(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.

Advertisement

(What’s Left of) Our Economy: Why So Few are Impressed with the “Biden Boom”

Tags

Associated Press, Biden, Bill Clinton, conjunctions, grammar, incomes, inflation, living standards, Mainstream Media, polls, prices, stimulus, wages, {What's Left of) Our Economy

What a difference a coordinating conjunction can make!

You remember coordinating conjunctions, don’t you? They’re the little words that “join two verbs, two nouns, two adjectives, two phrases, or two independent clauses.” In English, for those of you who cut or snoozed in your “parts of speech” classes, they’re “for,” “and,” “nor,” “but,” “or”, “yet”, and “so”.  (Here‘s the source.)

I bring them up because an Associated Press (AP) article today just illustrated how important they can be, and in the process, added to the burgeoning mass of spoken and published material lately making clear how completely many of the usual suspects in America’s chattering classes have forgotten the fundamental purpose of the national economy and economic policymaking.

It isn’t to generate more growth, more jobs, more spending, or any other specific great performance metrics. (See, e.g., here and here.) Instead, the fundamental purpose is to help improve people’s lives. Better numbers on the above fronts and others obviously can help achieve this goal. But they’re no guarantee.

That’s why the header on the piece used the wrong conjunction. It shouldn’t be “AP-NORC Poll: Income is up, but Americans focus on inflation” – which at least to me connoted, “Why are those Americans accentuating the negative?”

Much better would have been “AP-NORC Poll: Income is up, and Americans focus on inflation.” Because the results of the survey itself are sending the exact same message as the most important figures from an individual or family perspective: Prices this year have been rising faster than wages, which means that despite all the encouraging data nowadays, the typical American is falling behind economically, not getting ahead.

To cite just a few examples from the poll:

>”Two-thirds [of respondents] say their household costs have risen since the pandemic, compared with only about a quarter who say their incomes have increased….Half say their incomes have stayed the same. Roughly a quarter report that their incomes have dropped.”

>”Most people say the sharply higher prices for goods and services in recent months have had at least a minor effect on their financial lives, including about 4 in 10 who say the hit has been substantial. The poll confirms that the burden has been especially hard on low-income households.”

>”U.S. households, on average, are earning higher incomes than they did before the pandemic. Wages and salaries grew 4.2% in September compared with a year earlier, the largest annual increase in two decades of records.”  But as RealityChek readers know, the cost of living in September rose by 4.4 percent on year according to the Federal Reserve’s preferred measure of inflation, and by 5.4 percent according to the more widely followed Consumer Price Index.

>Similarly, government stimulus checks and other supports “combined with higher paychecks, lifted Americans’ overall household incomes by 5.9% in October compared with a year earlier. Yet inflation jumped to 6.2% that month, the highest reading in three decades, negating the income gain.” (And then some!)

When he first ran for the presidency in 1992, Bill Clinton touted the importance of “Putting People First” as the lodestar for economic policy. As the AP article indicates, that’s advice that urgently needs learning or re-learning by the numerous reporters and commentators puzzled by why Americans are less impressed with the current supposed economic boom than with their falling living standards.

(What’s Left of) Our Economy: U.S. Productivity Remains in the Doldrums

Tags

China, Labor Department, labor productivity, living standards, manufacturing, multi-factor productivity, offshoring, productivity, reshoring, World Trade Organization, WTO, {What's Left of) Our Economy

The Labor Department reported earlier this week that America’s labor productivity flat-lined at an annual rate between the last quarter of last year and the first quarter of this year. And relatively speaking, that was good news. The initial study of this measure of economic efficiency – and key determinant of the nation’s living standards – estimated that business labor productivity in the non-farm business sector (the government’s main proxy for the entire economy) fell at an annualized 0.6 percent.

Labor productivity, you may recall, is the narrowest of two measures of productivity. It gauges how much in the way of stuff or services Americans produce per hour of work from each worker. So the resulting picture isn’t as complete as that provided by multi-factor productivity – which as the name suggests looks at production per man or woman hour generated by many different inputs. But the labor numbers come out on a much timelier basis (each quarter), and for all the unusual amount of uncertainty that economists admit when they analyze productivity, they’re viewed as being reasonably reliable.

One small consolation, especially if you value manufacturing highly (as you should): Industry’s labor productivity not only grew quarter-to-quarter during the first three months of 2017 (by 0.50 percent annualized). It grew faster than the original estimate of 0.40 percent.

Manufacturing’s role as the economy’s productivity leader is also crystal clear upon reviewing the longer-term trends. During the 1990s expansion (as known by RealityChek regulars, comparing similar phases of the business cycle produces the most informative data), non-farm business labor productivity increased by 23.25 percent, while manufacturing labor productivity improved by 46.18 percent.

That recovery was America’s longest on record – just under ten years. The next expansion, during the bubble decade that preceded the financial crisis, lasted only six years. Non-farm business labor productivity rose by about the same annual pace as during the 1990s – 16.03 percent. But manufacturing labor productivity grew even faster year-by-year, advancing by 41.22 percent during the entire period.

The story is as different during this recovery as it is depressing. Although it’s so far been nearly as long as the 1990s recovery (having started nine years ago), the improvement in non-farm business labor productivity has been just 8.05 percent overall. For manufacturing, it’s been much higher – 21.55 percent – but relatively speaking, it’s a big fall-off.

Incidentally, undoubtedly one big reason for manufacturing’s excellent productivity performance during that bubble decade has to do with production offshoring. As I’ve written repeatedly, the way labor productivity is calculated results in productivity gains being recorded when businesses send jobs overseas, as well as when they use other techniques for saving labor or using their employees more effectively. And because the United States helped China enter the World Trade Organization at the start of that decade, and thus assured multinational companies that they’d remain overwhelmingly free to supply the American market from Chinese factories, that bubble decade was a major manufacturing offshoring decade.

The fall in productivity growth could indicate that, as widely claimed, manufacturing offshoring has dropped off significantly. But the evidence is mixed at best. What’s much more apparent is that, if Americans want their country’s productivity performance to rebound, they’ll press their leaders to make robust growth in domestic manufacturing a much higher priority.

(What’s Left of) Our Economy: JOLTS of Confusing News About the U.S. Jobs Market

Tags

government jobs, job openings, JOLTS, Labor Department, labor shortage, living standards, manufacturing, private sector, productivity, recovery, retail, wages, {What's Left of) Our Economy

Since the U.S. economy has settled at its current level of near-full employment (at least by the official figures), the monthly JOLTS reports issued by the Labor Department have been attracting much less attention – including from me! After all, with so many Americans working, it’s been less important (though not totally unimportant) to learn about one of the key findings in each such survey of labor market turnover – how many new job opportunities business and government say they’ve been creating. 

So it’s not surprising that today’s JOLTS report (for April) hasn’t had much impact on the financial markets this morning. But it still contained more than its share of noteworthy results that reinforce what we think we already know about the economy’s current biggest problems, and that raise major questions about other portions of the conventional wisdom.

The overall job openings number, for example, was quite the stunner: At 6.044 million, it was an all-time high in absolute terms. (The JOLTS series dates from December, 2000.) And the 4.48 percent increase over May’s 5.785 million level represented the biggest monthly jump since last July’s 7.91 percent.

Openings in the private sector hit a new record in April, too (5.464 million). And that 4.20 percent monthly rise was the great sequential increase since last July (8.46 percent).

But as RealityChek regulars know, the economy’s growth has been sluggish even by the meager standards of the current economic recovery. In the first quarter of this year, real growth came in at a paltry 1.15 percent annual rate. So the JOLTS figures indicate that employers feel they need record numbers of new employees even though as a group their output is historically lousy.

That adds up to more evidence that American business boosting its productivity only sluggishly at best – which is awful news given that productivity growth is the nation’s best hope for improving living standards in a sustainable, not bubble-ized, way. And as I’ll be reporting on shortly, the latest government labor productivity numbers once more confirm that the economy is stuck in a productivity crisis.

Yet these JOLTS results carry more complicated implications for another broadly accepted feature of the American economy. They support the idea that U.S. businesses are struggling to overcome almost unprecedented labor shortages. How else to explain the enormous number of reported job openings? But companies that desperate to find workers should be raising wages at rapid and indeed accelerating rates. Everything that we know about hourly pay, though, tells us that nothing of the kind is happening. If anything, wage growth, which has underwhelmed throughout the current recovery, is showing signs of slowing.

One other new record revealed by today’s JOLTS report – total government job openings (540,000) have never been higher except in April, 2010, when the call went out for temporary Census workers. Even more interesting, most of the openings were in state and local governments outside the schools.

Also somewhat surprising: The “retail-pocalypse” so commonly bemoaned or hailed (depending on your viewpoint) is nowhere to be seen in this JOLTS report. Sure, retail job openings fell between March and April from 593,000 to 577,000. Moreover, that’s the lowest level since December, 2015, and the numbers now are generally, though unevenly, trending down. But for the first more than seven years of this nearly eight-year old recovery, they were trending solidly up. With overall economic growth down and consumers still cautious, the reported retail openings numbers are far from screaming “disaster!” – or even “serious trouble!”

Finally, although manufacturing output has been modestly recovering lately from its most recent recession, its job openings fell from 404,000 in March (the second highest record and best since January, 2001’a 496,000) to 359,000 in April. Still, the decline followed a major increase in March (from 364,000), and the manufacturing numbers have been pretty volatile for more than two years.

Maybe the safest conclusion to draw from the JOLTS numbers is that, for now, the economy is heading for more of the same. Whether that’s the safest result for incumbent American politicians is another matter entirely.

(What’s Left of) Our Economy: Latest Data Show America Still Has a Big Productivity Problem

Tags

2016 election, labor productivity, living standards, manufacturing, multi-factor productivity, productivity, {What's Left of) Our Economy

There’s been so much earth-shaking political news in the last few weeks that I’ve neglected some of the key U.S. economic data series I’ve been following. Let’s rectify that with some abbreviated updates, starting with the productivity statistics that are the most widely followed: the labor productivity figures.

These data measure the American economy’s output in terms of just one input (worker hours), and therefore don’t tell us nearly as much as the multi-factor productivity numbers, which look at capital, material, technology, and a variety of other ingredients of what businesses turn out. But the labor figures come out on a much timelier basis, and are widely regarded as a gauge of the nation’s ability to improve living standards on a sustainable basis.

So it was definitely goods news that these numbers went up in the third quarter (at least preliminarily) on a sequential basis for the first time in four months. The preceding three-quarter stretch of sequential declines was the first such period since 1979 – which few Americans who lived through it remember fondly. But in the third quarter of this year, that string was broken, and labor productivity rose by 3.03 percent on an annualized basis. That was the best such performance since the 4.09 percent annualized sequential advance in the third quarter of 2014. And a little bonus: The second quarter’s most recent 0.60 percent decline reading at an annual rate was revised up to a 0.15 percent dip.

Sadly, though, this uptick still leaves the current economic recovery as a major labor productivity laggard. Here’s how it compares with its two predecessors:

1990s recovery: +23.01 percent

2000s recovery: +16.07 percent

current recovery: +7.50 percent

And let’s not forget – the current recovery is already longer than the 2000s expansion.

Manufacturing’s third quarter labor productivity growth (just under one percent annualized over the second quarter) wasn’t nearly as good as the overall U.S. number (which measures the performance of non-farm businesses). But manufacturing’s over the last year hasn’t been nearly as bad – though its second quarter sequential labor productivity loss was revised down to a 0.50% decline.

At the same time, manufacturing’s productivity gains during this expansion have been pretty feeble compared to its recent predecessors as well, as the numbers make depressingly clear:

1990s recovery: +46.78 percent

2000s recovery: +41.08 percent

current recovery: +22.93 percent

If you’re thinking to yourself something along the lines that “I didn’t hear much about productivity during this last presidential campaign,” you’re absolutely right. Both major party candidates did, however, speak continually about the need to revive domestic manufacturing. The chattering classes on both sides of the aisle seem convinced that this goal is (take your pick) incredibly cynical or incredibly naive. That’s a sure sign that they’ve been thinking even less seriously about productivity – and about the leadership role even a stagnant manufacturing sector has unmistakably been playing.

Tomorrow: the latest real wage figures.

And of course I hope everyone had a great Thanksgiving!

(What’s Left of) Our Economy: An All-Too-Convenient “Truth” About Productivity

Tags

An Extraordinary Time, economic history, establishment, living standards, manufacturing, Marc Levinson, per capita GDP, Populism, productivity, Robert J. Barro, technology, The Wall Street Journal, {What's Left of) Our Economy

As a close friend once sagely told me, “If you take the most cynical possible interpretation of something, you’ll rarely be wrong.” He surely would agree, “That goes double for politics and policy.” So I hope you agree that it’s reasonable to predict that Marc Levinson’s upcoming economics book An Extraordinary Time will attract an inordinate amount of establishment attention – including of course from the Mainstream Media – because it so conveniently absolves that establishment of any significant responsibility for the economic mess in which the nation finds itself. And of course, if American (and, to be sure, other leaders) can’t rightly be blamed for sluggish (at best) economic growth, stagnant wages and incomes, or even (presumably) the financial crisis, then there’s no justification whatever for the populist revolt sweeping America and Western Europe.

Although I haven’t read Levinson’s book yet, I’m assuming that the long article-length adaptation published in yesterday’s Wall Street Journal is a representative summary. The author’s main argument is that the American (and other) high income economies don’t “roar anymore” because since the early 1970s, they’ve been experiencing a return to historically normal economic performance that mainly looks terrible because it followed a post-World War II boom that was unique and – most important – irreproduceable.

Worse, the principle reason for this return to normal is a productivity slowdown that’s been inevitable because it results overwhelmingly from the impossibility of recreating that favorable combination of circumstances that era enjoyed. As Levinson writes:

“The workforce everywhere became vastly more educated. As millions of laborers shifted from tending sheep and hoeing potatoes to working in factories and construction sites, they could create far more economic value. New motorways boosted productivity in the transportation sector by letting truck drivers cover longer distances with larger vehicles. Faster ground transportation made it practical, in turn, for farms and factories to expand to sell not just locally but regionally or nationally, abandoning craft methods in favor of machinery that could produce more goods at lower cost. Six rounds of tariff reductions brought a massive increase in cross-border trade, putting even stronger competitive pressure on manufacturers to become more efficient.

“Above all, technological innovation helped to create new products and offered better ways for workers to do their jobs.”

What both politicians and publics refuse to realize, he continues, is that

“Once tens of millions of workers had moved from the farm to the city, they could not do so again. After the drive for universal education in the 1950s and ’60s made it possible for almost everyone in wealthy countries to attend high school and for many to go to university, further improvements in education levels were marginal. Projects to widen and extend expressways didn’t deliver nearly the productivity pop of the initial construction of those roads.”

More fundamentally, however, “Productivity, in historical context, grows in fits and starts. Innovation surely has something to do with it, but we have precious little idea how to stimulate innovation—and no way at all to predict which innovations will lead to higher productivity.

“Moreover, the timetable cannot be foreseen.” And there is no “secret sauce that governments can ladle out to make economies grow faster than the norm.”

Not that Levinson’s theory is devoid of virtues. Especially admirable is his willingness to argue that neither Big Government liberalism nor Small Government conservatism has consistently managed to halt, much less reverse, the productivity deterioration over any length of time.

But at least on the basis of this article, he seems to have overlooked America’s historic economic record. Productivity, as RealityChek regulars know, is the area of economic performance about which economists display the least confidence. But the consensus view appears to be that America’s productivity growth glory days started somewhat earlier than Levinson suggests – according to widely accepted data, 1913. (To be fair, this paper in which they appear also suggests that the boom ended in the 1960s, not the 1970s. Moreover, although Levinson is referring to labor productivity, the data cited here present the broader measure of multi-factor productivity, which looks at a broad range of inputs needed to generate a unit of output.)

Further, what’s astonishing about the data in this study (I’m talking about Table 1) is that the era of peak productivity identified (1928-1950) includes both World War II and the Great Depression. Just as you’d expect unusually strong productivity performance during the former, thanks to the numerous major technological innovations generated by the war effort), you’d expect unusually weak performance during the latter, because all economic activity was slumping at historic rates. And yet the net result was productivity advance that puts that of later decades to shame.

In addition, although the return to peace brought multi-factor productivity growth back down to levels not seen since before the 1880s, the falloff from roughly the 1960s to the 1970s was much greater – even though no comparably epochal change took place.

Even more telling is how America’s economic growth performance contrasts with the framework described by Levinson. A recent report from Harvard University economist Robert J. Barro contains historical data on America’s per capita GDP growth – that is, how quickly or slowly the economy has expanded adjusting for population, and therefore the growth improvement that tends to result simply from greater numbers of workers.

According to Barro’s numbers, the 1939-1979 period does represent the nation’s best stretch of creating wealth per person. So that tracks well with Levinson’s argument. But the dropoff is pretty gradual through 1999 – when it really nosedives. That doesn’t bolster the Levinson view. Nor does the fact that lots of pre-1939 decades saw much faster per capital economic growth than either the 1999-2009 period or the the 2009-2015 period.

Levinson supporters can observe that these trends are roughly consistent with his emphasis on the productivity-enhancing role played by demographic movement (from countryside to city). And as a result, they’re consistent with the idea that productivity has been enhanced by the higher rates of high school and college graduation that have resulted.

But most Americans still don’t graduate college nowadays, and major questions have arisen about the value of a four-year college degree. It’s also widely argued that the typical American high school graduate is more poorly prepared for college than in the past. Isn’t is possible that poor public policies lie behind at least some of these failures? And what about technological progress? Many theories suggest that it should be speeding up, as it feeds on its own momentum. Instead, the opposite seems to be happening, at least in terms of technology’s record in raising living standards. Are there no policy decisions bearing at least some responsibility?

Finally, Levinson pays no attention to a possible explanation for slowing productivity growth that at least deserves some consideration: As I’ve suggested, the problem’s emergence coincides with the American government’s decision to start viewing with at most indifference to major losses suffered by domestic U.S. manufacturing – first due to the predatory trade policies of high-income countries like Germany and Japan, and then due to trade agreements that actually encouraged the offshoring of manufacturing production to super low-cost, low-regulation countries like China and Mexico. Since manufacturing has historically led the economy in productivity growth, is it surprising that official decisions to reduce its domestic footprint has undermined its overall productivity performance?

Levinson is surely right in noting that much about productivity – like much else about the economy – is beyond the control of politicians. As a result, voters should definitely hold realistic expectations about the economic changes that politicians can foster. But can anyone doubt that Levinson’s overarching claim, that the economy’s current overall performance is the best that reasonably can be hoped for, logically lets nearly all of the nation’s leaders off the hook – and will only deepen the despair and cynicism of all those Americans that “ordinary economic performance” is leaving behind?

Im-Politic: More Anti-Trump Media Bias – Including One Example That’s Homophobic

Tags

amnesty, Bloomberg.com, deportation, Donald Trump, Gang of 8, Hillary Clinton, homophobia, illegal immigrants, Im-Politic, immigration reform, Jobs, John McCain, John Micklethwait, Labor Force Participation Rate, labor markets, LGBT, living standards, Mainstream Media, Mark Zandi, Max Ehrenfreund, media, media bias, part-time, productivity, The Washington Post, Vladimir Putin, wages

I sure hope all you RealityChek readers have had a great Labor Day weekend. Unless it was a complete disaster, it had to be better than the last few days’ performance just registered by the Mainstream Media.

On Sunday, I reported on a truly contemptible smear of white working-class Americans delivered by Time magazine uber-pundit Joe Klein. But published this weekend along with this display of mass character assassination was a swipe at Republican presidential candidate Donald Trump that can only be reasonably interpreted as homophobia, and an example of outright ignorance of the basic economic concept of productivity, and of recent U.S. labor market trends. For good measure, this second piece left out information on its main source that strongly suggests major political bias.

The homophobia was delivered courtesy of no less than John Micklethwait, the current Editor-in-chief at Bloomberg.com who previously held this post at The Economist. Think I’m exaggerating? See for yourself. In the course of an otherwise informative interview with Vladimir Putin, Micklethwait pressed the Russian president in this way for his views of Trump and his Democratic counterpart, Hillary Clinton:

“[Y]ou are really telling me that if you have a choice between a woman, who you think may have been trying to get rid of you, and a man, who seems to have this great sort of affection for you, almost sort of bordering on the homoerotic, you are really going to go for, you are not going to make a decision between those two, because one of them would seem to be a lot more favorable towards you?”

I had to go over this passage several times before convincing myself that I’d actually read it correctly. Even giving Micklethwait’s language the most charitable interpretation it deserves – that the journalist meant it simply as a joke – what exactly distinguishes it from the kind of sniggering locker-room-level humor that’s now recognized as demeaning and hurtful? Therefore, is it remotely plausible to doubt that Micklethwait himself believes that such emotions are fundamentally shameful, and that his attribution of such feelings toward Trump reveal a positively vicious bias against the maverick politician?

Here’s hoping that gay activist organizations come down hard on Micklethwait’s bigotry – and insist that his resignation is needed to guarantee the integrity of Bloomberg’s coverage of both American politics and LGBT issues.

The second major media stumble came in a Saturday Washington Post Wonkblog item spotlighting a claim that Trump’s immigration policies “could put Americans out of work.”

That’s of course an entirely valid and important possibility to report on, but author Max Ehrenfreund (and his editors) failed to fulfill a fundamental journalistic obligation by omitting from his article the unmistakable anti-Trump bias of Mark Zandi, the economist who came up with this finding. Yes, the piece mentioned that Zandi is a former aide to Arizona Republican Senator John McCain. But what it didn’t tell you is that McCain was a charter member of the “Gang of 8” – the bipartisan group of Senators that several years ago launched a powerful push for an amnesty-focused immigration reform bill. Nor did Ehrenfreund mention that Zandi has also contributed to Clinton’s presidential campaign – which has been pushing immigration reform proposals even more indulgent than the Gang’s.

As for the Zandi-Ehrenfreund case that Trump’s immigration policies would backfire powerfully on the U.S. economy, it could not have been more ignorant or incoherent economically. As Ehrenfreund explained it, “deporting [millions of] undocumented immigrants would increase costs for employers, because they would have to compete for the workers remaining in the United States, causing wages to rise.”

Full stop: Amnesty supporters have maintained for years that most illegals are simply filling “jobs that Americans won’t do.” Now they’re saying that if a the supply of American labor shrank due to deportation, increasing wages would summon forth replacements who are either native-born or legally residing in the country? Do tell! Ehrenfreund and Zandi might also have mentioned that robust wage increases have been one of the most conspicuously absent developments during the weak current U.S. recovery since it technically began some seven years ago.

Just as strange was the claim that “Already, the labor force has been shrinking as older workers retire, and the unemployment rate is under 5 percent, which suggests relatively few workers are looking for jobs.” Don’t Ehrenfreund and Zandi know that much of this shrinkage has taken place among working age women and especially men? Or that the number of Americans working part-time involuntarily still remains above pre-recession levels? In other words, there’s an enormous population in the United States that would bid for better-paying jobs.

Perhaps strangest of all is the Zandi-Ehrenfreund contention that “To compensate, businesses would have to increase prices. Some firms would lose customers and could be forced out of business. ‘Asking these folks to leave is going to put a hole in the economy that’s going to cost jobs,’ Zandi said. ‘It’s going to cost the jobs of American citizens.'”

That is, Zandi and Ehrenfreund have either omitted or ruled out the possibility that many companies will eventually respond instead by either automating and/or by otherwise improving their efficiency in ways that boost their productivity – thereby laying the ground for sustainable prosperity and living standard increases going forward. These two pessimists might believe that this venerable maxim of economics no longer holds, and that “this time it will be different.” But maybe they could do readers the courtesy of explaining why?

This Washington Post article’s descent into fakeonomics hardly stops here. But the above reasoning should be enough to establish its silliness – and to prompt the question if comparably doofy pro-Trump studies would ever see the light of day in the paper.

I closed my last post by asking why recent polls show Americans’ confidence in the media has stayed even in the low double-digits on a percentage scale. These Bloomberg and Washington Post pieces don’t merit even single-digit approval.

(What’s Left of) Our Economy: New Report Suggests Historic Problems with Manufacturing Productivity

Tags

Labor Department, labor productivity, living standards, manufacturing, multi-factor productivity, productivity, {What's Left of) Our Economy

For several months at least, major economists – though not major politicians – have worried about slumping American productivity growth, and with good reason: As I’ve written many times in covering the subject, improvements in this measure of economic performance represent the nation’s best hope for boosting living standards in a sustainable way, as opposed to relying on financial and similar gimmicks as during the previous bubble decade.

So it’s big news that this morning’s Labor Department report on multi-factor productivity in U.S. manufacturing provides the latest validation of these fears. It shows both that, by this broadest measure, America’s industrial efficiency fell in 2014 for the third time in four years and for the the fourth time during the current economic recovery, and that overall, manufacturing productivity change between 2011 and 2013 was much worse than previously reported.  Further, the new report suggests that manufacturing is losing its position as the U.S. economy’s productivity leader.

The exact numbers: Multi-factor manufacturing productivity – which measures the sector’s use of a variety of inputs – fell in 2014 by one percent. (These data come out with a longer time lag than those for labor productivity, which measures only one input.) It’s true that 2013’s figure was revised up, from a 0.7 percent decline to a 0.1 percent gain. But for 2012, multi-factor manufacturing productivity is now judged to have fallen by 2.8 percent, not 0.8 percent. That’s the biggest annual drop-off on record by a wide margin. (The data, though, only go back to 1987.)

Also making clear that manufacturing’s productivity struggles are no passing fancy are the numbers during the last few economic recoveries – the methodology that yields the best apples-to-apples results. Since the manufacturing multi-factor statistics are only published on an annual basis, and recoveries don’t respect the calendar much, these numbers won’t be perfect. But they’ll certainly be close enough.

During the 1990s economic expansion – which lasted from early 1991 to early 2001 – manufacturing multi-factor productivity increased by a total of 14.91 percent. The bubble decade expansion was shorter (late-2001 to late 2007), but manufacturing’s total multi-factor productivity growth was only a little slower – 14.73 percent. Through 2014, the current recovery had been even shorter – just five years. But so far, manufacturing’s multi-factor productivity has fallen by 1.29 percent.

Here, moreover, is a trend at least as disturbing: During the 1990s and 2000s expansion, manufacturing multi-factor productivity grew faster than overall non-farm business multi-factor productivity (which rose by 11.50 and 9.51 percent, respectively). But during the first five years of the current recovery, as manufacturing multi-factor productivity fell, non-farm business productivity kept rising – albeit by a slower 4.66 percent.

Subsequent figures could show these trends reversing themselves. But if they don’t, manufacturing will not only seem to be suffering serious productivity woes in its own right. It will start looking like a productivity laggard in an economy whose overall efficiency performance is faltering.

(What’s Left of) Our Economy: Americans are Still Pretty Unproductive

Tags

Labor Department, labor productivity multi-factor productivity, living standards, productivity, recoveries, {What's Left of) Our Economy

In her breathlessly awaited speech yesterday in Philadelphia, Federal Reserve Chair Janet Yellen argued that “Over time, productivity growth is the key determinant of improvements in living standards, supporting higher pay for workers without increased costs for employers.”

If, as likely, she’s right, then Americans just got a reminder that they’re still in big trouble in this respect. For the Labor Department just came out with its revised data for productivity growth in the first quarter of this year and for 2015’s fourth quarter, and they were only slightly less awful than the initial report. Manufacturing is stuck in the productivity doldrums, too, but the new statistics also made clear that it remains the economy’s productivity leader – and therefore that the sector’s recent growth and employment stagnation deserve special attention from policymakers.

For the record, these new numbers track labor productivity – one of two measures of efficiency monitored by the Labor Department and economists. This gauge is narrower than its counterpart, multi-factor productivity, because it looks at only one input to production processes – hours on the job by the American workforce. But the labor productivity data always and rightly attract lots of attention because they come out more frequently, and are more up to date, than the multi-factor numbers. Those examine the effects of a wide variety of inputs like capital, energy, and materials.

According to the Labor Department, the nation’s non-farm businesses (the group whose performance is most closely followed) became 0.6 percent less productive sequentially on an annualized basis in the first quarter, and 1.7 percent less productive on quarter in the fourth quarter. The former result was slightly better than the one percent drop previously estimated by the Labor Department, while the latter figure was unchanged.

Year-on-year, labor productivity is now up 0.67 percent. That’s slightly lower than the increase between the first quarters of 2014 and 2016 (0.71 percent). And although this rate is much better than the virtual productivity stagnation of the previous two years, it’s unmistakably poor by historical standards.

By contrast, manufacturing’s sequential annualized labor productivity performance was downgraded by the Labor Department for both the first quarter and the fourth quarter. For the end of last year, it’s now judged to have fallen by 1.2 percent rather than one percent, and for the beginning of this year, its growth has been revised from 1.9 percent to 1.3 percent. But both figures are considerably better than for non-farm businesses as a whole.

Year-on-year, manufacturing productivity has now advanced by 1.32 percent, its best such gain since 2012 (1.68 percent), but also much lower than its historic norm.

An especially informative way to illustrate the U.S. productivity crisis is to compare growth during periods of economic expansion – which yields apples-to-apples data. The statistics for the whole economy go back to 1947, but let’s start with the 1980s expansion, which lasted from the fourth quarter of 1982 through the third quarter of 1990. During that period, labor productivity increased by a total of 17.15 percent.

The 1990s expansion, which began in the second quarter of 1991 and ended in the first quarter of 2001, was somwhat longer, and it saw significantly better total labor productivity performance – a gain of 23.01 percent.

The 2000s expansion was much shorter, running only from the fourth quarter of 2001 through the fourth quarter of 2007. But productivity rose at a similar annual pace, and hit 16.08 percent in toto.

But we have labor productivity data for seven full years of the current expansion, and productivity only improved by 10.09 percent in that stretch.

Nor does there seem to be much cause for productivity optimism in the near future. Unless you’ve heard many 2016 political candidates even talking about this crucial issue?

(What’s Left of) Our Economy: US Productivity Growth Still Looks Awfully Sick

Tags

Bureau of Labor Statistics, labor productivity, living standards, manufacturing, multi-factor productivity, productivity, recovery, {What's Left of) Our Economy

As if labor productivity data isn’t important enough – for they track America’s performance on a crucial driver of higher living standards that can actually last – today’s Labor Department report on this measure of efficiency deserves special attention, since it contains revisions back to 1990.

Although there’s little change in either the bigger picture nor the fourth quarter or full-year 2015 results, they do confirm that the economy is experiencing a major productivity slowdown that’s crippling its chances of growing faster in a healthy – as opposed to debt-led – manner. Also left intact is manufacturing’s status as America’s labor productivity leader by a long-shot, and therefore the urgency of lifting industry out of its production growth doldrums.

Here are those key longer-term numbers – which spotlight the last three economic expansions because comparing similar stages of a business cycle is the best way to get apples-to-apples figures. Previously, the Bureau of Labor Statistics (BLS), which monitors both labor productivity and the broader multi-factor productivity measure (which takes longer to calculate and thus comes out with a longer time lag), pegged the former’s recent growth as follows:

1990s expansion: 23.00 percent

2000s expansion: 16.09 percent

current expansion: 6.22 percent

Since the 2000s expansion lasted longer than the so-called 1990s boom, these numbers show its annual labor productivity growth to have been faster. But since the current expansion is now slightly longer than its previous counterpart, it’s easy to see that the slowdown has been dramatic.

Here are the revised statistics:

1990s expansion: 23.01 percent

2000s expansion: 16.08 percent

current expansion: 6.58 percent

So the first recovery listed looks a bit better labor-productivity-wise, the next one looks a bit worse, and today’s economy looks somewhat better – but still much worse than its two predecessors.

And now for the manufacturing numbers. BLS’s old figures for its labor productivity growth were as follows:

1990s expansion: 46.71 percent

2000s expansion: 41.03 percent

current expansion: 24.89 percent

The new figures show a story differing somewhat for that for the entire economy:

1990s expansion: 49.96 percent

2000s expansion: 41.09 percent

current expansion: 24.85 percent

In other words, manufacturing’s labor productivity growth during the 1990s was a good deal better than previously thought, its sterling performance during the 2000s expansion was slightly better, and its improvement during this recovery slightly worse.

It’s still true that productivity is the performance measure that’s most controversial among economists. But all of them agree that a slump in productivity growth is among the worse pieces of economic news Americans can get. Assuming that these data are even roughly on target, your best bet for figuring out how healthy the U.S. economy really is may not be the growth or employment or wage statistics put out by Washington, but these considerably lower-profile productivity figures.