biden administration has proposed; and investments in infrastructure and future technologies that will insure there are good jobs for all of US

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

In The Age of Anxiety

Popular Economics Weekly

thesocialhistorian.com

We are now in a full-blown “Age of Anxiety”; not the first, of course. There was as much anxiety during the 1918-20 Spanish Flue pandemic that reportedly killed 50 million in a series of worldwide outbreaks lasting more than two years.

If we do not find ways to lessen anxiety in this age due to the novel coronavirus pandemic, we might seriously experience what Dr. Rick Bright, who was recently transferred from his position as Biomedical Advanced Research and Development Authority director at HHS has described as “the darkest winter in modern history.”

“The mortality of the pandemic could be “unprecedented” and ultimately outstrip the 50 million casualties of the 1918 influenza epidemic," wrote Bright in his prepared testimony,“ without a science-based national response to the pandemic.”

There is much more to the current age of anxiety. New Deal economist John Kenneth Galbraith wrote a book called The Age of Uncertainty in the 1970s that attempted to explain the general anxiety brought on by post-WWII institutions that were no longer stable.

“In it we contrast the great certainties in economic thought in the last century with the great uncertainty with which problems are faced in our time,” he said. “Little of this certainty now survives. Given the dismaying complexity of the problems mankind now faces, it would surely be odd if it did.”

This anxiety has been compounded by a record income inequality, the worst since the Great Depression. A 2018 PEW Research survey showed the wage stagnation of American salaried workers over almost two generations.

PEW

Its study found that today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago. And what wage gains there have been have mostly flowed to the highest-paid tier of workers, the top 10 percent of income earners.

I have frequently cited Robert Shiller, a Nobel Laureate economist who says anxiety has reached such a level that it is becoming a second pandemic, an anxiety pandemic that is contagious because “stories of fear have gone so viral that we often think of them constantly,” which could delay the recovery because of the public’s irrational responses.

“Business closures, soaring unemployment, and loss of income fuel financial anxiety, which may, in turn, deter people, desperate for work, from taking adequate precautions against the spread of the disease…But, unlike COVID-19 itself, the source of our anxiety is that we are unsure what action to take.”

And that is already happening with news pictures of crowded bars and restaurants  in states like Texas and Georgia, where they haven’t met the 14-day requirement of falling infection rates decreed by the CDC.

“Unless we get the virus under control, the real recovery economically is not going to happen,” says Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, in a recent interview. He goes on to say that “even if social distancing standards were relaxed, it wouldn’t restore the health of the economy as some protesters have implied it would.”

It is the economic health of Americans that most concerns Americans, which means remedies must be found to curb the rising anxiety, if there is to be something less than a Great Recession or Depression.

And it has to be a united focus of governing authorities on the scientific message that this pandemic is bringing; we are all in this together.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen