Populareconomicsblog

Financial FAQs

FREDretailsales

Sales at U.S. retailers such as Target and Amazon sank 1.9 percent in December — the biggest drop in 10 months — as the Omicron variant spread like wildfire and shoppers confronted higher prices and shortages of some popular products.

Yet they were up 14.4 percent YoY in December, seasonally adjusted, as shown in the FRED graph. Retail sales are still booming, so what should we worry about in 2022?

There are two reasons to worry: the Omicron variant and rising inflation (hence interest rates). Inflation as measured by the retail CPI index has risen 7.1 percent in December YoY, its highest rate in 40 years.

But they are really connected, and curing the Omicron variant will also cure the inflation problem.

CovidTracker

And as of January 12, 2022, the current 7-day moving average of daily new COVID cases (782,766) increased 33.2% compared with the previous 7-day moving average (587,723). A total of 63,397,935 COVID-19 cases have been reported in the United States as of January 12, 2022, so Omicron infection rates have yet to come down.

The high inflation rate is causing the Fed to begin to tighten credit with the first of its predicted interest rate hikes in March. But not everyone is in agreement with that move.

Chinese President Xi Jinping, of all people, asked Fed Chair Jerome Powell at the Davos Switzerland virtual economic summit to please not lift interest rates just yet!

“If major economies slam on the brakes or take a U-turn in their monetary policies, there would be serious negative spillovers. They would present challenges to global economic and financial stability, and developing countries would bear the brunt of it,” said Xi, according to a transcript of his remarks on Monday.

(China is gearing up for the Winter Olympics and doesn’t want our Federal Reserve rocking the economic boat right now.)

I don’t believe inflation will be as much of a problem this year because experts expect Omicron variant infections to quickly subside by mid-year, so-much-so that it will become more flu-like in its effects and be treated like an annual problem.

Inflation won’t be the problem it was in the 1970s, since it came on so suddenly due to the pandemic that caused the shortage of goods, rather than from a decade-long wage-price spiral.

The Omicron variant is the culprit keeping people from returning to work, and countries from untangling their supply chains.

So no, this isn’t the time to worry about inflation, which is a sign of robust economic growth and consumers with lots of savings from the pandemic aid packages.

Harlan Green © 2022

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Popular Economics Weekly

MarketWatch

It is uncanny that just 199,000 nonfarm payroll jobs were created in one Labor Department establishment survey, while a separate and smaller household survey showed that 651,000 people found jobs in December after a 1.1 million gain in November.

This kind of variability is typical when the U.S. economy is nearing full employment. That and the soaring inflation rate (6.8 percent of late) show that the demand for goods and services is far outstripping supply at the moment.

The unemployment rate dropped to 3.9 percent from 4.2 percent—just above the fully employed 3.6 percent level before COVID-19 shut down the economy. So, the American economy is close to full employment even with the Omicron variant still scaring workers from returning to work.

The other question is when will producers catch up to soaring demand because the U.S. economy is showing a classic case of overheating at the moment.

Calculated Risk

The above Calculated Risk graph shows how quickly we have closed in on full employment—much faster than the 2001 and 2007 recessions (blue and brown lines in graph), for instance.

Supply will have a chance to catch up to demand and tame inflation when the Omicron variant is tamed.

The U.S. economy regained 6.5 million jobs in 2021, but employment is still short of the pre-pandemic peak by almost 4 million jobs. The U.S. employed 152.5 million people just before the pandemic erupted. Total employment rose to 148.9 million at the end of last year

Average hourly pay has risen 4.7 percent in 2021, which tells us that companies will pay whatever it takes to hire more workers.

Where are they hiring? Leisure and hospitality added 53,000 jobs, which means more people are eating out and traveling over the holidays. Professional businesses hired 43,000 people, manufacturers added 26,000 jobs, construction employment rose by 22,000 and transportation and warehouse firms beefed up payrolls by 19,000.

It’s good news that Americans are continuing to return to work and the economy is nearing full capacity. Let that picture sink in before the Fed begins to raise interest rates, which would slow more job growth.

So, we should begin to enjoy the fact that this economic recovery has just begun, rather than worry about its growing pains.

Harlan Green © 2022

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Financial FAQs

Calculated Risk

The Bureau of Labor Statistics reported that job openings decreased in November to 10.6 million from 11.1 million in October (yellow line in above graph).

It’s a sign that more workers are returning to work. So huge is the U.S. job market that hiring rose by 191,000 jobs to 6.7 million in November. The hiring rate rose to 4.5 percent from 4.4 percent in the prior month.

The BLS said:

“On the last business day of November, the number and rate of job openings decreased to 10.6 million (-529,000) and 6.6 percent, respectively. Job openings decreased in several industries with the largest decreases in accommodation and food services (-261,000); construction (-110,000); and nondurable goods manufacturing (-66,000). Job openings increased in finance and insurance (+83,000) and in federal government (+25,000). The number of job openings decreased in the South and Midwest.”

This suggests that hiring in both the service and manufacturing sectors is picking up, a good sign for continuing job growth in 2022.

The number of job openings (yellow) were up 56 percent year-over-year. Quits were up 37 percent, year-over-year. The JOLTS report showed that people quitting their jobs rose by 370,000 to 4.5 million in November.  The quits rate rose to 3 percent from 2.8 percent in October, matching the highest quits rate of the pandemic era.

The U.S. unemployment reports comes out this Friday and will give a better picture of the New Year, but the JOLTS report gives a preliminary indication, though it lags almost one month behind the unemployment report.

Another indicator of future job prospects is the decline in weekly initial jobless claims for unemployment as unemployment benefits expire.

FREDinitialclaims

Weekly claims are down from their high of 6 million during the pandemic to 198,000 in the latest week. Salaried employees can’t wait much longer to return in greater numbers in the New Year after spending the excess savings accumulated during the pandemic.

Nobel laureate Paul Krugman has the last word this week in a recent NY Times column, in comparing the swiftness of this jobs recovery to President Reagan’s 1982 recovery which Reagan called “morning in America” that boosted his 1984 reelection.

“Yes, by this measure (and many others) we’re in the middle of another morning in America, despite the drag caused by a lingering pandemic and supply-chain disruptions,” said Professor Krugman.

With this kind of a jobs recovery, what should economic growth look like going forward?

The Atlanta Federal Reserve’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2021 is 7.4 percent on January 4, down from 7.6 percent on December 23, says their press release.

So overall, 2021 real GDP growth could be upwards of 5 percent. The last time it reached this height was in the 1980s. And since this is the beginning of another year, we can call it the morning of a successful 2022 New Year.

Harlan Green © 2022

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

FREDcpi

Why the feverish speculation that higher inflation could last beyond next year, and dampen economic growth, when the American economy should otherwise return to a semblance of normalcy? The COVID-induced recession of 2020 lasted just two months and caused one of the deepest economic contractions in history.

The recovery is also one of the fastest in history, so it is causing a temporary climb in inflation. Firstly, consumers and businesses are flush with cash for the holidays. Why wouldn’t they want to spend it now, regardless of the rising prices sure to follow? Expectations are usually high during the holidays.

In May 2020 the CPI, seasonally adjusted inflation rate for consumers was a mere 00.22 percent and in November 2021 had risen to 6.9 percent, seasonally adjusted. But there is usually a New Year drop off in spending because consumers want to pay down their credit bills and save for the April tax season. So prices should also subside substantially, as most retail businesses know after the holiday shopping splurge.

There are a few caveats to this forecast, however. The Biden administration is not helping to lower inflation by reducing the Trump trade tariffs. Raising tariffs made more sense when the economy was booming before the pandemic, and we wanted to repatriate U.S. businesses to our homeland to boost American jobs.

But if the supply-chain slowdown is to be improved, smart economic policy says that tariffs should be lowered to increase the flow of international trade, and ease the supply bottlenecks.

Also, Biden’s ‘Buy America”, and “Made in the USA” emphasis will certainly keep prices from falling faster with products made in the USA, as it’s more expensive to produce things in America, vs. overseas.

But is that a reason for markets to panic, so that the Federal Reserve may overreact by raising interest rates too soon next year? I don’t think so.

Economists such as Larry Summers worry about what is called “stagflation”, a holdover from the 1970s fast rising prices for oil and other commodities that caused unions to follow suit and the Federal Reserve to maintain policies (such as keeping interest rates low) that tolerated higher wages and salaries.

That’s not the case anymore, mainly because unions are much weaker so that wage and salary increases have been kept down, which is a large part of any inflationary spiral.

So the other causes of higher inflation—supply-chain bottlenecks and a shortage of workers—could still be problems.

Nobel Laureate Paul Krugman cites Biden’s Council of Economic Advisors in a recent NY Times Op-ed who believe that this bout of higher inflation most resembles that of 1946-48, when the American economy hadn’t yet geared up to meet soaring consumer demand when also flush with cash from WWII savings.

But there won’t be such a wholesale conversion from a wartime to a peacetime economy in the pandemic recovery. In fact, we will be fast forwarding to an enhanced digital economy with much more reliance on 5G networks and Artificial Intelligence, and less dependence on workers to produce things.

As if to presage such a future the Conference Board’s latest Index of Leading Economic Indicators predicts good growth ahead, with or without the availability of more workers.

“The Conference Board Leading Economic Index® (LEI) for the U.S. increased by 1.1 percent in November to 119.9 (2016 = 100), following a 0.9 percent increase in October and a 0.3 percent increase in September,” stated its latest press release.

“The U.S. LEI rose sharply again in November, suggesting the current economic expansion will continue into the first half of 2022,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “Inflation and continuing supply chain disruptions, as well as a resurgence of COVID-19, pose risks to GDP growth in 2022. Still, the economic impact of these risks may be contained. The Conference Board forecasts real GDP growth to strengthen in Q4 2021 to about 6.5 percent (annualized rate), before moderating to a still healthy rate of 2.2 percent in Q1 2022.”

This prediction of a huge jump in future growth is based on 12 hard data indicators such as stock prices, interest rate spreads, and consumer credit flows, which lends more credence to its prediction of future trends—and to the fact that supply-chain disruptions and future employment trends may not be major factors affecting inflation next year.

So worrying about some kind of long-lasting inflationary spiral doesn’t make sense to me

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Popular Economics Weekly

Calculated Risk

Are we nearing full employment, at least among of those that want to return to work? That may be a strange question to ask when the just-arrived Omicron COVID variant is creating more uncertainty about future US job growth.

But the latest unemployment surveys out today showed that the unemployment rate dropped to 4.2 percent from 4.6 percent, and 537,000 more workers joined the labor force.

I like the Calculated Risk graph above that portrays where we are in the job recovery from 2020 peak employment (red line). We are fast approaching what was full employment then, as opposed to the slow job recovery from the 2007 Great Recession (blue line).

However, just 210,000 new payroll jobs were added to payrolls in the separate Establishment survey, which is seasonally adjusted, and means 210,000 more jobs were created above what is normal for this time of year.

“Total nonfarm payroll employment rose by 210,000 in November, and the unemployment rate fell by 0.4 percentage point to 4.2 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in professional and business services, transportation and warehousing, construction, and manufacturing. Employment in retail trade declined over the month.”

But the change in total nonfarm payroll employment for September was revised up by 67,000, from +312,000 to +379,000, and the change for October was revised up by 15,000, from +531,000 to +546,000, so employment in September and October combined is 82,000 higher than previously reported.

We are nearing full employment because most of the job increase was in leisure and hospitality, which had lagged job creation in the durable goods sector earlier in the recovery.

The leisure and hospitality sector gained 23,000 jobs in November. In March and April of 2020, leisure and hospitality lost 8.22 million jobs, and are now down 1.33 million jobs since February 2020. It has now added back about 84 percent of the jobs lost in March and April 2020, says BLS.

MarketWatch

Construction employment increased 31,000, and manufacturing also added 31,000 jobs. State and Local education lost 16,000 jobs, seasonally adjusted, which was a major reason fewer Establishment survey jobs were created.

Nonfarm employment has increased by 18.5 million since April 2020 but is down by 3.9 million, or 2.6 percent, from its pre-pandemic level in February 2020.

So which of the two Labor Department’s surveys—the Establishment vs. the Household surveys—is the most accurate picture of U.S. employment? The Household survey also showed a much larger 1.14 million people found work in November, though it is a smaller survey than the Establishment survey and isn’t seasonally adjusted.

The Labor Department also reported that In November, 3.6 million persons had been unable to work because their employer closed or lost business due to the pandemic–that is, they did not work at all or worked fewer hours at some point in the four weeks preceding the survey due to the pandemic.

So COVID-19 is still putting a big dent in the employment picture, and we must now wait to see what happens this winter with any new variants, to see if the COVID-19 pandemic is tamed and we are able to return to full employment.

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen