Actually, this column is about the economy, not so much about economists per se, but “The Economists” just sounded better with “Who Dey?”
The U.S economy was at one time relatively easy to quantify, but that was before the coronavirus pandemic and globalization. Unlike my brother, a Nobel Laureate, I’m not an economist. But that may qualify me in more non-academic ways to reflect on what in the heck is going on with the myriad of economic indicators that get thrown at us on a daily and quarterly basis, and the whiplash of contradicting information that adds to what feels like an economic enigma. Let’s summarize by indicator, gauge, statistic, whatever.
Jobs — In January, the United States defied all forecasters, including a virus known as omicron, to add 467,000 jobs in the first month of 2022. Even more incredible, the Labor Department revised up its November and December jobs report adding an additional 709,000 jobs for those two months. This is good news for the economy, but we have to remember that these numbers are countervailing to the job losses the country endured during the pandemic, millions in fact, also known as the “Great Resignation.” But the numbers over the past three months do show a promising resilience in the economy as the quit-rate seems to have subsided.
Wages and Wealth – Wages are up from January 2021 to January of 2022 by about 5.7 percent, especially in the hospitality and leisure sectors. That cost-of-labor stat is likely due to the need to lure back employees in these sectors with higher wages. New York City is now requiring employers to list minimum and maximum salaries for all job postings this spring. But downward pressure on these wage increases is now coming from inflation. But that’s another down-column issue.
In the meantime I’d be negligent if I didn’t point out that, according to the Wall Street Journal in a report published in the latter part of 2021, American households added $13.5 trillion in wealth. But, and it’s a big but, 70 percent of that wealth growth went to the top 20 percent of income earners while 33 percent of that increased wealth went lopsidedly to the top 1 percent. Chevron reported $15.6 billion in profits over the past pandemic year and last time I looked crude oil was over $90 a barrel. A year ago it was $56. That’s a breathtaking 65 percent increase in crude oil prices over 12 months. Exxon-Mobil’s profits were even better, $23 billion. Bank profits have skyrocketed, and executive compensation packages have increased by 20 to 50 percent over last year’s payouts, according to Bloomberg News.
The Workplace — As workers are plowing their way back into the workplace they are not only looking for better wages and benefits, but they are looking for greater flexibility. In a survey that was done recently by the accounting firm Deloitte Touche together with MIT’s Sloan Management, one of the conclusions (reported in the Harvard Business Review) was that “Workers are now viewing themselves as free agents.” And it’s not just about wages. They want workday and work hours flexibility to meet their needs. Workplace diversity is being redefined by internal workers, external workers, and contractors. Headquarters are shrinking. Remote working is increasing. As companies are rehiring, they’re learning it’s about wages, workplace flexibility and benefits. In many cases, workers view themselves as free agents. In other words, meet my needs or I’m off to a workplace that will. It may come to be known as the “employment portal.”
Inflation — Over the past year, inflation has increased by 5.8 percent. U.S. labor costs increased by about 4 percent over the past year as employers boosted wages in response to the pandemic labor shortages. This trend is still holding. Inflation is likely to remain high, that is until it’s offset in part by the Federal Reserve boosting interest rates over the next 12 months. When interest rates go up, the cost of money goes up, which tends to reduce spending, cooling down the economy. An analogy is often made of the Federal Reserve to the “Goldilocks’ Effect.” It’s job is to make sure through the federal funds rate that the economy is running not too hot and not too cool, but just right. Bottom line is that with wages rising and a clogged supply-chain still pushing up prices, despite the Federal Reserve’s forthcoming intervention, inflation is likely to stay with us throughout 2022 and that is likely to have a counter effect on wage increases.
Unemployment — While unemployment rose slightly from 3.9 percent to 4 percent from December to January, it’s still remarkably low. Many have retired early during the pandemic and are no longer looking for jobs. Long Covid? According to Greg Ip in the Feb 5-8 Wall Street Journal, “Labor force surveys show the number of people absent from their jobs because of illness averaged 50 percent higher last year than in 2019.” Health issues may well have impacted the number of people trying to get back into the labor force.
What to conclude from all of this?
Until the coronavirus situation becomes predictable and manageable, no one really knows because the circumstance surrounding the virus’ evolution affects all of the above. Fold in extraneous stuff like the potential of a crisis in Ukraine, or a new more virulent and infectious strain of the virus and all bets are off. The only thing that seems sure is that inflation will persist, although hopefully diminishing over the next 12 months. Its effects will continue to pinch businesses and consumers as higher interest rates start to take effect. Folks invested in the unpredictable ups and downs of the current stock market are better off as investment long haulers. It’s good to be calm as the market storms.
Signs point to economic resiliency in spite of the relentless pandemic. As we emerge from winter, hope springs eternal. As for all the potential economic gremlins threatening to continue to haunt us? Who Dey?
Bill Sims is a Hillsboro resident, retired president of the Denver Council on Foreign Relations, an author and runs a small farm in Berrysville with his wife. He is a former educator, executive and foundation president.