(What’s Left of) Our Economy: More Evidence of Biden-Flation’s Toll

Tags

American Rescue Plan, Biden administration, Covid relief, energy prices, Federal Reserve, food prices, hunger, inflation, monetary policy, progressives, recession, supply chain, Ukraine War, {What's Left of) Our Economy

Left-of-center critics of the Federal Reserve’s inflation-fighting efforts keep insisting that risking recession to tame prices would unnecessarily harm the most vulnerable Americans and their struggling working class counterparts. Instead,  many have claimed that living costs can be cut sufficiently by forcing greedy corporations to charge less through windfall profits taxes, price controls, and the like.

And they’ve bridled in particular at charges that the Biden administration’s American Rescue Plan (ARP) greatly worsened the problem by handing trillions of dollars of CCP Virus relief – and therefore purchasing power – to U.S. consumers well after economic growth had already rebounded strongly and unemployment had already nosedived.

Any development that can engulf the gargantuan American economy, like historically high inflation, almost by definition has many different causes. But anyone doubting the economic overheating role of the ARP should check out the graph below, which is found in this Reuters piece from over the weekend.

The article adds to the evidence that still-towering inflation rates are devastating low-income Americans by super-charging the prices of that most basic of basics: food. But the graph makes clear as can be how the ARP contributed to the problem.

As it shows, prices of food (the darker line) began taking off just about the time that the ARP’s strings-free child tax credit payments started to be sent out (July 15, 2021, to be precise) – and not just to the needy, but to considerably better off households as well. Not so coincidentally, the share of American families with children reporting to U.S. Census Bureau surveys being “sometimes or often” short of food (the lighter line) started taking off soon after. And also noteworthy – these food price rises began many months before Russia’s February, 2022 invasion of Ukraine began playing its own major food inflation role. 

As the article also emphasizes, between 2020 and 2022, “as pandemic restrictions eased, so did the appetite for congress and some states to fund hunger prevention efforts.” But continuing federal purchases for “pantries, schools and indigenous reservations” were needed in the first place largely because food – not to mention other necessities – kept becoming so much more expensive.

The lesson here isn’t that no pandemic assistance should have been provided at all. After all, genuine suffering was widespread in its early phases and no one knew how long they would last. And the Fed’s left-of-center critics are correct that ongoing CCP Virus-related and Ukraine War-related energy supply disruptions have greatly boosted prices recently, too.

But as noted here previously, the supply- and demand-side roots of inflation are very closely related (because businesses can be relied on to continue raising prices as long as they can find enough buyers, and to cut them when customers start balking). Moreover, although in economists’ lingo, some prices are “inelastic” (because they’re for goods and services that are essential enough to prevent purchasing cutbacks even after major price increases), when they rise high enough, they can still foster lower prices for other purchases that are deemed less important.

Therefore anything, like big government checks, that fills consumer pockets will strongly tend to spur inflation sooner or later. So when help does need to be provided, it should be much more precisely focused on relieving genuine privation than pandemic relief was.

Even more important: The inflationary effects of supporting household consumption can be offset – and are best offset – by policies to support more production. When the Fed’s left-of-center critics start addressing defects in that supply side of the economy, rather than trafficking in gimmicks sure to exacerbate them, their complaints about excessive central bank monetary medicine will deserve a much bigger audience. In the process, they’ll be able to deliver lasting assistance to those whose plight they rightly emphasize.        

Glad I Didn’t Say That! Energy Security One Tanker at a Time

Tags

Ukraine, inflation, energy, natural gas, Germany, Persian Gulf, Glad I Didn't Say That!, energy prices, Olaf Scholz, Ukraine War, energy crisis

”Germany secures more gas shipments as [Chancellor Olaf] Scholz visits [Persian] Gulf”

 —Associated Press, September 25, 2022

Number of gas shipments Scholz has secured during his visit to the Persian Gulf: 1

–Bloomberg.com, September 25, 2022

 

(Sources: “Germany secures more gas shipments as Scholz visits Gulf,” by Frank Jordan, Associated Press, September 25, 2022, https://apnews.com/article/russia-ukraine-boris-johnson-united-arab-emirates-germany-b2ff121c9b7e3931ab3c89acdf76beaa and “Germany Secures Just One Tanker of Gas During Scholz’s Gulf Tour,” by Birgit Jennen and Omar Tamo,” Bloomberg.com, September 25, 2022, https://www.bloomberg.com/news/articles/2022-09-25/germany-nabs-uae-gas-deal-as-energy-squeeze-tightens?srnd=premium&leadSource=uverify%20wall)

Following Up: Podcast Now On-Line of TNT Radio Interview

Tags

abortion, China, conservatism, culture wars, election 2022, electric vehicles, energy, Europe, Following Up, gay marriage, inflation, left-wing authoritarianism, midterms 2022, migrants, national conservatism, National Conservatism Conference, national security, politics, Sanctuary Cities, The Hrjove Moric Show, TNT Radio, Trade, Ukraine War

I’m pleased to announce that the podcast is now on-line of my appearance Tuesday night on “The Hrvoje Moric Show” on the internet network TNT Radio. Click here for a timely discussion on the future of American conservatism, on the culture wars that should and shouldn’t be fought, and a on a wide range of other domestic and international subjects, both strategic and economic.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: So What’s with U.S. Inflation Now?

Tags

baseline effect, Biden, businesses, consumer price index, consumers, core inflation, CPI, energy prices, Federal Reserve, food prices, inflation, PPI, Producer Price Index, {What's Left of) Our Economy

Just my luck! I get invited to an exciting conference in Florida last week, and two days of it took place when the latest U.S. inflation figures, covering retail and wholesale prices for August, came out.

I was able, though, to note in a tweet after perusing them quickly, I couldn’t “do my usual monthly #CPI dive. But when I do, I bet I find that the baseline effect that had somewhat misleadingly boosted 2020-21 y/y #inflation #s is starting conversely to misleadingly dampen 2021-22 annual results somewhat.”

Well, now I’ve had the chance to examine the new Consumer Price and Producer Price Indices (CPI and PPI, respectively), and it turns out I’d have won that bet. And these findings provide ample reason for skepticism that peak inflation is over for Americans.

It may not be likely to spiral up further, as President Biden suggested last night on Sixty Minutes. But the August data indicate that, on an annual basis, just as a good share of the higher increases businesses charged consumers and each other earlier during the current burst of inflation stemmed from statistical quirks that produced artificially hot numbers, the last few months’ year-on-year results are artificially tame because of that statistical quirk working in reverse.

That is, consumer and business prices may stop accelerating, and may even decline slightly from where they are now. But in absolute terms, goods and services will probably remain painfully expensive and keep straining household and company budgets – at least until the Federal Reserve’s inflation-fighting moves or other developments kill enough economic demand (as intended) to destroy most of the pricing power companies presently enjoy.

Sharp-eyed RealityChek regulars will understand that, of course I’m talking about the baseline effect. Specifically, late last year and early this year, much of the  scary-looking multi-decade high yearly price increases could be attributed to the fact that the previous annual inflation numbers were rock-botton low because of the sharp economic downturn and its aftermath created by the CCP Virus’ first wave in the spring of 2020. Because price increases virtually stopped then (and in some months actually fell in absolute terms), the return to the recent norm in year-on-year inflation rates resulted in deceptively high inflation figures.

As chronicled here, e.g., the baseline effect then began fading – signaling that more of the still-worrisome official inflation data coming out of Washington was due to changes in actual economic conditions, and that consequently price increases would have more staying power.

Lately, though, as the second calendar year of high inflation has dragged on, the statistical distortions may be leading to excessive complacency. The reason? What modest dips have been recorded in annual inflation rates are now coming off baseline figures that were already close to historic highs, as opposed to being stuck near zero.

So this tells me that if goods and service providers have been able to raise prices over the past year by, for example, about eight percent on top of the seven percent increases they successfully pushed through the year before, they must be pretty confident that they can keep prices at or near these towering levels until the economy tanks for whatever reason.

And my reading of the numbers bears out this thinking.

Let’s start with the so-called headline CPI figure, which showed an 8.25 percent annual increase in August. That’s the best such performance since the 8.22 percent reported for April. But this latest April year-on-year figure followed a 4.15 percent headline CPI read between the previous April’s. August’s baseline figure was considerably higher – 5.21 percent.

The so-called core CPI read for August wasn’t quite as encouraging, mainly since this measure strips out food and energy prices due to their supposedly unusual volatility. And energy prices in particular are well off their peaks ovewhelmingly because of American drivers’ unwillingness to pay those $5 per gallon gasoline prices that prevailed in late spring into early summer, and because of the major economic slowdowns being seen in China and Western Europe.

Indeed, August’s annual 6.32 percent rise was the highest since March’s 6.44 percent. But the baseline effect means that such inflation was even worse than it looks, for the March annual result followed a core CPI increase of just 1.66 percent between March, 2020 and March, 2021. The August number followed a previous annual surge of 3.96 percent – more than twice as strong.

The “reverse baseline effect” has been even more dramatic for the Producer Price Indices. August’s annual wholesale inflation mark of 8.69 percent was the best for the entire year, and decidedly lower both than July’s 9.78 percent and way weaker than the recent peak of 11.67 percent reported for March.

That torrid March pace, though, followed a 2020-21 increase of 4.06 percent. The new August inflation rate comes on the heels of an 8.58 percent PPI worsening between August, 2020 and August, 2021. Even worse, that 2020-21 percent producer prices inflation rate was a striking example of catch-up. From August, 2019 to August, 2020, wholesale prices fell in absolute terms by 0.17 percent. That can only mean that powerful momentum still lies behind these producer prices.

The same story has played out for core producer prices. This August annual result – 5.61 percent – was also the year’s best. And not only was it much better than the peak number of 7.11 percent in March. It represented the fourth straight decrease.

But that March core PPI result followed a 3.15 percent annual increase in these prices between the previous Marches. The baseline figure for this August’s result was 6.19 percent – as with the headline PPI data, nearly twice as high.

This is why the strongest argument that peak inflation has been hit comes from the month-to-month numbers. For headline CPI, prices edged up sequentially in August by just 0.12 percent. Although that’s a slightly worse performance than July’s 0.02 percent monthly decrease, it’s a veritable nosedive from this year’s highest figure – June’s 1.32 percent.

If you believe, with fall and winter just around the corner and the Ukraine War still disrupting global oil and gas trade and supplies that the energy prices paid by U.S. consumers will keep falling at the August monthly rate of five percent, you’ll be optimistic about core CPI. If you have your doubts…not so much.

The monthly core CPI increases have fluctuated less than the headline, and generally have been lower in absolute terms. But August’s 0.57 percent sequential increase was actually stronger than July’s 0.31 percent, and not much slowing is evident this year in this inflation measure.

The monthly PPI figures look more peak inflation-y – especially since when businesses have to pay higher prices for the goods and services their operations need, they do their darndest to pass these higher costs on to consumers. At the same time, as I’ve noted in posts on tariffs and inflation, the converse can’t be counted on. Businesses generally won’t give consumers a price break even when their own costs decrease unless demand slacks off, too.

All the same, even though energy is mainly responsible, it’s important that in August, headline PPI weakened sequentially for the second straight month – sinking by 0.13 percent. As with core CPI, core PPI rose faster on month in August (0.23 percent) than in July (0.14 percent). But these last two figures were two of the year’s best.

Still, in line with my oft-stated position that data over longer time periods is more reliable than data over shorter time periods, I’m putting more stock in the annual figures – again, until and unless the economy slows significantly or tips into recession.  And they’re making clear that the nation faces a near-term future f historically and troublingly high prices, if not continually soaring prices,    

Im-Politic: A New, Promising but Still Flawed Form of Conservatism

Tags

abortion, America First, China, Christianity, conservatism, crime, culture wars, Dobbs v. Jackson Women's Health Organization, education, family policy, foreign policy, identity politics, Im-Politic, Immigration, industrial policy, inflation, national conservatism, politics, religion, Roe vs. Wade, sovereignty, Supreme Court, Trade, wokeness

Don’t get me wrong. It’s not like I’m not grateful to have been invited to last week’s third National Conservatism Conference. The interest displayed by this crowd in economic policy ideas that depart dramatically from the right-of-center’s longstanding free market dogmatism was especially gratifying, and there was no shortage of thought-provoking and compelling speakers.

It’s just that my four days at the session left me unconvinced that National Conservatism as it presently seems to be constituted can create or contribute to a winning American political coalition. The main problem: Most of those spearheading the drive to establish National Conservatism as a major national force haven’t recognized which culture wars they should be fighting, and which they shouldn’t — and how this failure to discriminate is endangering other objectives that the movement (and others) rightly deem crucial.  In fact, unhappiness expressed to me by more than a few conference attendees with the stances on social and cultural issues taken by those putative leaders make me skeptical that it’s a movement yet to begin with – or can be if their vision prevails.

The economic dimension of national conservatism, at least judging by the presentations and hallway conversations, is not only politically astute; it’s substantively sound. All the speakers who addressed these issues – including such nationally prominent figures like Florida Governor Ron DeSantis, and the state’s Republican Senators Marco Rubio and Rick Scott (the event was held in Miami) supported smarter, more restrictive trade and other economic policies (especially toward China), reduced immigration inflows and genuine border security, and federal policies to promote strategically important industries and to ease economic pressures on the middle and working classes.

The same goes for National Conservatism’s critique of the overly, and often recklessly, adventurist foreign policies pursued by the mainstreams of both major political parties for decades.

But the conference organizers and another set of speakers seem wed to other goals and measures that are already backfiring among the American electorate and that, intriguingly, clash with other elements of their agenda. The most important by far were near-total opposition to abortion and a determination to tout the United States as a “Christian nation.”

The political folly of these priorities couldn’t be more obvious. As I’ve written, there’s long been a strong national consensus favoring the right to an abortion early-ish during a pregnancy and then favoring broad restrictions later on with significant exceptions (rape, incest, life of the mother, health of the mother). Indeed, that’s why comparable majorities have supported maintaining the abortion policy framework established by the Supreme Court’s 1973 Roe vs. Wade ruling – which was entirely consistent with that common sensical compromise. P.S. Contrary to the claims of the extreme pro-lifers on an off the Court, Roe gave states plenty of latitude to enact all manner of abortion curbs. (The other major misconception or falsehood surrounding Roe comes from the pro-choice movement: It never established an unfettered right to an abortion.)

If you’re skeptical, consider that the day that a draft of the Supreme Court’s eventual decision striking down Roe was leaked to the press (May 3), Republicans held a 4.1 percentage point lead in the RealClearPolitics.com average of polls gauging the public’s preference for control of Congress in November’s midterm elections. The latest figures show Democrats with a 1.1 percentage point lead in the so-called Generic Ballot.

It’s true that abortion isn’t the only reason, that the actual votes determining control of Congress aren’t cast nationally but state-by-state, and that Republicans hold enough built-in advantages in the Congressional map to keep their hopes of prevailing very much alive. But the polls also show that the Court’s Dobbs decision, the enactment of and efforts to enact near-abortion bans in Republican-run states that the ruling has permitted, and GOP talk of more such moves (including on the national level) is increasing Democrats’ interest in voting and boosting the party’s prospects. (See, e.g., here.) And not so coincidentally, Republican candidates and leaders all over the country are backing away from hard-line anti-abortion positions.

Adamant opposition to abortion in practically all circumstances also seems to clash violently with other stated National Conservative positions. For example, many speakers at the conference emphasized their support for individual liberty. But what about the right of women uninterested in becoming mothers to lead the lives they wish? Even if the unborn must indeed be deemed human life very early in pregnancies, should the wishes of those women count for absolutely nothing the minute they conceive – and simply because they failed to take adequate precautions, or because precautions taken failed? According to many, and possibly most, at the conference, the answer is “Yes.”

The repeated references to America as a Christian nation are just as problematic. For reasons like those suggested above, if that’s a rationale for insisting that U.S. policies conform with scriptural teachings (and Section 4 of this “Statement of Principles” by the movement’s leading lights certainly suggests this “Where a Christian majority exists” – i.e. in most of the country), that simply won’t wash with big majorities of voters. But the historical arguments advanced for this view don’t impress, either.

Sure, the Founding Fathers were Christians, and for the most part, observant Christians at that. But so what? The England they came from was overwhelmingly Christian. What else realistically could they be? For similar reasons, the Founders were ovewhelmingly white, too. Does that mean that America should be seen as a Caucasian nation?

And does Christian dogma really deserve much credit for the ideals that make up the American creed of freedom of expression and conscience and other major liberties for the individual; representative, accountable government; equal justice under the law; and the like? Clearly, in most of Christendom at the time (e.g., Russia, Spain, Germany) these notions were unknown or actively rejected. Instead, the great American experiment in self-government is rooted in specifically English thought and practice. And ironically, the major contribution made by Christianity that hasn’t been present outside Europe has been the faith’s willingness to leave big swathes of human life to secular institutions and authorities (as in Jesus’ admonition to “Render to Caesar the things that are Caesar’s, and to God the things that are God’s.”)

Even worse, precisely because they’re so unpopular as well as intellectually feeble, National Conservatism’s focus on these particular culture wars is weakening the ability of the entire conservative movement (except the libertarians) to fight effectively the culture wars that must be fought – specifically, over woke school public curricula; the metastasis of left-wing authoritarianism in so many major, powerful American institutions; and the related spread of divisive identity politics.

I have nothing but respect for those National Conservatives I met – and other Americans – to declare that they’re less concerned with winning politically than with remaining true to their consciences. But their version of the perfect is shaping up as a powerful enemy of the good and formula for defeat – especially if they wish to contend, as they clearly do, in an arena that rightly values the art of the possible.

That’s why I was so encouraged to find out that many of those I met at the National Conservatism Conference agreed that hard-line anti-abortion stances and pro-Christian nation preaching need to be dropped if any of National Conservatism’s other worthy causes are to be advanced.

For me, nothing could be clearer than the following as a recipe for political victory and national well-being: focusing tightly in an America First-type way on  confining U.S. foreign policy to advancing and protecting U.S. sovereignty and core security (especially against foes like China), on taming inflation and building sustainable prosperity; on securing the border; on fighting crime; on removing propaganda from public schools; on preserving a strong voice for parents in their children’s education; and on resisting the intolerant woke and rigid identity politics ideologies being pushed by our most powerful institutions.

National Conservatism as it exists now is close to being on board. If it can go the extra mile, show better judgment politically, and accept a more inclusive, more historically accurate view of “Americanism,” I’ll be happy to join its ranks.

(What’s Left of) Our Economy: U.S. Manufacturing Job Creation Enters the Goldilocks Zone

Tags

aircraft, aircraft engines, aircraft parts, chemicals, computer and electronics products, dollar, Employment, exchange rates, exports, fabricated metal products, Federal Reserve, food products, inflation, Jobs, machinery, manufacturing, non-metallic mineral products, pharmaceuticals, recession, semiconductors, surgical equipment, textile product mills, vaccines, {What's Left of) Our Economy

For now, the term “Goldilocks” seems to be an increasingly popular and accurate way to describe the U.S. economy. (See, e.g., here.) As in the Three Bears-y it’s not running too hot (and therefore unlikely to prompt the Federal Reserve to step up its inflation-fighting efforts enough to trigger a recession). And it’s not running too cold (and prompting the Fed to accept current inflation levels for fear of sparking a really deep slump).

So it wasn’t entirely surprising that yesterday’s official U.S. manufacturing jobs figures were pretty Goldilocks-y themselves.

They showed that domestic industry boosted its payrolls on month in August by 22,000 – the smallest amount since May’s 19,000, but still representing growth. Further, the revisions of the solid June and July gains were modestly positive. The former received its second downgrade – from an initially reported 29,000 to 27,000 to 25,000. But the latter was upgraded from 30,000 to 36,000.

As a result, manufacturing employment is now 0.52 percent greater than in February, 2020 – the last full month before the CCP Virus pandemic struck the United States in full force and, along with lockdowns and voluntary behavioral curbs, generated a brief but historic depression. As of last month’s jobs report, manufacturing employment had grown by 0.32 percent during this period.

That’s a slower employment recovery than that staged by the overall private sector (0.68 percent). But U.S.-based industry shed fewer jobs proportionately than the rest of the private economy during that pandemic nosedive.

Moreover, because government employment is still down 2.82 percent since the virus arrived, manufacturing’s job creation has been way ahead of the performance of the non-farm sector (the federal government’s definition of the American jobs universe). That measure’s headcounts have advanced only 0.16 percent.

These results have left manufacturing at the same 9.85 percent of total private sector jobs as last month (and up from its 9.83 percent share in February, 2020), and at the same 8.41 percent share of all non-farm jobs as last month (and up from its 8.38 percent share just before the pandemic economy began).

Another indicator of manufacturing’s relatively strong recent jobs performance – at 12.852 million, its workers’ ranks are at their highest level since November, 2008’s 13.034 million. Last month’s initially reported 12.826 million manufacturing workers were the highest figure only since August, 2019’s 12.827 million.

August’s biggest manufacturing jobs winners among the broadest sub-sectors tracked by the U.S. Labor Department were:

>fabricated metals products, which added 4,700 workers on net last month. And this big sector has been on a hot streak lately. July’s results were revised up from a gain of 4,200 to one of 4,600, June’s unrevised 600 job loss is now judged to be an increase of 200, and May’s robust figures have only been revised down from 7,100 to 6,600.

These companies’ payrolls have now advanced to within 1.64 percent of their immediately pre-pandemic level, versus the 2.04 percent deficit calculable last month;

>computer and electronics products, which contains shortage-plagued semiconductor sector, added 4,500 employees sequentially in August, and revisions were strong. July’s initially reported 3,400 gain is now estimated at 3,900. June’s results rebounded from a downgrade of 2,300 to 2,000 to an upgrade to 2,900. And May’s final (for now) upwardly revised 5,300 increase stayed unchanged.

This sector now employs just 0.96 percent more workers than in February, 2020, versus the 0.41 percent rise calculable last month. But it’s important to recall that computer and electronics firms’ headcounts fell only minimally during the first sharp pandemic downturn;

>the very big chemicals industry, which boosted hiring by 3,500 on month in August. Revisions were somewhat negative but still left good growth in their wake. July’s initially reported improvement of 3,700 was downgraded to 2,900. June’s initial huge upgrade from 1,200 to 4,500 fell back to an increase of 3,900 and May remained at 5,100.

Since February, 2020, chemicals companies have increased employment by 6.09 percent, versus the 5.84 percent calculable last month;

>machinery, which is such a manufacturing- and economy-wide bellwether because its products are used by so many industries. Its firms’ payrolls climbed by 2,800 sequentially in August. Revisions, moreover, were encouraging. July’s initially reported 3,400 improvement was revised down slightly to 3,300. But June’s totals have now been upgraded from 1,000 to 1,600 and now to 2,400. And May’s initially reported monthly drop of 3,200 is now pegged at one of just 800.

Machinery employment is now off by just 1.15 percent since immediate pre-pandemic-y February, 2020, versus the 1.47 percent calculable last month; and

>non-metallic mineral products, whose monthly jobs advance of 2,800 in August was its best such performance since February’s 3,100. July’s initially reported gain of 1,000 was revised up to 1,100. June’s initially reported 400 loss has stayed at an upgraded 700 gain. And May’s totals have settled at an increase of 2,100 as opposed to the 1,900 first reported.

Thanks to its strong August and positive revisions, the non-metallic minerals workforce is now a mere 1.05 percent smaller than in February, 2020, vs the 1.85 percent calculable last month

Manufacturing’s biggest August jobs losers among this same group of broad categoies were:

>food manufacturing, whose August monthly 2,400 jobs decline was its worst such performance since last August’s 2,600. In addition, revisions were negative overall. July’s initially reported 1,800 jobs advance was downgraded to 1,600. June’s initially reported jump of 4,800 has been revised down a second time – to 3,400. And after an upgrade from an increase of 6,100 to one of 7,600, May’s result is now pegged at a 7,000 gain.

Whereas food manufacturing’s employment was calculable as having grown since February, 2020 by 2.86 percent as of last month, now the figure is 2.64 percent; and

>textile product mills, whose payrolls fell by 1,000 in August for their worst such performance since July, 2020’s 2,500 decline. Revisions in this small industry were negligible. July’s initially reported dip of 300 is now judged to be a gain of 100. June’s initially reported decrease of 700 stayed unchanged after being revised up to one of 600, and May’s initially reported 100 monthly job loss has stayed unrevised.

Textile product mill employment has now shrunk by 6.44 percent since February, 2020, versus the 5.51 percent calculable last month.

As always, the most detailed employment data for pandemic-related industries are one month behind those in the broader categories, and their July performances were generally in line with that month’s continued overall manufacturing hiring.

The recent employment upswing in that shortage-plagued semiconductor industry continued in July, as the month’s payroll increase of 2,300 was the best such performance since June, 2020’s 3,000. Revisions were positive, too, with June’s initially reported advance of 1,700 now estimated at 1,900 and May’s total staying at a slightly upgraded 1,000..

Semiconductor employment is now 4.56 percent higher than in February, 2020, on the eve of the CCP Virus-era economy, versus the 3.22 percent calculable last month. And it should be kept in mind that semiconductor companies kept hiring modestly on net during the worst of the pandemic.

The workforces of these companies are now 4.36 percent larger than in February, 2020, versus the 3.69 percent calculable last month.

Most of the aerospace cluster in July kept regaining the unusually large numbers of jobs lost during the pandemic period due largely to the steep CCP Virus-related travel downturn.

Aircraft production companies hired another 2,400 workers that month – their best such performance since June, 2021’s 4,400. June’s initially reported 1,500 employment increase was downgraded to 1,200, but May’s net new job creation remained at an upgraded 1,600.

In all, aircraft manufacturing payrolls advanced to within 8.69 percent of their immediate pre-pandemic levels, versus the 9.64 percent shortfall calculable last month.

In aircraft engines and engine parts, firms added 900 employees on net in July, and although June’s initially reported 800 increase was revised down to 700, May’s results remained at a 900 improvement after being upgraded fom 700.

Aircraft engines and engine parts-makers now employ just 8.94 percent fewer workers than in immediately pre-pandemic-y February, 2020, versus the 9.81 percent deficit calculable last month.

Non-engine aircraft parts and equipment makers stayed jobs laggards, though, as they shed 600 workers in July – their worst such performance since last December’s 900 loss. June’s initially reported jobs gain of 600 was upgraded to a 900 increase, and May’s initially reported growth of 300 remained unrevised for a second straight month. But payrolls in this industry are now 14.88 percent below their February, 2020 levels, versus the 14.62 percent calculable last month.

Most healthcare manufacturing, however, experienced an off month hiring-wise in July.

In surgical appliances and supplies (which includes all the personal protective equipment and other medical goods so widely used to fight the CCP Virus), 700 net new jobs were created in July. June’s 800 net job loss stayed unrevised July, as did May’s slightly upgraded monthly increase of 500.

Since February, 2020, this sector’s headcount is up by 4.36 percent, versus the 3.69 percent calculable last month.

Yet the large pharmaceuticals and medicines industry lost 500 jobs in July – although this dip followed a downwardly revised 4,000 employment surge in June that was still the best monthly result for the sector going back to the 1990 start of this data series. Moreover, May’s upwardly revised employment increase of 1,200 remained the same.

Still, whereas employment in this sector was up by 11.58 percent since the pandemic’s economy-shaking arrival as of last month’s jobs report, that increase had slipped to 11.32 percent as of this month’s release.

And the medicines subsector containing vaccines lost 200 jobs in July, and revisions were slightly negative. June’s initially reported 1,100 increase was downgraded to one of 900, and May’s slightly upgraded 700 monthly gain stayed unchanged.

Vaccine manufacturing employment has still climbed by 25.89 during the CCPVirus period. But as of last month, this figure was 26.29 percent.

For the foreseeable future, industry’s employment prospects seem likely to be buffeted by the same crosswinds it’s been dealing with for many months now – on the one hand, ongoing (but possibly fading) supply chain issues, high (but possibly fading) inflation, and a Federal Reserve evidently bent on cooling price increases even if it slows economic growth considerably; on the other hand, demand for manufactures by consumers and businesses that keeps displaying impressive strength.

And let’s not forget a U.S. dollar that’s the strongest in decades, and that should be undermining domestic manufacturing because it still relies so heavily on exports, and the greenback’s rise damages the price competitiveness of everything made in America.

Yet U.S.-based manufacturers keep hiring – usually a sign of confidence – and I’ll keep assuming that since it’s their fortunes that are most directly on the line, I’ll view their prospects as pretty bright, and even Goldilocks-y, too.  

(What’s Left of) Our Economy: More Evidence That Stimulus-Bloated Demand is the Main U.S. Inflation Driver

Tags

CCP Virus, China, consumer price index, consumers, coronavirus, COVID 19, Covid relief, CPI, demand, inflation, Jobs, population, retirement, stimulus, Sun Belt, supply, supply chains, The New York Times, Ukraine War, workers, Wuhan virus, Zero Covid, {What's Left of) Our Economy

The New York Times just provided some important evidence on the big role played by super-charged consumer demand in super-charging inflation – this article showing that the Sun Belt has been the U.S. region where prices have been rising fastest.

The finding matters because a debate has been raging among politicians and economists over the leading causes of multi-decade high inflation rates with which Americans have been struggling over the last year and a half or so.

On one side are those who claim that overly generous government stimulus spending is the main culprit, because it’s increased U.S. buying power much faster than the supply of goods and services has grown. On the other side are those who focus on the inadequate amount of goods and services that companies are turning out, stemming from supply chain disruptions rooted in the stop-and-go nature of the American economy from successive waves of pandemic downturns and slowdowns to the Ukraine war to China’s ridiculously draconian Zero Covid policies.

Clearly, all these developments deserve blame, but the regional disparities in inflation rates provide pretty convincing support for emphasizing bloated demand.

Here’s the latest annual disparity in the headline Consumer Price Index as presented in the Times article:

U.S. total:    8.5 percent

South:          9.4 percent

Midwest:     8.6 percent

West:          8.3 percent

Northeast:   7.3 percent

It correlates roughly, by the way, with the data in this report last spring from the Republican members of Congress’ Joint Economic Committee.

And here’s a principal, demand-related reason: The Sun Belt states of the South and West have been the U.S. states that have gained the most population during the pandemic period. Indeed, according to the latest U.S. Census data, eight of the ten states with the fastest overall population growth between July, 2020 and July, 2021 was a southern or southwestern state, and the same holds for five of the ten states with the fastest population growth in percentage terms.

It’s true that population growth often increases supply, too – by boosting numbers of workers. The U.S. government doesn’t break out job creation along the above regional lines, but a look at individual state totals doesn’t conclusively brand the Sun Belt as an national employment leader. On average, relatively speaking, Arizona, California, Florida, Nevada, and Texas have created more jobs from the pandemic-period bottom in April, 2020 through last month, as shown in this table:

U.S. total:    +16.87 percent

California:   +17.98 percent

Florida:        +21.05 percent

Texas:          +17.31 percent

Arizona:       +16.02 percent

Nevada:        +30.92 percent

But don’t forget – many of these states have outsized travel and tourism sectors, and you know what happened to those activities during the worst of the pandemic. So in part, their employment bounced back so quickly because they had plummeted so dramatically as the CCP Virus’ first wave spread.

Moreover, many of these states are big retirement destinations, too, and as their overall population increase makes clear, this trend has intensified since the pandemic arrived. Of course, the workers in any given state don’t only sell goods and services to that state’s population, and a given state’s residents don’t only buy goods and services from providers in that state. Yet it’s certainly noteworthy that the number of the Sun Belt states’ consumers rose faster relative to the national average than the number of Sun Belt workers.

And in this vein, Sun Belt inflation probably is also particularly hot partly because so many of the newcomers are wealthy. Indeed, one recent study found that, early in the pandemic, “Of the 10 states with the largest influx of high-earning households, nine are located in the Sun Belt, including the six-highest ranked states, starting with Florida.”

Because they bring so much spending power to their new home states, these wealthier Americans naturally tend to drive prices up unusually fast.

As the Times article notes, some prominent reasons for scorching Sun Belt inflation are unrelated to population-driven demand growth – notably much lower population densities that generate more gasoline-using driving.  But the impact of population movement and all the disproportionately high inflation it’s clearly creating is hard to ignore.  And if a consumption shock has spurred so much inflation in the Sun Belt, why wouldn’t it be affecting prices this way in the rest of the nation, too?          

 

(What’s Left of) Our Economy: Are High Prices Starting to Cure Wholesale Inflation, Too?

Tags

consumer inflation, consumer price index, consumer prices, core inflation, core PPI, cost of living, CPI, energy, energy prices, inflation, living standards, PPI, Producer Price Index, productivity, recession, wholesale inflation, wholesale prices, {What's Left of) Our Economy

In Wednesday’s post, I wrote that I was somewhat surprised about the new (and somewhat encouraging) official U.S. data for consumer inflation in July because June’s figures for what’s often called wholesale inflation were so bad. Because when the prices businesses charge each other to turn out the goods and services they sell, they typically compensate by passing these higher costs on to consumers.

But I actually shouldn’t have found those latest Consumer Price Index (CPI) numbers so unexpected. As I’ve pointed out before (e.g., here) such higher costs can be passed along only if consumers go along. So I should have recognized the better (but still far from good) CPI results as a sign that consumers are starting to balk – by cutting back their spending to some extent.

And significantly, yesterday’s official Producer Price Index (PPI) results for July suggest that businesses themselves began protesting higher prices and cutting back on purchases of their own inputs. That is, they may represent another example backing the adage that the best cure for high prices is high prices. 

In fact, in all the important ways, the new figures for both “headline” producer inflation and its “core” counterpart (which strips out energy and food prices supposedly because they’re volatile for reasons having little at best to do with the economy’s fundamental vulnerability to inflation) strongly resembled those for consumer inflation.

Both the headline and core PPI indices barely rose sequentially (reflecting a bit of “price rebellion,” and worsened on annual bases at a pace that was the slowest in many months, but still alarmingly high in absolute terms. Further, as with the CPI, the big reason for this improvement was the drop in energy prices. And both annual CPI and PPI rates remain worrisome because they’re coming off results for the previous year that were also historically torrid.

One prime indicator of how dramatically energy has affected these results comes from the month-to-month headline PPI numbers.

By this measure, producer prices sank by 0.50 percent (yes, “sank” – didn’t just “rise more slowly”) in July– the first such drop since April, 2020 (1.27 percent) when the first wave of the CCP Virus was wreaking its maximum damage on the economy. And this milestone followed a June monthly increase of 1.01 percent. The percentage-point swing between these two figures (1.51) was the greatest on record (though to be fair, this data series only goes back to late 2009).

The evidence for energy’s leading role? The July sequential fall-off of 8.96 percent (the first such decline since last December’s 1.42 percent and the biggest since since the 16.85 percent nosedive in peak pandemic-y April, 2020) came on the heels of June’s 9.41 percent increase – the biggest since June, 2020’s 9.99 percent, as the economy was recovering rapidly from that first virus wave, related lockdowns and other mandated restrictions, and voluntarily reduced activity. In addition, the percentage-point swing of 18.37 was the biggest since the 18.40 shift between the April, 2020 energy price crash and the May, 2020 rebound.

As for core producer prices, they crept up by just 0.15 percent on month in July. That’s the smallest such increase since last December’s 0.17 percent increase. And they displayed little volatility, as the 15 percentage-point difference between June’s rise of 0.32 percent and July’s was exactly the same as that between the June advance and May’s of 0.47 percent.

The annual PPIs tell a similar story of energy price dominance.

Headline producer inflation was up 9.69 percent on a year-on-year basis in July – the lowest such increase since last October’s 8.90 percent. And percentage-point difference between the July annual decrease and June’s of 11.25 percent (1.56) was the biggest since producer prices strengthened by 0.36 percent on an annual basis in March, 2020, as the virus arrived in the United States in force, and then weakened by 1.44 percent in April (a 1.76 percentage point difference).

And once again, energy prices were the big driver.

In July, they jumped 27.59 percent year-on-year. But even that blazing pace was dwarfed by June’s 53.54 percent annual surge – the biggest on record (again, going back only to late 2009), and well ahead of the previous all-time high of 47.71 percent in April, 2021 (a figure strongly bolstered by the baseline effect, since in peak pandemic-y April, 2020, annual energy prices crashed by 30.20 percent.

The percentage-point gap between the June and July results were the widest ever, too – 25.95. The previous record was the 24.56 percentage point difference between that record 47.71 percent annual spurt increase in April, 2020 and the previous month’s rise of a relatively modest 23.15 percent. 

Since it doesn’t include energy prices, annual core PPI’s ups and downs – like those of monthly wholesale inflation – have been pretty tame in comparison.

The July increase of 5.75 percent was the best such performance since June, 2021’s 5.60 percent. And the annual rate of increase has now slowed for four straight months.

July’s annual core PPI rise was also an impressive 0.82 percentage points less than the June figure of 6.38 ercent. But that gap was only the biggest since May, 2020’s 0.62 percentage-point difference over the April results.

This relatively gradual drop in core PPI on a yearly basis (which RealityChek regulars know is a more reliable gauge of the trends in the monthly numbers because the longer timespan measured smooths out inevitably random short-term fluctuations) is the most compelling evidence that headline producer and consumer prices will remain worrisomely high for the foreseeable future.

This scenario isn’t inevitable. Maybe Americans can count on energy prices continuing to decline month-to-month long enough to bring annual inflation rates down in absolute terms. And maybe even they don’t, high energy prices won’t start boosting prices throughout the rest of the economy. But those developments can only be reasonably expected if consumer and business spending weakens enough to produce sluggish overall economic growth and even a recession.

Such a downturn is probably the price the nation has to pay to extinguish inflationary fires. The big problem is that, without a serious focus on reversing the long and possibly worsening U.S. slump in productivity growth, other than relief from the current cost of living crisis, the public – and especially the poorest Americans – probably won’t receive any major and solidly grounded living standards payoff from such a victory.

(What’s Left of) Our Economy: U.S. Inflation Just Got a Bit Better – But it’s Far From Good

Tags

consumer price index, core CPI, core inflation, CPI, energy prices, food prices, gasoline, inflation, PPI, Producer Price Index, recession, {What's Left of) Our Economy

Finally! Some good news about U.S. inflation! Not that it’s incredibly good news. But today’s July results for the Consumer Price Index (CPI) were sure better than June’s awful read.

The news was also somewhat surprising, at least to me, because the official June figures for wholesale inflation – the prices businesses charge each for the goods and services needed to turn out what they sell to consumers – had accelerated some since May. And that type of development in the Producer Price Index (PPI) is usually a sign that these businesses will pass these prices on commensurately to their final customers.

Still, there were two big flies in this mildly encouraging ointment.

First: Yes, overall, or “headline” CPI actually fell on a monthly basis and rose more slowly in July on an annual basis. And yes, “core” inflation (which strips out food and energy prices because supposedly they’re volatile for reasons have little to do with the economy’s fundamental inflation-proneness) rose less than half as fast month-to-month than in June. But on an annual basis the latter stayed at its alarming levels.

Second, the main reason that inflation generally speaking has been slower lately is because the economy is slowing – and may even be in recession. As I’ve explained several times (e.g., here and here), it’s anything but difficult for the Federal Reserve and the rest of the federal government to cool price increases by dampening the ability of consumers and businesses to buy goods and services. And just how loudly should we cheer the lower living standards resulting from those growth-slowing steps?

With these caveats in mind, today’s CPI report showed that headline inflation dipped sequentially in July by 0.02 percent. That’s the first monthly decrease in absolute terms since the 0.06 percent decline in May, 2020 – when the economy was just starting to recover from the first wave of the CCP Virus and the deep lockdowns-induced downturn it triggered. And the July figure was light years better than June’s 1.32 percent increase – the biggest monthly jump since July, 1980’s 1.33 percent.

This progress owes entirely (at least when we’re talking about the major categories of goods and services) to a 4.56 percent monthly drop in energy prices – the first such decline since April’s 2.70 percent and the biggest since the 10.31 percent plunge in April, 2020, while that virus-induced was still with us.

And energy prices weakened in turn largely because the recent sky-high prices for gasoline have led Americans to cut way back on their summertime driving – which has fallen below even pandemic-y 2020 levels, when so many CCP Virus-related travel restrictions remained in place. Indeed, gasoline prices on month sank by 7.71 percent – their biggest such tumble since the 20.80 percent crash dive also in pandemic-y April, 2020. (Don’t forget, though, that global energy prices are also off their recent peaks because growth in the rest of the world is down considerably, too.)

As for core inflation, progress was registered on a monthly basis, too, with these prices rising sequentially in July by just 0.31 percent – much lower than July’s 0.71 percent and the best such performance since last September’s 0.25 percent.

Yet on an annual basis, as indicated above, July core inflation stayed exactly where is was in June: 5.91 percent. And although this pace was the slowest since last December’s 5.48 percent, it also means that progress according to this measure has stopped for the time being.

Can falling energy prices continue, and keep dragging down the headline CPI? The U.S. Energy Department has just weighed in here:

“The August Short-Term Energy Outlook (STEO) is subject to heightened uncertainty resulting from Russia’s full-scale invasion of Ukraine, how sanctions affect Russia’s oil production, the production decisions of OPEC+, the rate at which U.S. oil and natural gas production rises, and other contributing factors. Less robust economic activity in our forecast could result in lower-than-forecast energy consumption.”

In brief, “Search us.”

Will big elements of core inflation, like housing and new vehicles and used vehicles and healthcare, keep stabilizing at current (still historically high) rates or even moderating some? And can this progress continue while a recession is avoided? Those are the questions that need to be answered to get some visibility on future inflation, and figure out how satisifed we’ll be with the results.

In the meantime, look out for the next official release on wholesale prices – which is released tomorrow! 

 

(What’s Left of) Our Economy: America’s Long-Time Productivity Slump Looks Like it’s Deepening

Tags

CCP Virus, coronavirus, COVID 19, inflation, Labor Department, labor productivity, productivity, total factor productivity, wages, {What's Left of) Our Economy

Since strong productivity increases are America’s best hope for improving living standards, sustainable prosperity and robust non-inflationary economic growth, it’s clearly bad news that the nation may be on the edge of a productivity growth cliff – and staring into a canyon. That’s the clear message being sent by the new official U.S. preliminary data on labor productivity for the second quarter of this year released by the Labor Department this morning.

At least as bad: The lousy labor productivity figures strengthen the case that even though U.S. wages aren’t rising nearly as fast as living cost, they still could be fueling some of the torrid inflation of the last year and a half or so.

There’s a possibility that this dreadful performance is just another hangover from the CCP Virus pandemic and related lockdowns and curbs on individuals’ voluntary activity (along with the massive covid relief measures provided by Washington), which has played havoc with the entire economy and the data used to monitor its health. But it’s crucial to remember that the nation is also suffering a long-term productivity growth slump, so any virus distortions aren’t reflected in the numbers may not be game-changing.

As known by RealityChek regulars, labor productivity is the narrower of the two measures of efficiency tracked by Labor, and measures the output of each worker per each hour on the job. The Department itself made clear how awful the second quarter results were for the non-farm business sector – the numbers that are followed most closely:

“The 2.5-percent decline in labor productivity from the same quarter a year ago [actually, it was 2.55 percent] is the largest decline in this series, which begins in the first quarter of 1948.” (Actually, the Department’s own raw data tables go back to the first quarter of 1947.) Let’s all agree that a 75-year all-time worst is really alarming.

The quarterly figures were stomach-turning, too. Labor productivity sank at an annual rate of 4.71 percent sequentially – the fifth biggest such drop ever. Further, this followed on the heels of the first quarter’s sequential 7.64 percent nosedive – the second worst since the 12.26 percent crash of the third quarter of 1947.

And here’s some thoroughly depressing context: Such back-to-back quarterly declines are rare. Before that latest stretch, they – or longer labor productivity losing streaks – had only happened eleven times over the last three quarters of a century.

Two consecutive declines in labor productivity aren’t the longest such stretch on record. That dubious honor belongs to the five-quarter period between the second quarter of 1973 and the third quarter of 1974. But the latest cumulative quarterly deterioration of 12.26 percent at annual rates is the worst of all time. True, it’s just slightly greater than the 12.24 percent cumulative drop suffered during that 1973-74 productivity depression. But don’t forget – the current streak may not be over yet!

As for that 2.51 percent annual decline in labor productivity, the context here is completely gloomy, too. As with the sequential results, it represented the second straight worsening – following the 0.58 percent drop in the first quarter. And two or more straight annual labor productivity decreases have only happened six times before this morning’s release.

Also as with the quarter-to-quarter figures, a stretch of two straight decreases isn’t the longest ever. Between 1973 and 1974, annual productivity fell four consecutive times. But the current annual slump is the deepest since that which lasted between the first and third quarters of 1982. And of course, today’s slump isn’t over yet, either.

As I’ve written previously, productivity is the measure of economic performance in which most economists are least confident (especially in service industries that make up the vast bulk of the U.S. economy). Further, labor productivity is a narrower measure of efficiency than total factor productivity, which measures output as a function of a wide range of inputs used by business (not only workers but capital, technology, materials, etc.) And today’s second quarter results will be revised next month (which recently I mistakenly reported as the date for these preliminary numbers), with the latest set of (annual) revisions coming this fall.

But most legitimate doubts about the productivity data mainly concern their precision, not the direction they show. And all-time worsts and near-worsts surely can’t be mainly attributed to measurement flaws. And as for the total factor results, for decades, they’ve been no great shakes, either, as made clear in the above linked RealityChek post. Maybe the revisions will substantially brighten the picture?

So far, though, that’s just a “maybe.” The best information available indicates that America’s long-time productivity woes are taking a big turn for the worse, and that in combination with recent wage increases could be embedding unacceptably high inflation – and stagnating living standards – into the U.S. economy’s foreseeable future.