(What’s Left of) Our Economy: The New U.S. Inflation Figures Still Look Pretty Transitory to Me

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hotels, inflation adjusted wages, labor shortage, leisure and hospitality, non-supervisory workers, private sector, production workers, real wages, restaurants, wages, {What's Left of) Our Economy

Today’s official U.S. inflation figures made it somewhat more difficult to argue that the recent strong price increases recorded in the American economy are “transitory,” as the Federal Reserve and many observers (like me) have been claiming. But they don’t make these contentions that much harder, and that goes at least double for warnings about rampant wage inflation – which today’s related real wage figures debunk in an especially powerful way.

At the same time, the price surges that have taken place deserve to be emphasized in another, generaly neglected sense: However temporary, they represent another cost of the unprecedentedly powerful and not-surprisingly chaotic, bottleneck-ridden U.S. economic reopening – and one that’s followed unprecedentedly sudden CCP Virus-related lockdowns that in retrospect look to have been needlessly sweeping because the pandemic’s worst health effects were so highly concentrated among vulnerable groups like the elderly.

The most troubling development revealed in the new inflation report was the May-June acceleration in price increases overall – from 0.74 percent to 0.88 percent. That was indeed the largest monthly rise in absolute terms since June, 2008 (1.05 percent). But that May figure represented a deceleration from April’s 0.92 percent. So it looks way too early to claim that we’re seeing even the start of one of the most dangerous threats posed by inflation – a pickup in its momentum created by cost rises in various parts of the economy fueling efforts in other sectors to compensate with price increases in a process that eventually ripples widely, and with lasting effects, as in the 1970s.

(As with previous posts, I’m not too concerned with the year-on-year comparisons, since pricing trends in lockdown-y 2020 were so – artificially – weak.)

More evidence for the transitory faction: Leading the price increase charge in June were products and services like used cars and trucks (up 10.5 percent month-to-month), vehicle rentals (up 5.2 percent), and hotel and motel rates (up 7.9 percent). The first is a clear result of the stop-start nature of the economy during the pandemic period (see here for a cogent explanation), and the second and third just as obviously spring from the cabin fever-spurred burst of vacation travel in which Americans are engaged with the arrival of summer and the waning of the virus.  

Even in sectors like these, moreover, signs of weakening inflation can be seen. For example, the monthly rate of hotel and motel inflation was much higher than May’s 0.4 percent. But it was lower than April’s 8.8 percent. As for airline fares, their monthly price increases have fallen from 10.2 percent in April to seven percent in May to 2.7 percent in June.

As for wages – they keep falling in real terms in most of the economy. That is, they’re rising more slowly than inflation for goods and services. According to this morning’s data (which also cover June), after-inflation wages both for all private sector workers and for private sector production and other non-supervisory employees fell sequentially for the sixth straight month. And for both groups, the monthly June declines (0.53 percent for the former, 0.62 percent for the latter), were the biggest in roughly a year (June for the former, July for the latter).

(As known by RealityChek regulars, the U.S. government doesn’t track real or pre-inflation wages in the public sector because pay levels there are determined largely by politicians’ decisions, and therefore say relatively little about the status of the labor market.)

These new June wage figures are even more striking because the declines last year stemmed largely from businesses letting go less of experienced and usually therefore lower-paid staff as the economic outlook remained highly uncertain, and pushing up the average pay levels of remaining employees even though actual raises were rarely handed out.

It’s true that real wage increases continued in June in the leisure and hospitality super-category – whose eating and drinking establishments and hotels and motels and resorts were hit so hard during the peak pandemic months. But the June sequential increase for all employees in this sector inched up at the lowest rate (just under 0.15 percent) since January (just over 0.15 percent).

Leisure and hospitality production and non-supervisory workers fared better last month – their constant dollar wages rose by 1.16 percent, a big speed up from May’s 0.50 percent. But the April (1.87 percent) and February (1.21 percent) hourly inflation-adjusted pay hikes were stronger still. So again, it seems awfully premature to talk about raging wage inflation even here.

Moreover, there’s an important difference within leisure and hospitality between real wages in the restaurants etc sector and those in the hotels etc sector. Specifically, the latter have been growing faster for production and non-supervisory employees – and especially for June alone (0.94 percent versus 0.52 percent).  

The January-June results are even more striking for these service workers as a whole, since during this period, real wages for their counterparts in the overall private sector are actually down 1.83 percent.

Good luck to you if you believe these numbers describe a crisis-level national labor shortage, or even close.  And as I see it, it’s nearly as much of a stretch to argue on the basis of these hot June numbers that comparably hot inflation is here to stay.   

(What’s Left of) Our Economy: The Latest Data Remain Full of Normalization Puzzles

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Biden, CCP Virus, China, construction, coronavirus, COVID 19, Donald Trump, exports, goods trade, imports, inflation, inflation adjusted wages, labor shortages, leisure and hospitality, lockdowns, manufacturing, metals, non-oil goods trade deficit, non-supervisory workers, private sector, real wages, reopening, retail, services trade, shutdowns, tariffs, Trade, Trade Deficits, transportation, wage inflation, wages, Wuhan virus, {What's Left of) Our Economy

While I was away for a few days last week, two major U.S. government reports came out both giving off conflicting signals on on whether the economy has started to return to normal in critical ways as the CCP Virus subsides and reopening, along with consequent changes in consumer behavior, proceed.

The monthly trade figures (for April) showed a sequential decline, following a record surge, in America’s chronically huge gap between exports and much larger amounts of imports. Moreover the monthly drop took place as economic growth sped along at unusual rates after being shut down by government mandates and consumer caution. So maybe they’re an early sign that a return to immediate pre-virus conditions has begun?

Or is their most important message that these deficits, and especially the import levels, are still hovering near all-time highs in (the most widely followed) pre-inflation terms even though the economy as of the latest (first quarter) numbers is still a bit smaller in (the most widely followed) inflation-adjusted terms than during the last full pre-pandemic quarter (the fourth quarter of 2019)?

Indeed, the deficits are gargantuan even though President Biden has left former President Trump’s substantial tariffs on metals and goods from China practically untouched. 

The monthly inflation numbers (for May) are similarly confusing. They revealed that consumer prices (just one inflation measure published by Washington, but an important one) rose by 4.93 percent in seasonally adjusted terms. That was their fastest annual pace since September, 2008’s 4.95 percent. Surely, as widely claimed (including by the Federal Reserve, which wields so much influence over the economy, this upswing stems from a combination of bottlenecks resulting from (1) the sudden, widespread reopening; (2) the unusually low overall inflation numbers generated a year ago, when the economy was near the depths of its viruts- and shutdown-induced slump; and (3) the immense dose of stimulus injected into the economy by both elected politicians and the unelected Fed.

At the same time, the Fed has told us that its stimulus isn’t ending anytime soon, and although the Biden administration and Congressional Democrats are displaying some cold feet about approving more such levels of economic fuel (e.g., in the form of outlays on infrastructure, and a wide variety of income supports and enhanced unemployment benefits), it’s difficult to imagine that most or even much of this spending will actually be withdrawn even once a post-virus recovery is an indisputable reality.

But the biggest surprise of all: Despite the economy-wide inflation pressures, and by-now-routine claims that employers are dealing with nearly crippling labor shortages, wages overall adjusted for inflation keep going down.

Compounding the confusion over whatever conclusions can legitimately be drawn from these two reports: They cover two different months.

But let’s begin with the most important details from the April trade report. The ambiguity embodied in the data begins with the total deficit figure. The record March result was revised up from $74.45 billion to $75.03 billion but April’s $68.90 shortfall for goods and services combined, though the second worst monthly figure ever, was 8.17 percent smaller. That’s the biggest sequential drop since February, 2020 (8.39 percent), when China’s export-heavy economy was still largely closed because of the virus.

The same holds for the goods trade gap. The record March figure was revised up, too, from $91.56 billion to $92.86 billion. But April’s $86.68 billion result represented a 6.65 percent monthly decline, and this falloff was the biggest since the 8.39 percent plunge of January, 2019 – when American businesses were still adjusting both to Trump’s tariffs and anticipated tariffs.

Also still fueling the high U.S. deficits – a worsening of services trade balances. Here, U.S. trade has long been in surplus, but the surpluses keep shrinking because service sectors like travel are still suffering from the pandemic’s arrival and the consequent decimation of travel and othe transportation in particular. In fact, the April figure of $17.78 billion was the lowest since September, 2012’s $18.62 billion.

One key set of trade flows does, however, provide some evidence of Trump tariff effectiveness – U.S. non-oil goods trade, which encompasses those exports and imports whose magnitudes are most heavily influenced by trade policy (because, as known by RealityChek regulars, trade in oil is almost never the subject of any trade policy decisions and services trade liberalization remains at very early stages). In April, the monthly shortfall retreated 4.16 percent from its March record of $90.12 billion to $86.37 billion – which is only the fourth highest such total ever.

The import figures I focused on last month exhibit the same overall patterns: April saw big drops from record levels but the absolute numbers remain distressingly high. March’s initially reported record $274.48 billion in total imports was revised up considerably – to $277.69 billion. April’s total of $273.89 billion represented a 1.37 percent drop, but nonetheless was the second worst such figure on record.

March’s record monthly goods import figure was upgraded, too – from $234.44 billion to $236.52 billion. April’s total of $231.97 billion was a 1.92 percent drop but these purchases also still represented the second highest of alll time.

As for non-oil goods imports, the $215.33 billion April total was 1.98 percent down from an upwardly revised record $219.68 billion, and also the second biggest ever. Biggest drop since last April’s 10.91

Whether normalization is returning in manufacturing is more difficult to tell. Imports in March hit a record $207.59 billion, and did drop by 4.59 percent sequentially to $198.06 billion in April. That decrease, however, was a typical monthly move for manufacturing imports, and the April figure was still the third highest ever.

Incidentally, the April manufacturing deficit of $103.60 billion was 4.64 percent lower than March’s $108.66 billion. The March total was the second highest on record, but April’s figure was only the seventh all-time worst. The record, $110.20 billion, came last October, and it’s notable that the gap has narrowed on net despite the resilience shown during the pandemic period by manufacturing output.

More evidence of the Trump tariffs’ impact comes from the data on goods trade with China – whose products have attracted nearly all of these levies, and that cover hundreds of billions of dollars worth of products. The April figure of $37.59 billion was 6.56 percent lower than its March predecessor – a thoroughly unexceptional sequential decline and monthly level by historical standards. But the monthly dropoff was consideraby greater than the aforementioned 1.98 percent decrease for non-oil goods – the closest global proxy.

As a result of all these inconclusive developments, I’ll be awaiting the May trade report with even more interest than usual.

But despite all the uncertainties I mentioned at the start of this post, those May inflation figures have made me more confident than before in my previous contention that current price surges are anomalies by the extremely low inflation generated by the CCP Virus-battered economy of a year ago, and by the sudden reopening of so much of the economy following the long shutdowns and lockdowns. Even clearer, as I see it: Claims of significant, troubling wage inflation are especially weak.

After all, that 4.93 percent year-on-year May price increase followed a previous May-to-May rise that was just 0.22 percent. That was the feeblest such rise since September, 2015’s 0.13 percent. In addition, May’s month-to-month 0.64 price advance was smaller than April’s 0.77 percent. Two months do not a trend make, but these numbers certainly don’t point to raging inflation fires.

Nor do the wage data. Otherwise after-inflation total private sector wages wouldn’t be down more on-month in May (-0.18 percent) than in April (-0.09 percent). And the same couldn’t be said of constant dollar wages for non-supervisory workers (-0.20 percent in May versus flat in April).

Getting more granular, the price-adjusted wage trends are as bad or worse in construction; trade, transportation and utilities overall; retail trade; and education and health services.

The two big exceptions: the leisure and hospitality workforces that have been so decimated by the virus (and especially the non-supervisory group) and the transportation and warehousing sub-sector of the transportation and utilities industry category that contains a trucking sector unusually strained by the rapid reopening. In both cases, however, (and especially the leisure and hospitality industry), inflation-adjusted wages in absolute terms are well below the national private sector average. If anything, therefore, it seems like some wage inflation for these workers is long overdue.

(What’s Left of) Our Economy: Real Wages Remain a Trump Economy Weakness

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Barack Obama, blue-collar workers, Employment-Population ratio, inflation adjusted wages, Labor Force Participation Rate, manufacturing, non-supervisory workers, private sector, production workers, real wages, slack, Trump, wages, {What's Left of) Our Economy

As I’ve written repeatedly, I’m convinced that the economic data conclusively show that the U.S. economy on numerous fronts has kicked into a higher gear during the Trump years. But last week’s inflation-adjusted wage figures are an important reminder of one big exception: American workers’ price-adjusted take- home hourly pay.

Indeed, by every relevant measure, these real wages during Mr. Trump’s first 27 months as President have been rising at a pace slower than that during his predecessor Barack Obama’s final 27 months in office. Ditto for manufacturing workers, whose fortunes have been such a Trump focus.

And the comparison flatters Obama even when the data for blue-collar workers – generally the lowest paid members of the American workforce – are stripped out, although in absolute terms the Trump-era performance here has been somewhat better.

Here are the percentage changes through May. (In the lingo of the Bureau of Labor Statistics, which tracks these numbers, blue-collar workers are “production and non-supervisory workers.”  And as usual, public sector workers are excluded because their pay levels are overwhelmingly determined by politicians’ decisions, and thus say little about the fundamentals of the economy or the job market.)

                                     m/m        y/y   1^st 27 Trump months  last 27 Obama months

private sector:            +0.18     +1.30              +2.06                         +3.00

manufacturing:          +0.28     +0.46               -0.09                         +2.96

private production:    +0.32     +1.73              +2.29                         +3.27

mfg production:        +0.23     +1.03              +2.08                          +2.73

These results continue to be especially surprising given overall unemployment rates that have been at multi-decade lows – which should be forcing wages up, as employers find themselves forced to offer higher pay in order to compete for increasingly scarce workers. And although, as I’ve written, it’s possible that manufacturers in particular have held the line on wages because they’re not able to find workers with anything close to the skills they need, I wonder how understanding such workers will be about this explanation when it comes time to vote for President in 2020.

At the same time, here’s what’s not open to debate: Despite the plunge in the unemployment rate, other measures – notably the Employment-Population ratio and the Labor Force Participation Rate – show that there’s plenty of slack left in the U.S. labor market. If politicians and business leaders really want to see real wages rise healthily again, they’ll need to figure out how to lure able-bodied Americans still on the sidelines back to work.

(What’s Left of) Our Economy: Production Workers Have Been Manufacturing’s Biggest Jobs Losers

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Great Recession, Jobs, Jobs Friday, Labor Department, manufacturing, middle skill, non-supervisory workers, production workers, recovery, {What's Left of) Our Economy

It’s Jobs Friday tomorrow – the day when the Labor Department reports on how much net new employment the U.S. economy either gained or lost during the previous month (in this case, June). It’s also the day when I report on job and wage gains or losses in the manufacturing sector. To shed some more light on the upcoming data, I decided to look more closely at what kinds of employment has risen and fallen in industry since the Great Recession struck more than nine years ago.

The big takeaways: First, non-supervisory and production manufacturing workers took a much bigger employment hit during the downturn than their supervisory counterparts, and than their “blue-collar” counterparts in the private sector as a whole. Second, this pattern has held during the current recovery. Here are the numbers:

When the Great Recession officially began, at the end of 2007, non-supervisory workers comprised 72.20 percent of the nation’s total manufacturing workforce of 13.746 million, and supervisors and managers made up the remaining 27.80 percent. By the time industry hit its employment bottom, in March, 2010, the supervisory share was up to 29.91 percent, and the production share had fallen to 70.09 percent.

That may not sound like a huge change, but it means that 19.12 percent of the sector’s non-supervisory jobs were lost during the recession – nearly twice as great a proportion as the 10.36 percent net reduction in manufacturing supervisors and managers.

This imbalance, moreover, has continued during the recovery. As of last month’s Labor Department data (for May, which is still preliminary), 62.12 percent of the net jobs lost in manufacturing management during the slump had been regained. The figure for non-supervisory workers is only 30.89 percent – less than half the amount.

Overall private sector trends have been much different. During the recession, the share of net private sector supervisory and non-supervisory jobs lost was very similar – 7.48 percent versus 7.58 percent. During the recovery, the gap has widened, but is still considerably smaller than that for manufacturing. Specifically, since the private sector’s February, 20101 employment bottom, supervisory employment is up 14.92 percent, and non-supervisory employment is up 13.31 percent.

The possible implications merit considerable attention. For example, do these data suggest that America’s manufacturers are relatively satisfied with the layers of management they’ve been carrying lately? Or do they signal that industry has been lagging in automating these positions? Are the numbers a sign that manufacturers believe that supervisory employees are more productive than the rest of their workers? If so, why has manufacturing’s productivity growth been lagging recently at least as much as the rest of the economy’s?

From another standpoint, these results might mean that middle-skill jobs haven’t been under outsized pressure in America lately, contrary to many claims, but that they are in manufacturing.

More research of course is needed on all these fronts. And I’ll be providing analysts, reporters, and RealityChek readers with updated figures tomorrow.

Im-Politic: More Economic Roots of Political Anger

Tags

2016 election, Bernie Sanders, chattering class, compensation, Donald Trump, Im-Politic, inflation, manufacturing, non-supervisory workers, political class, Populism, recovery, workers

Some more data has just come out from the government on how much Americans have been making at the workplace lately, and if you work with them with a little intelligence, you can see what a lousy economic recovery the middle and working classes have experienced. P.S. Do you think that at least some in their ranks might be supporting Republican presidential front-runner Donald Trump?

The statistics come from the Labor Department’s series on total employee compensation. They’re not adjusted for inflation, but they include everything from wages and salaries to benefits to the monetary cost of paid leave, vacations, and the like.

For the broadest groups examined – like “all private sector workers” – the numbers provide some support for widespread claims that low recent jobless rates are finally tightening the labor market enough to drive up pay strongly. For example, although overall compensation between the fourth quarters of 2014 and 2015 rose by a mediocre 1.21 percent, the two previous comparable annual increases of 2.63 percent and 5.70 percent respectively. These average out to advances that are quite respectable by historical standards. (The data, though, only go back to 2004.) They certainly represent a faster advance than that for the three years before – 1.20 percent, 2.95 percent, and 1.05 percent respectively.

For the manufacturing sector, the results have been even better. Following four years of painfully sluggish growth in pay, total compensation jumped by 4.83 percent in 2013, 4.52 percent in 2014, and 4.82 percent last year. (All figures, again, are fourth-quarter-to-fourth-quarter.) In fact, it looks like potentially dangerous “wage” inflation is starting to take hold, doesn’t it?

Not exactly. And here’s why. These employee compensation figures don’t separate management and executives on the one hand from non-supervisory workers on the other, either for the entire private sector or for manufacturing. But they do provide economy-wide statistics for those employed in two good proxy categories: production occupations; and installation, maintenance, and repair occupations.

Workers in the former category have actually seen their total compensation fall slightly for the last two years, after good 2.81 percent and 3.32 percent gains. Workers in the latter category have recently been on a roller coaster. Their total compensation increased by 2.38 percent in 2013, surged by 4.28 percent in 2014, and then plunged by 1.55 percent last year.

The gap between these blue-collar workers and the rest of the American labor force becomes much clearer upon examining cumulative compensation increases since the current economic recovery began, in the second quarter of 2009. During that period, here are the total compensation gains for major groups of U.S. employees:

All private sector workers: +15.61 percent

All management, business, and financial occupations: +21.76 percent

All manufacturing workers: +20.12 percent

All production workers: +8.96 percent

All installation, repair, and repair workers: +8.14 percent

When looking at those last two categories in particular, please keep in mind that these represent the trends over nearly seven years. Please also keep in mind that, although inflation rates have been weak judging by the official figures, prices for housing, health-care, and higher education have been rising at much faster rates.

In other words, once they figure out a serious response to the Trump insurgency (and, in many respects, to the success of Democratic presidential challenger Bernie Sanders), America’s political, chattering, and policy classes will be entitled to scorn and bemoan and bewail and condemn the success of populist, outsider political candidates. But not one moment before.