(What’s Left of) Our Economy: Inflation Derangement Syndrome

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economists, inflation, non-supervisory workers, Paul Krugman, private sector, production workers, pundits, Tyler Cowen, {What's Left of) Our Economy

To Paul Krugman, Americans’ recent grumpiness about the state of their economy has little to do with the state of their economy itself (which he writes is “seemingly booming”) and lots to do with a ceaseless barrage of misinfomation – generally from Republican politicians and conservative news outlets – that’s “disconnected with personal experience.”

In other words, Paul Krugman is a New York Times columnist and Nobel Prize-winning economist who hasn’t looked at the official U.S. data on Americans’ real wages. If he had – as suggested in brief yesterday by fellow noted economist Tyler Cown – he’d have known that for most of this year so far, the purchasing power of what his compatriots typically earn on the job has been shrinking, and therefore their living standards have been worsening, due to inflation.

For example, he’d know that in October (the latest available figures), average inflation-adjusted hourly pay for private sector workers fell by 0.53 percent month-on-month in October, and 1.24 year-on-year. He’d know that in April, change in these constant dollar wages tuned negative on an annual basis (by 3.66 percent) for the first time since February, 2017 (when they dipped by just 0.09 percent).

And he’d know that the current 18-month stretch of 4.68 percent cumulative decline in real wages for the entire private sector is the longest such workers have endured since the 19 months between July, 2011 and February, 2013. And then, this compensation decreased by just 0.49 percent. (As known by RealityChek regulars, government workers’ wages aren’t tracked by the Labor Department because their levels are largely set politicians’ decisions, not by market forces, and therefore say little about the funamental state of the nation’s labor markets.)

In addition, Krugman would know that in October, for production and supervisory workers, after-inflation wages tumbled by 0.72 percent on month, and by 1.13 percent on year. He’d know that annual change in price-adjusted hourly pay for these workers also turned negative in April (by 3.37 percent), and that for the first time since July, 2018, when it sank by 0.22 percent.

He’d also know that this workforce hasn’t lived through a span of falling real wages this long (4.26 percent over 18 months) since the August, 2016 through February, 2018 timespan (when it was shrank by a fractional 0.05 percent over the same 18-month period).

But clearly Krugman hasn’t looked at any of this, and the reason is pretty clear to me: For too many folks like Krugman, who work in lucrative and coddled occupations like tenured academia and punditry (seriously, when’s the last time you heard of a Mainstream Media columnist losing a job or getting a pay cut for peddling obvious falsehoods and predictions that turned out to be laughingly offbase?), current inflation is indeed something that can be blandly and abstractly described as “indeed high by recent standards.”

For too much of the rest of the country, it means the loss of hard-won economic gains – and often real pain due to soaring food and energy prices. All of which indicates that you can learn more about at least some of the economy’s biggest problems by watching, say, Fox News than by reading Paul Krugman.

(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: 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.