(What’s Left of) Our Economy: U.S. Real Wage Decline is Really Widespread

Tags

CCP Virus, child care, coronavirus, COVID 19, elder care, health care, inflation adjusted wages, labor shortages, nursing, real wages, supply chain, trucking, wages, warehousing, workers, Wuhan virus, {What's Left of) Our Economy

A Facebook exchange I was involved in last night prompted me to check the U.S. government data to find out how widespread was the trend of falling real wages – and by definition falling living standards. And the answer is: incredibly widespread – including in supply chain-related sectors where crippling labor shortages are often blamed for much of the bottleneck problem that has helped fuel inflation by reducing the supply of goods sought by Americans.

The exchange began when a Facebook friend posted her view that the U.S. economy was doing far better than gloomy press reports indicated. I countered with my “putting people first” argument that falling living standards meant that the economy was failing in its fundamental mission: improving Americans’ material lives. My interlocutor responded by claiming that the unusually large number of unfilled job openings have appeared during the stop-and-start recovery from the brief but steep CCP Virus-induced downturn showed that many Americans falling behind economically could easily improve their lot by taking jobs in higher paying industries.

I could have answered by pointing out how many Americans in low-paying jobs in particular lack the training to move that wage ladder. But I was more struck by the pervasiveness of the recent decline in inflation-adjusted hourly pay – which shows that even those able to make that transition will find themselves on a downward moving escalator for the time being.

Specifically, I looked at price-adjusted wage trends on a November, 2020-November, 2021 basis for the eight broadest categories tracked by the Bureau of Labo Statistics (BLS). They are: mining and logging; construction; manufacturing; trade, transportation and utilities; information services; professional and business services; leisure and hospitality; and miscellaneous services.

How many of these eight sectors saw real wage declines between the two Novembers? Seven. Leisure and hospitality was the lone exception, and it’s the lowest paying of these categories by far. The constant dollar wage out-performance there was indeed encouraging, but with these hourly earnings still only standing at $6.88 in 1982-84 dollars – versus $11.13 for the private sector as a whole – I wouldn’t claim economic success just yet.

(As known by RealityChek regulars, BLS doesn’t monitor wages in the public sector because there, pay is determined mainly by politicians’ decisions, not economic fundamentals.)

The names of these eight sectors, however, make clear that they’re so broad that they could include subsectors where the story’s very different. And that’s true even for a number of what might be called pandemic-specific sectors with lots of job openings – but only sometimes.

For example, the enormous national healthcare sector is part of the business and professional services grouping, where real hourly wages of $13.44 – higher than the private sector average – are off by a little over one percent so far this year. But for healthcare alone, they’re up by just under one percent (to a lower $12.13, though).

Dig deeper, and you find that after-inflation wages for hospitals, nursing care facilities, elder care facilities, and child care services, have risen, too. But except for hospital workers (a broad, relatively high paying category itself), hourly wages in 1982-84 dollars in none of these sectors is anywhere close to even a measly $10. And none has seen year-on-year wage increases of more than 1.95 percent (for hospital workers).

The wage situation is even worse in many of the supply chain-related industries within the trade, transportation, and utilities super-sector. For example, next time you hear about a dire nation-wide shortage of truck drivers, keep in mind that their real wages have decreased by 3.67 percent annually as of November. And workers at those equally strained warehouses? They’re only off by 0.25 percent. But they’re supposed to be desperate to hire! What gives?

The most obvious answer to me is that a supposed labor shortage in a sector where real wages are decreasing is really a tale of inadequate pay. But that’s a subject for another post – or six. For today, though, it seems abundantly clear that the headline real wage decline number isn’t masking lots of workers gaining ground, and that if you view that standard as the main test of an economy’s success, America’s is definitely flunking.

(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: In Case You Still Think Wages are Driving U.S. Inflation

Tags

consumer price index, CPI, inflation, inflation-adjusted wages, Labor Department, wage-price spiral, wage-push inflation, wages, {What's Left of) Our Economy

Although American workers’ pay has kept falling behind living costs this entire year on net, some serious students of the economy (see, e.g., here and here) seem to believe that they’re already starting to fuel the lofty inflation the nation has experienced recently, or will soon begin to.

So I thought that today I’d add to the evidence I’ve already presented (see, especially, here and here) making clear that nothing of the kind has happened so far during 2021, and no signs of this kind of “wage-price spiral” are yet visible.

The first new set of figures clashing with fears of what’s also called “wage push” inflation is below, in a table comparing the monthly overall inflation rates as measured by the U.S. Labor Department’s Consumer Price Index, and the monthly changes in pre-inflation hourly wages (also tracked by the Labor Department.

                    Monthly inflation rate this year     pre-inflation wages this year

Dec-Jan:                   0.26 percent                                 0.03 percent 

Jan-Feb:                   0.35 percent                                 0.27 percent

Feb-March:              0.62 percent                               -0.10 percent 

March-April:           0.77 percent                                 0.66 percent 

April-May:              0.64 percent                                 0.46 percent

May-June:               0.90 percent                                 0.43 percent 

June-July:                0.47 percent                                  0.36 percent

July-Aug:                0.27 percent                                  0.39 percent 

Aug-Sept:               0.41 percent                                  0.59 percent

Sept.-Oct:               0.94 percent                                  0.36 percent

As the table shows, in only two months so far – August and September – has the increase in the pay received by workers exceeded the increase in total U.S. prices. And in October, the gap between inflation rates and wage increases expanded again to its widest extent of the entire year. Indeed, the October current dollar wage increase matched the smallest secured the entire year.

If a wage-powered inflationary spiral was underway, then exactly the opposite would be taking place. Workers would continue seeking raises that consistently topped inflation rates, and employers would continue raising their prices in bids to keep up. And you certainly wouldn’t see the wage gains losing momentum instead of gaining momentum.

The second set of figures debunking the wage-push inflation claims and fears was inspired by my buddy Widge, who I first met on Twitter, and whose insights on the economy and many other subjects I’m always learning from. (Widge has always been too modest to use his name, but I know he’s a real person because we’ve had dinner together.)

Last week, Widge tweeted a chart illustrating the astronomical spike in prices of new motor vehicles and accompanied it with the question, “Do you think it is wages of 4 million fewer payroll employees that are driving the massive inflation of new Autos in the past year?”

Widge’s tweet prompted me to ask a slightly different question: “How do price increases in the hottest inflation sectors of the economy compare with the wage trends in those industries”? Presumably, if the United States was already experiencing wage-push inflation, worker pay in sectors where prices have jumped over the past year faster than the overall annual inflation rate (5.4 percent for September) would be unusually high, too.

Unfortunately, the industry-by-industry wage and price data tracked by the Labor Department don’t always match up, but the table below presents the results for ten high-inflation sectors from all over the economy, and they won’t make the wage-price spiral crowd happy, either. (I’m using September’s statistics because that’s the latest data month for which the most numbers are available.)

                Sept. 2020-2021 CPI change                         Sept 2020-21 wages change

non-poultry meat:    12.6 percent                                          6.84 percent 

poultry:                      6.1 percent                                        13.01 percent 

restaurants:                5.3 percent                                        12.21 percent

furniture/bedding    12.0 percent                                          6.79 percent 

new vehicles             9.8 percent                                         -0.54 percent 

used vehicles          26.4 percent                                         -6.46 percent 

motor vehicle parts   8.8 percent                                         -4.19 percent 

hotels/motels:         17.5 percent                                         12.76 percent

laundry/dry cleaning 6.9 percent                                        10.60 percent

gasoline*:                49.6 percent                                        10.57 percent**

*motor fuel

**gas stations without convenience stores

After all, in the ten sectors shown, pre-inflation wages have surged faster than prices in only three – poultry processing, restaurants and other eating places, and laundry and dry cleaning services. And in three of the ten industries (new motor vehicles, used motor vehicles, and motor vehicle parts) wages have actually fallen before inflation is taken into account. Again, if wages were the main, or even a prime, inflationary culprit, they’d generally be rising faster than prices overall.

No one in his right mind can rule out the possibility that a wage-price spiral will be ignited. Workers are still returning to the job market at a relatively slow rate. Funds from the CCP Virus relief bill ae still being injected into the economy, more infrastucture and related spending will soon start being released, and still more will be on the way if the Senate passes a version of President Biden’s Build Back Better bill that’s close to the measure the House has approved.

But for now, anyone blaming American workers for recent inflation can be rightly accused of blaming the victim.

Those Stubborn Facts: Behind Biden’s Lousy Polls on the Economy

Tags

Biden administration, inflation, inflation-adjusted wages, real wages, Those Stiubborn Facts, Trump administration, wages, workers

After-inflation wages for all private sector workers, Feb.-Oct., 2020: (last Trump year):  +2.81 percent 

After-inflation wages for all private sector workers, Feb.-Oct., 2021 (first Biden year):  -1.84 percent  

After-inflation wages for private non-managerial workers, Feb.-Oct., 2020: +2.84 percent 

After-inflation wages for private non-managerial workers, Feb.-Oct., 2021: -1.53 percent  

 

(Sources: “Average hourly earnings of all employees, 1982-1984 dollars, total private, seasonally adjusted,” Employment, Hours, and Earnings from the Current Employment Statistics survey (National), Databases, Tables & Calculators by Subject, Data Tools, U.S. Bureau of Labor Statistics, Bureau of Labor Statistics Data (bls.gov) and “Average hourly earnings of production and nonsupervisory employees, 1982-84 dollars, total private, seasonally adjusted,” Ibid.)

Following Up: The Cheap Labor Lobby Looks Ever Shadier

Tags

Aman Kapoor, Biden administration, Cato Institute, Cecelia Rouse, Chronicles, conflict of interest, David Bier, economics, economists, Following Up, FWD.us, George J. Borjas, idea laundering, Immigration, Immigration Voice, Jeremy Beck, Koch Brothers, NumbersUSA, Open Borders, Pedro Gonzalez, think tanks, wages

In late September, I posted on evidence that one of the supposedly most authoritative studies on the effects of large-scale immigration on the wages of the existing U.S. workforce came up with an answer (in a phrase, “no big deal”) based on no hard evidence whatever.

Since then, I’ve come across material indicating that the intellectual fraud committed by the Biden administration economists and National Academies of Sciences, Engineering, and Medicine (NAS) “experts” team involve was much worse – along with documentation apparently showing that a leading U.S. private sector think tank whose research has armed much of the corporate Cheap Labor Lobby agitation for Open Borders-like policies is literally shilling for that powerful interest group.

As I wrote in that previous post, a mid-September blog item lead-authored by President Biden’s chief White House economic adviser Cecelia Rouse attempted to calm fears that the kinds of juiced up immigration inflows sought by the administration wouldn’t significantly harm already hard-pressed low-income and low-skill U.S. workers. But its case boiled down to nothing more than the kind of appeal to authority that typically seeks to cover up for a paucity of facts and figures – and indeed, an appeal to (NAS) authorities who the White House blog admitted themselves can’t cite much concrete evidence for their conclusions themselves.

But a month later, a post by Jeremy Beck of the immigration realist organization NumbersUSA spotlighted a much more serious problem with the NAS’ immigration analysis. It relied on mathematical models that didn’t actually find or conclude that Americans today holding or seeking poorly paying jobs have nothing important to worry about from big immigrant inflows. Instead, these models proceeded from this assumption.

Beck’s post was based on a conference presentation made by Harvard University labor economist George J. Borjas, who’s not only one of the world’s top specialists on immigration economics, but one of the very few noted economists critical of any aspect of what might be called pre-Trump U.S. immigration policies. So maybe his word shouldn’t be taken as gospel? Maybe not, but it’s noteworthy that the conference panelist he was paired with (another prominent labor and immigration economist) uttered not a word of objection. Nor did the moderator of the session, a Cato Institute analyst who could not be more enthusiastic about mass immigration. (Beck conveniently supplies the full video of the event.)

And speaking of the Cato Institute, that’s the think tank accused of hiring itself out to U.S. corporate interests anxious to pump up the supply of workers available them, and therefore drive down the wages they can command.

The charges appear on the website of the journal Chronicles. The publication and its contributors, like NumbersUSA, are definitely on the restrictionist side of the immigration policy debate. But the post, by Chronicles Associate Editor Pedro Gonzalez presents what it purports to be emails from an organization called Immigration Voice complaining that Cato immigration analyst David Bier has been writing less on the issues it paid him to focus on (boosting the numbers of foreign tech workers that can be employed by firms in the United States) and more on subjects of concern to another group seeking to increase immigration inflows that began paying him more.

According to a bitter message allegedly sent by Immigration Voice president Aman Kapoor, “this guy is like mercenaries, working to push the agenda of the highest bidder. We have [sic] him money when no one knew him and he was fresh out of Congress as a staffer, and no one was willing to support him. Now he has become an influencer because of the papers we suggested him to write any [sic] gave him money to do that….” And because the other Cheap Labor Lobby group, FWD.us, “is giving them money,” Bier is “only pushing” its favored topics.

In other words, there’s no honor among hired gun employers.

It’s not as if the Cato Institute wouldn’t be supporting Open Borders-like policies without Cheap Labor Lobby funding. It’s a libertarian outfit, and its platform strongly opposes pretty much any government interference in any aspect of the economy. But as Gonzalez observes (making points that, as I’ve written, apply to pretty much all of America’s major think tanks to varying extents), “Cato presents itself as providing independent policy research. Kapoor’s allegations raise concerns about the integrity, independence, and transparency of this research, which can have an outsized influence on policy debates.”

In other words, these financial ties create exactly the kind of appearance of conflict of interest that every organization with any integrity seeks either to avoid or to deal with by making crystal clear which of its products are literally made-to-order – and need above all to please the client rather than seek the truth.

And the two main reasons that think tanks like Cato that engage in these practices are so influential directly distort and therefore corrupt national policy debates and the decisions they produce. First, the big bucks provided by donors like Immigration Voice and FWD.us give it the wherewithal to spread the word about its work with some of the best public relations that money can buy. Second, the lack of donor transparency enables the funders to take advantage of what I’ve called idea-laundering: using think tanks to issue materials that push their particular agendas while garbing them in quasi-academic raiment to create the impressions of objectivity and intellectual respectability.

At this point I need to acknowledge that I myself have spoken at Cato conferences and written chapters for Cato books. They’ve concerned foreign policy, a field in which the Institute’s non-interventionist positions would be difficult to match with any corporate or other selfish private ends. In fact, I’ve heard that in at least one instance, Cato’s opposition to the first Persian Gulf War, they’ve cost the organization contributions. And in 2012, the Institute resisted for a time what some staff and board members viewed as an attempt by billionaire industrialist brothers Charles and the late David Koch to politicize the organization excessively.

I’ll also give Cato credit for hosting the aforementioned Borjas presentation. But Cato’s immigration work in general now looks a good deal less than principled – and about as reliable as that of the academic specialists who seem determined to deal with some of the biggest problems caused by supercharging immigration inflows by simply defining them out of existence.

P.S. Thanks to U.S. Tech Workers, an organization pressing to reform U.S. immigration laws to promote the hiring of Americans in specialty positions, for alerting me to the Chronicles post. 

Making News: Back on National Radio on the Supply Chain Mess — & More!

Tags

Cato Institute, decoupling, economists, globalization, Gordon G. Chang, Immigration, IndustryToday.com, Jeremy Beck, manufacturing, Mark A. Milley, Market Wrap with Moe Ansari, NumbersUSA, supply chain, Ted Galen Carpenter, TheHill.com, Trade, wages

I’m pleased to announce several new recent media appearances.

Yesterday, I returned to the nationally syndicated “Market Wrap with Moe” to talk about those supply chain snags that are roiling the entire economy and pushing up prices, and about whether we’ve seen peak U.S. domestic manufacturing at least for now. Visit this link and click on the play button under “Current Market Wrap” to listen to the podcast.  My segment starts at about the 21:30 mark.  

In his Tuesday op-ed for TheHill.com, Gordon G. Chang quoted my views on whether or not the world economy is going to resume globalizing and generally coming together economically, or keep de-globalizing. You can read the article here.

Also on Tuesday, IndustryToday.com re-posted (with permission!) my RealityChek report on how the new Federal Reserve industrial production figures indicate that, at least for the time being, domestic manufacturers have succumbed to recent CCP Virus-related and other obstacles to growth. Here’s the link.

On September 30, Jeremy Beck of the immigration realist organization NumbersUSA posted an item on the group’s website that took off from a prior offering of mine to spotlight the intellectual fakery of many mainsteam economists on the subject of mass immigration’s impact on the wages of U.S. workers. Click here to see that the situation is even worse than I thought.

Finally, on September 28, a post by the Cato Institute’s Ted Galen Carpenter (full disclosure: a close personal friend) used some of my arguments on China phone calls made by U.S. Army General Mark A. Milley, President Biden’s top uniformed military adviser, to explain why they should worry the heck out of all Americans. Click here to read.

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

Im-Politic: In Case You Doubt Biden’s Immigration Plans Will Hammer U.S. Wages

Tags

Biden, Biden border crisis, Breitbart.com, budget reconciliation, chain migration, Council of Economic Advisers, demand, economics, Im-Politic, Immigration, Jobs, labor market, labor shortage, migrants, Neil Munro, supply, wages, workers

We’ve just gotten a bright, flashing sign that, despite some recent stopgap steps (like this and this) obviously meant to convey the impression that the Biden administration hasn’t completely and dangerously lost control of America’s southern border, the President is just as determined as ever to open the floodgates to seemingly unlimited numbers of foreigners.

Worse, the development I’m writing about also makes clear that the President cares not a whit about the likely economic harm his policies will inflict on workers legally in the country at present – too many of whom haven’t exactly been killing it economically for decades now.

That sign consists of a post on the White House’s website by the Chair of the President’s Council of Economic Advisers (CEA) and three other government economists touting “The Economic Benefits of Extending Permanent Legal Status to Unauthorized Immigrants.” Just so we’re totally clear on their intent, in plain English, the title would read, “The Economic Benefits of Giving Amnesty to Illegal Aliens.” And the strength of the administration’s Open Borders ambitions is clearest from the utterly threadbare manner in which the authors deal with a central question: whether amnesty would drive down the wages of workers who live in America legally now.

This question of course is especially salient now because, due to the labor market turmoil generated by the CCP Virus pandemic and resulting behavior changes and official responses, U.S. employers are experiencing problems hiring enough workers, and consequently, these workers are enjoying major new leverage in bargaining for higher wages.

As pointed out in the CEA post, “Permanent legal status is likely to increase the effective labor supply of unauthorized immigrants” and that, “Given that providing legal status to unauthorized immigrants would increase their effective labor supply, critics of legalization argue there could be adverse labor market consequences for native and other immigrant workers.”

Here of course is where you’d expect the highly credentialed experts who wrote this post to respond with reams of evidence (or at least citations of scholarly works), decisively proving that, however commonsensical it seems to conclude that increasing the supply of anything (including labor) all else equal will reduce the supply of that thing, it ain’t so in the case of illegal aliens.

But as initially (at least to me) pointed out by Breitbart.com‘s Neil Munro, nothing of the kind happened. Here’s what the CEA said:

“While there is not a large economics literature on the labor market effects of legalization on other workers, in a well-cited National Academies report on the economic and fiscal impact of immigration, a distinguished group of experts concludes that in the longer run, the effect of immigration on wages overall is very small.”

I could write an entire blog post on what’s jaw-droppingly wrong with this sentence’s methodology. Chiefly, it’s not only an appeal to authority – which logically is an implicit confession that the appealers don’t know much themselves about the subject they’re writing about. It’s an appeal to authorities who themselves don’t seem to know much about their subject, or can’t cite any evidence. Therefore they can only offer an evidently unsupported conclusion.

But what’s most important to me about this CEA point is that it never challenges the wages claim made by those “critics of legalization.” All the authors can counter with is a contention that, at some unknown point, the wage depression resulting from amnesty will become “very small.” That’s some comfort to Americans workers today. And for possibly decades.   

Also crucial to point out is how narrow and thus misleading the post’s analytical framework is. It clearly assumes that amnesty won’t stimulate ever greater inflows of foreign laborers who compete against the domestic worker cohort that exists at any given time – which would include the millions of amnestied illegals. Yet everything known about the impact of looser immigration policies – and even official announcements thereof – demonstrates that they exert a powerful magnet effect on other foreigners. Nor do you need to take my word for it. That’s what many migrants themselves have said about the Biden administration’s approach. (See, e.g., here and here.)

The so-called magnet effect of the Biden roll-back of its predecessor’s immigration policies isn’t the only reason to expect the White House’s current approach to supercharge the supply of American workers. To mention just one example, his immigration reform bill and budget reconciliation bill would ease Trump-era limits on “chain migration” – a policy that enables immigrants into the country legally if a spouse, parent, child, or sibling already lives here legally. Further, once these chain migrants arrive, their own relatives receive the same easy entry. And so on. Special bonus: The restrictions on chain migration-related visas granted for employment reasons will be eased even further.

If a better way to keep a huge share of American workers underpaid (especially those in low-wage portions of the economy, which heavily rely on the kinds of low-skill employees who dominate the illegal alien population), let me know. And of course in the cruelest irony of all, as the CEA post shows, among the leading advocates of these wage-hammering measures are the very liberals and progressives that have for decades claimed to be champions of Americans left behind. 

(What’s Left of) Our Economy: The New U.S. Inflation Slowdown Still Leaves Lots of Questions

Tags

CCP Virus, core inflation, coronavirus, COVID 19, Immigration, inflation, inflation-adjusted wages, jobs report, Labor Department, New York Fed, productivity, real wages, transitory, wages, Wuhan virus, {What's Left of) Our Economy

Given how the U.S. economy could still face some major ups and downs in the next few months, largely because no one really knows what will happen with the CCP Virus and the responses from government, business, and consumers, only an idiot would confidently declare that this morning’s official report shows that the recent inflation burst is over. 

So even though I’ve been in that inflation-is-transitory camp – and therefore, that price trends haven’t yet provided the government to use its taxing, spending, and monetary policy tools to slow the economy’s expansion – I’ll just note how the inflation situation has changed in recent months.

What matters most is that the monthly inflation rate has come way down since June. During the first half of this year, the sequential pace of all price increases sped up from 0.3 percen to 0.9 percent. July’s result was down to 0.5 percent and the August figure just released by the Labor Department was just 0.3 percent – right back where it was in January, when the virus’ last powerful winter wave was cresting.

Also important: The so-called core inflation rate (this measure strips out food and energy prices, supposedly because they can be volatile for reasons having nothing to do with the level of overall national economic activity, and how fundamentally inflation-prone it is) has lost major momentum, too. Between January and June the monthly rise in prices increased from 0.1 percent to 0.9 percent . Since then, it fell to 0.3 percent in July and back to 0.1 percent last month.

Inflation pessimists can still point to year-on-year inflation rates that remain elevated by historic standards (5.3 percent for the total measure and four percent for the core). But the statistical curve is bending in the right direction on these two counts also, and as I’ve written previously, the annual numbers are still distorted – and therefore rendered useless – by the unusually weak inflation reads generated by last year’s short but steep virus-induced recession.

Further, that slowing monthly momentum counts for a lot because the biggest fear surrounding inflation is that it could feed on itself and spiral out of control, as higher and higher prices convince all sorts of customers for goods and services that prices will only keep increasing. As a result, they can fuel further inflation by stepping up purchases and pushing prices still higher (because greater demand for anything, all else equal, will enable producers and providers to charge more). Weaker monthly inflation figures indicate that these pressures have been easing lately.

Focusing singlemindedly on the core carries risks, though. Principally, food and energy prices may well belong in their own analytical category when it comes to measuring inflation. But when it comes to living life day-to-day, it’s another story altogether – since it’s hard to imagine living without them. So price trends could still be hammering consumers and businesses, and in turn the broader economy, even though the core inflation rate is signaling that all’s well.

Just as important, food and energy costs are so important that, if they last long enough, they could feed persistent inflationary fires throughout that broader economy.   

Another potential reason to check inflation optimism: The Labor Department also reported today that price-adjusted hourly wages climbed month-to-month by 0.4 percent. That’s the first positive monthly number since December’s 0.8 percent. A single data point proves little, especially in the pandemic era, but if wages begin advancing faster than overall price increases, many businesses will try to respond to these higher costs by hiking their prices – potentially adding new momentum to inflation.

The consistent drop in inflation-adjusted wages, however, between January and July shows that nothing of the kind had been happening, even though most businesses seem to keep complaining about labor shortages (which should be forcing wages – the price workers can command for their services – up strongly).

Moreover, as I’ve repeatedly pointed out, historically, American employers overall have responded to perceived or actual labor shortages by boosting their productivity – that is, using new technologies (like labor-saving equipment or software) or better management, or both, to improve efficiency and better enable themselves to absorb higher prices rather than pass them on to customers.

This scenario may sound bad for workers, and for some over various periods of time it will be. But to me, anyway, the clear lesson of history is that higher productivity does indeed, as the economic conventional wisdom holds, raise living standards (including wages) in general over time by (a) fostering the emergence of wholly new industries (which invariably need new workers); and (b) boosting existing industries’ ability to turn out more goods and services (which invariably creates the need for new workers, too).

At the same time, clearly not all businesses will take this tack. In fact, many are trying to keep wages low for many employees by agitating for more mass immigration. So far, this lobbying hasn’t succeeded, but it’s still way too early to say that workers have now regained enough bargaining leverage to ensure that their after-inflation pay continues rising robustly.

Wage increases (which I believe are long overdue) may also come to an end, or slow significantly, if weaker recent inflation stems from weaker economic growth – which would be bad for just about everyone. Unfortunately, the last monthly jobs report (also for August) and two important growth forecast series indicate that that’s precisely the case. (See here and here.)

But let’s close on a highly revealing note: One of the sources of these forecasts, the Federal Reserve Bank of New York, has just decided to suspend releasing these projections until it can figure out how to adequately take into account “The uncertainty around the pandemic and the consequent volatility in the data….” If this august institution, with its legions of Ph.D. economists, is telling us that assessing the economy’s direction and fundamental health is currently a mug’s game, that seems like a pretty good reason for caution in interpreting the new inflation report, too.

(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.   

Making News: Back on National Radio…& More!

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Airbus, Biden, Biden border crisis, Boeing, Central America, China, Dominic Gates, G7 Summit, Gordon Chang, Immigration, IndustryToday.com, Iran nuclear deal, JCPOA, Jobs, Making News, Market Wrap, migrants, Moe Ansari, Seattle Times, The Epoch Times, The Hill, Trade, trade policy, wage inflation, wages

Time to catch up with the updates on recent media appearances – in reverse chronological order!

It was great to return this past Wednesday to Moe Ansari’s nationally syndicated “Market Wrap” radio program. Click here for the podcast of an exceptionally wide-ranging segment covering topics from the recent summit meeting of the world’s leading economies to the future of the Iran nuclear deal.

On June 16, leading China policy analyst Gordon Chang quoted me in an op-ed for The Epoch Times explaining how some features of President Biden’s economic proposals might backfire and promote employment in China, not the United States. Here’s the link.

On June 15, the Seattle Times‘ Dominic Gates featured my views in his coverage of the recent settlement of a long-running trade dispute between Europe’s Airbus and America’s Boeing. Incidentally, if there’s a U.S. journalist more knowledgeable than Dominic about the aerospace industry, I’ve never met him or her. So it was especially flattering that he sought out my perspective. Click here to read. In addition, the article was widely distributed throughout the country via the Tribune News Service syndicate.

On June 10, Chang again highlighted some of my opinions – this time in an op-ed for The Hill some of my thoughts on using U.S. trade policy more effectively to help foster prosperity in Central America and thereby stem the flow of migrants, and why previous such efforts have failed. Here’s the link.

Finally, on June 2, IndustryToday.com re-posted (with permission!) my RealityChek essay arguing that, despite numerous alarm bells, wage inflation overall in the United States seems pretty unexceptional. Click here to read.

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