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

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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?          

 

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(What’s Left of) Our Economy: So Much for the Both the Great Resignation and the Recovery?

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CCP Virus, coronavirus, COVID 19, Employment, Employment to Population Ratio, EPOP, Great Resignation, job openings, Jobs, JOLTS, Labor Department, Labor Force Participation Rate, LFPR, quits, recession, retirement, unemployment, workers, Wuhan virus, {What's Left of) Our Economy

Yesterday’s official U.S. report on job turnover reenforced two important messages that have sent by lots of recent economic data: first, that the nation’s growth rate really has slowed dramatically this year; and second, that the CCP Virus- and lockdowns-led Great Resignation is ebbing significantly. And not surprisingly, these developments look related.  

The job turnover report, (whose jazzy acronym is JOLTS – Job Openings and Labor Turnover Survey) takes the story up through June, and shows that the number of vacancies that U.S. private sector employers say they want to fill, preliminarily hit its lowest (9.766 million) since last September’s 9.680 million. Moreover, it’s down 9.67 percent since their peak of 10.275 million from last November. (As known by RealityChek regulars, data focusing on the private sector, whose performance is driven mainly by market forces, reveal more about the economy’s true health than data that include government workers. After all, the public sector’s performance is driven mainly by politicians’ decisions.)

Additional economic slowdown (and even recession) signs: This calendar year so far, when the official statistics on gross domestic product (GDP – the standard measure of the economy’s size and how it changes) have shown two consecutive quarterly drops (a popular definition of recession), private sector job openings are off by 5.58 percent.

Private sector job openings, though, are still a whopping 57.64 percent higher than in February, 2020 – the last full data month before the pandemic and ensuing mandatory and voluntary curbs on economic activity began distorting and roiling the economy. So labor market conditions are still far from having returned to their pre-CCP Virus norm.

In even more important relative terms, a similar though more modest pattern appears as well. The private sector job openings rate – which adds total employment figures and openings figures, and then divides them by the number of openings – hit seven percent in June. That was its lowest level since the previous June’s 6.8 percent, it’s fallen for three straight months, and it’s declined by 6.45 percent during the first two (recession-y looking) quarters of this year. And as with the absolute number of job openings, the openings rate remains much (52.17 percent) higher than just before the virus arrived in force.

The Great Resignation claims have held that the CCP Virus pandemic and resulting curbs on individuals’ economic behavior led unprecedented numbers of Americans to leave the workplace for good – regardless of whatever subsequent ups and downs the economy will wind up experiencing.

The private sector quits numbers contained in each JOLTS report provide some support for idea that this Great Resignation is fading already – but only some. That’s because so many Americans who leave their jobs voluntarily seek and get more desirable jobs. They do, however, buttress the slowdown/recession narrative pretty effectively.

In the private sector in June, job leavers totaled 3.999 million – a decrease of 3.96 percent during this possibly recession-y year, the lowest level since last October’s 3.884 million, as well as the first sub-four million number since then. They’re also down 6.26 percent from their CCP Virus-era high (last November’s 4.266 million.

And although the many more Americans still are leaving their jobs each month than just before the pandemic’s arrival in force, this increase is a not-jaw-dropping 22.86 percent – and of course it’s falling

The private sector quits rate has been drifting down, too. As of June, it was 24 percent higher than in immediate pre-pandemic-y February, 2020 (3.1 percent versust 2.5 percent). But it’s 8.82 percent lower than its peak (3.4 percent last November) and has dropped 6.06 percent so far this calendar year – suggesting that a slowing economy has reduced workers’ confidence that that better job will be there for the asking.

Also throwing cold water on permanent Great Resignation claims – though barely whispering “recession” so far – are the federal government’s two measures of the share of Americans actually working. Both the Labor Force Participation Rate (LFPR) and the Employment to Population Ratio (EPOP) helpfully provide figures for the entire economy (though their definitions are somewhat different), and for different segments of the population (including age groups). So both shed unmistakable light on the Great Resignation question with data sets for the 55-year old and over cohort. (Don’t forget, though, that neither measure separates out public and private sector workers. So the following results apply for the “civilian noninstitutional population.)  

Yet both measures reveal that the share of Americans either at or near retirement age holding jobs has shrunk during the pandemic era – by 4.22 percent for the LFPR and 4.32 percent for the EPOP. But both measures also show that the current percentages who are employed is at the high end of the range of results since 1948, and well within their post-2000 ranges.

In other words, the percentage of these older Americans in the workforce (38.6 percent as of this June according to the LFPR and 37.6 percent according to the EPOP) was steadily shrinking from 1948 (when these data sets begin) through about 2000, and then grew healthily till the CCP Virus came along (by about 25 percent for both the LPFR and EPOP). Once the worst of the pandemic, it edged back up to long-term normal levels, and may only be leveling off or inching down in the last few months because of the current slowdown or recession – not because of any underlying changes in older Americans’ views of work.

Unfortunately, though, because employment levels are one of the economy’s most conspicuously lagging indicators (due to most business’ tendency to view layoffs as a last resort in the face of worsening prospects), we’ll need to wait further to justify a more definitive recession call from the LFPR and EPOP results. Here, the most useful measures are probably those tracking the so-called prime age (for employment purposes) population – the 25 to 54-year olds.

And labor force participation for these folks is actually up by 0.49 percent so far in this seeming period of economic shrinkage. The EPOP is off, but by a modest 0.87 percent. 

Significantly, going forward, I suspect that the growth slowdown and at least quite possible recession will weaken the Great Resignation further – especially since the income supports provided by the Covid relief measures have stopped.  What I also suspect, however, is that the jobs seniors will once again keep seeking won’t enough to secure their financial futures. 

Following Up: Podcast Now On-Line of National Radio Interview on U.S.-China Decoupling

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China, decoupling, FDI, Following Up, foreign direct investment, investment, manufacturing, pensions, public employees, retirement, tariffs, The John Batchelor Show, Trade, Trump

I’m pleased to announce that the podcast is now on-line of my interview yesterday on John Batchelor’s nationally syndicated radio show.  Click here for a timely update on dramatic new evidence that the U.S. and Chinese economies keep steadily – and in some cases quickly – disengaging.

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

(What’s Left of) Our Economy: Expect Imports to Keep Preventing Lift-Off

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consumer spending, consumers, demographics, Employment Cost Index, health care, imports, manufacturing, medical equipment, National Institutes of Health, personal income, pharmaceuticals, recovery, retirement, savings, subsidies, Trade, Trade Deficits, wages, {What's Left of) Our Economy

Three new government reports have put the spotlight back on American consumers, and especially on whether they can quicken a U.S. recovery that continues to disappoint the conventional wisdom (though not me!). I’m no expert on consumer trends. But I do feel confident that whatever new vigor American shoppers start showing will provide only a limited growth boost – because so much of what they buy will continue to come from abroad.  As a result, this spending will generate more production and job creation overseas than at home.

The three reports I’m talking about were:

(a) yesterday’s preliminary reading on first quarter gross domestic product, which showed the economy slogging along at a pathetic 0.25 percent real annual rate;

(b) today’s reading on first quarter employment costs, which showed a decent (at least by recent standards) gain in wages and salaries (numbers that aren’t adjusted for inflation); and

(c) today’s report on March consumer spending and incomes, which showed the former up and the latter flat month-to-month. That made for the first monthly fall in the personal savings rate since November.

These results all reinforce a picture of the economy that’s gained traction in recent months – of workers doing somewhat better after years of stagnant, at best, incomes, and in fact getting a nice filip from falling energy prices but remaining cautious shoppers nonetheless. As a result, most analysts foresee a solid increase in spending and therefore growth for the rest of the year, as Americans open their wallets wide again.

As ever, though, and especially in recent years, the fly in the lift-off ointment is imports, whose scale and robust growth has greatly weakened the longstanding relationship between what Americans consume and how fast the economy grows. For despite the endless talk of the United States being a “consumer-driven economy,” it’s production that fuels GDP growth, not shopping.

As I wrote yesterday, the trade shortfall has grown fast enough to take a big bite out of growth since the last recession ended, in the middle of 2009. But yet another news item today helps illustrate how the process works. It’s a Fiscal Times piece claiming that fully 20 percent of U.S. household spending now goes to health care services and medicines – up from six percent in 1960. According to another calculation, that works out to more than $8,000 for every man, woman, and child in the country.

Since most health care spending winds up on the services side, that’s actually good news as far as growth itself is concerned, since nearly all of these services are supplied domestically. Yet when it comes to health care products, it’s another story entirely – as can be demonstrated by looking at trade balances in these sectors.

In a phrase, they’ve worsened greatly since 2000. In fact, a $9.71 billion deficit more than quadrupled to $46.78 billion by the end of last year. Some health care-related products have excelled – e.g., surgical and medical equipment and laboratory instruments, which improved on smallish surpluses. But others, often thought to be among the nation’s technological and industrial crown jewels, have fallen flat on their faces – notably electro-medical equipment. At the beginning of the millennium, America ran a $1.21 billion trade surplus in devices like CAT-scan and MRI machines. But by 2014, this trade had turned into a $2.03 billion deficit. And the 800-pound gorilla in the health care manufacturing category is the pharmaceutical sector, which saw a $955 million trade shortfall balloon to $31.52 million during this period.

Even worse, demand for all these health care products is heavily subsidized by government. And the nation wouldn’t even boast a world-class pharmaceutical industry without the research and development performed by the federal government’s National Institutes of Health. So increasingly, Americans’ tax dollars are being used to create and expand markets for products supplied by foreign factories and workers, and in many cases to create products themselves whose manufacture is offshored by U.S.-owned firms.

To add insult to this injury, thanks to a combination of those government subsidies and an aging population (in many foreign countries, too), health care is among the most promising future manufacturing growth markets. If the vast majority of these products were made in America, the employment, wages, and output would stay in the United States, and fuel more growth that’s healthy. On top of a recovery that’s faster and more sustainable, the resulting health care manufacturing boom could take some of the expected economic and financial sting out of the nation’s looming demographic crisis.

But because of Washington’s indifference to where goods are produced, and widespread ignorance over what really fuels prosperity, much of this golden opportunity will be squandered, and health care will be yet another sector where America’s spending bucks keep generating less and less vital growth bang.

(What’s Left of) Our Economy: Gallup Shows Americans’ Views are (All of the Above)

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college costs, confidence, debt, Gallup, healthcare, household finances, inflation, Jobs, living costs, polls, retirement, savings, wages, {What's Left of) Our Economy

Although I post a lot on public opinion polls, that doesn’t mean I take them as gospel, even when they don’t deal with trade policy (where, as I’ve shown, they tend to be incompetently constructed). These new sets of survey results from Gallup – a pioneer in the business – show us why.

Gallup consistently has been reporting that Americans’ views of the nation’s economy and of their own economic circumstances have improved significantly in recent months. Notably, since these questions started being asked in 2008, record high shares of Americans now consider themselves to be “thriving” and record low shares believe that they’re “struggling.” Not surprisingly, as a result, the greatest percentage of respondents since the recession began told Gallup that their own financial situations have strengthened in the last year, and the share stating that they’re worse off financially over the last 12 months is approaching pre-recession lows.

The public is more optimistic about the future, too – at least according to Gallup. After languishing in negative territory throughout the recession (often deeply so), the company’s economic confidence reading has turned slightly positive over the last month, and has stayed above zero (neutral) since. Pretty encouraging, right?

But then how can we explain Gallup’s new results on how Americans perceive their greatest financial problems?

Actually, the first problem with this poll is that it’s not clear whether respondents are being asked about their own family’s biggest financial problems or the nation’s as a whole. Even so, however, the answers are still pretty weird given those results above.

In particular, every single one of the top ten problems listed makes clear that Americans don’t have the money they need. They are (in descending order): health-care costs, inadequate wages and “money”, too much debt, college expenses, retirement costs, housing costs, overall living costs, job loss, taxes, and inadequate savings. In fact, if you add up all the percentages of respondents identifying these problems – which all look pretty serious to me – as their biggest, you get 75 percent. That strikes me as an awfully high level of financial distress.

Over the last year, the results in four of the ten possibilities worsened, they remained the same in one (retirement savings), and improved significantly only on the inflation, jobs, and college costs fronts. At the same time, the share of respondents who specified no top financial problems (the answer possibilities were open-ended) rose from 12 to 17 percent, and made up the largest single answer.

If you can make head or tail of this crazy quilt of responses, let me know. Till then, I’ll be taking the expression “United States of Confusion” a lot more seriously.