It’s easy to get confused by the mixed economic signals coming at us every day. Very few of those in the know seem confident in the predictive validity of any of their peers’ predictions. The data though, is what we know.
Job growth is robust. Stocks are down. Mortgage rates are up. Jobless claims are down. Consumer spending is up. And inflation is up. (At the fastest 12-month pace since 1981)
The Labor Department reported that in April businesses added 428,000 jobs, essentially matching March’s job growth and making April the 12th straight month of job gains over 400,000. Add to that a 3.6 percent unemployment rate which is just 0.1 percent higher than pre-pandemic levels. While most of these gains were in restaurants, hotels and broadly in the hospitality and leisure industries, the Wall Street Journal reports that “factories, warehouses, and white-collar companies all posted strong job gains.”
To say the current state of the U.S. economy is puzzling would be a notable understatement. According to the U.S. Department of Labor, more than 47 million people voluntarily quit their jobs last year. The trend continues as the Bureau of Labor Statistics reported that 4.5 million people quit their jobs in March of this year. The overall size of the U.S. workforce declined in April by 363,000, reducing the labor force participation to 62.2 percent.
Most economists predict that the “The Great Resignation” will continue through 2022. As of March of this year, there were 11.5 million job openings, 5 million more job openings than unemployed people in the United States. The WSJ concludes “the biggest obstacle to full recovery and even stronger job growth is a lack of supply as millions of adults remain on the sidelines.”
Without a doubt, the pandemic has been a major economic disruptor. It caused many seniors to decide to retire early, not interested in restarting or changing careers. Furthermore, the nature of the workforce has changed dramatically during the pandemic. Attributing factors to these changes have been remote work, increasing automation, the effects of artificial intelligence, and in particular, workers’ changing job aspirations.
The Pew Research Center polled workers in March of 2022 and the three top reasons for quitting work were: low pay (63 percent); lack of advancement opportunities (63 percent); and feeling disrespected at work (57 percent). Then 44 percent of workers said that they were actively looking for a new job.
Pay remains a stubborn obstacle. Policy makers have had trouble reaching consensus on increasing minimum wages. The Economic Policy Institute reported that in 2021, the U.S. experienced “the longest period in history without an increase in the federal minimum wage… (that) in 2021 the U.S. minimum wage was worth 21 ;percent less than 12 years ago, and 34 percent less than in 1968.”
A common reason given for reticence in increasing the federal minimum wage has been that it would force businesses to increase prices. Now, however, businesses have substantially increased wages by 5.5 percent over the past year to try to attract workers in a very tight competitive labor market; yet it seems to be not enough as these wage increases are being outpaced by inflation. One surprising consequence, as Time Magazine recently reported, “U.S. labor unions are having a moment after decades of erosion and influence.” To that effect, CNBC reports polling that “65 percent of Americans now support labor unions, and the coronavirus pandemic may be behind the latest surge in approval.” Until inflation settles down to some realm of normalcy, wages and prices are likely to be chasing one another for at least another year.
In all its variant forms, the resurgence of COVID-19 is likely to exacerbate the inflation problem. China’s lockdown in Shanghai and Beijing will further bind the supply-chain, tightening supplies and pushing up prices. Putin’s war in Ukraine and strategic U.S. and European sanctions will likely further supply-chain issues and inflation. And with oil companies like Exxon Mobile and Chevron refusing to increase production to keep prices high for cash returns to shareholders, inflation could well lead us into the pit of recession.
Companies are hiring, with lots of job openings but a shortage of willing employees. Wages are on the increase, demand for goods is high, yet inflation threatens to throw a wet blanket on the embers of a heating economy.
One of the biggest ways to throw brakes on an overheating economy is for the Federal Reserve to raise interest rates. That happened this month with a whopping 0.5 percent rate jump. The question is, will that be enough to significantly slow down inflation which grew by 8.5 percent this past year, a 40-year high. It was the largest one-time rate hike in over 20 years, pushing the federal benchmark rate effectively to 1 percent. The former vice chair of the Federal Reserve, Richard Clarida, said recently that he believes the rate will have to climb to 3.5 percent to slow down inflation.
A darker point of view was expressed by former U.S. Treasury Secretary and former Harvard President Larry Summers who believes that the Federal Reserve can’t do it and that we are probably headed into a recession, saying that, “historically, the current mix of high inflation and low unemployment has led to a recession within two years.”
A lot can happen in two years given the mutable nature of the coronavirus, the war in Ukraine, potential corrections in supply-chain circumstances, political elections and finger pointing.
One thing I know for sure and it’s a troubling thought. Prices tend to rise like rockets and fall like feathers. My sense of things is — it’s time to tighten our belts.
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.