Calculated Risk’s graph of the Labor Department’s Weekly Initial Unemployment Claims could tell us all we need to know about our economic health. It’s good and getting better. Claims are at a record low once again—just 213,000 filed initial claims for unemployment compensation the past week.
Why are so few workers applying for unemployment compensation? It’s a sign of workers’ optimism, of their economic health, at the same time there is a record number of job vacancies—11.2 million at last count. The Calculated Risk graph shows that claims dipped this low once before briefly in 1970 and have only returned to that low since the pandemic.
In the week ending September 10, the advance figure for seasonally adjusted initial claims was 213,000, a decrease of 5,000 from the previous week’s revised level, said the DOL. The previous week’s level was revised down by 4,000 from 222,000 to 218,000. The 4-week moving average was 224,000, a decrease of 8,000 from the previous week’s revised average.
Yet Wall St traders and others—including major economists such as Harvard Prof Larry Summers—are convinced that a potential recession lies ahead because inflation will be difficult to tame until growth slows, and jobs are lost. They see a red-hot demand fueled by years of the Fed’s easy money policies (and pandemic aid) continuing to push up the demand for goods and services over a prolonged period—perhaps into the next year.
Then why are consumers continue to shop, barely reacting to the sky-high inflation rate? Maybe they don’t believe it will last. It’s as if they are gaining optimism that the worst is over and a bright future lies ahead—post-pandemic, post-Ukraine War, and even soaring food prices.
There is some indication that even food and energy prices are falling, as the Ukrainian economy recovers from Putin’s ‘shock and awe’ invasion that hasn’t caused the Ukrainian economy to fold. The NY Times’ Paul Krugman has pointed out that food prices should continue to decline per the UN’s Food and Agricultural Index.
“The FAO Food Price Index* (FFPI) averaged 140.9 points in July 2022, down 13.3 points (8.6 percent) from June,” said the FAO, “marking the fourth consecutive monthly decline. Nevertheless, it remained 16.4 points (13.1 percent) above its value in the corresponding month last year. The July decline was the steepest monthly fall in the value of the index since October 2008, led by significant drops in vegetable oil and cereal indices, while those of sugar, dairy and meat also fell but to a lesser extent.”
And the just released preliminary University of Michigan sentiment survey for September shows increased optimism about their future, as I said last week. A survey of consumer sentiment rose to 59.5 in September and hit a five-month high, probably reflecting public relief at falling gas prices. Sentiment moved up from 58.2 in August.
More importantly, the survey’s reading of one-year inflation expectations dropped to 4.6 percent, the lowest since September 2021, from 4.8 percent in August. The survey’s five-year inflation outlook slipped to 2.8 percent, falling below the 2.9 percent-3.1 percent range for the first time since July 2021.
The higher optimism also contributed to the robust retail sales report out last week with sales up 9.1 percent in a year, just enough to cover the inflation spike. So-called core sales rose 0.3 percent last month when gas station and auto sales are taken out.
Sales at motor vehicle and parts dealers led all categories, rising 2.8 percent, helping to offset the 4.2 percent decline in gas stations, whose receipts tumbled as prices fell sharply. Online sales also decreased 0.7 percent, while bar and restaurant sales rose 1.1 percent.
Every-day commuters seem to be returning to their workplaces as well—especially in New York, reports the NY Times, with subway traffic back up to 50 percent from 38 percent during the pandemic; restaurants are busy again (per retail report), and subways and commuter railroad occupancy is also up.
In fact, more employees are returning to their jobs in most age categories, with even working-age adults returning to pre-pandemic participation rates, says former White House economic advisor Justin Fox in a Bloomberg article.
“One thing that stands out here is the apparently limited labor market impact of Long Covid,” said Fox. “Lingering effects of Covid-19 are real, and may afflict millions of Americans, but the fact that every under-60 age group but two has higher labor-force participation and employment rates than before the pandemic seems to indicate that Long Covid isn’t keeping significant numbers of working-age Americans out of the workforce.”
Why shouldn’t consumers be in the know since they account for 70 percent of economic activity? Maybe the experts should listen to those with day-to-day jobs that vote with their feet, have their ears closest to the ground, to know how the economy is trending.
Harlan Green © 2022
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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