2021 is the year when everything goes back to normal, right?
So, how close have we gotten? It turns out that in the aggregate, we are not too far off from normal, and ahead of normal in a few areas. Let’s have a look at a few metrics that give us end-of-November data.
Figure 1 shows several measures of overall employment and earnings. The lines are an index, with February 2020 equaling 100.
April was, indeed, a strange month. While total employment dropped by 15 percent, total personal income in the country increased by 13 percent: less work, more money!. This was due to the very generous unemployment benefits that made workers who had been earning up to $30 per hour better off when collecting unemployment than when they were working. Add to that the one-time $1,200 payments, and household incomes shot up. They remained high as the supplemental unemployment benefits continued into the fall.
There was a curios trend on the wage side. Total wages paid, the salmon-colored line, dropped less than employment because more low-wage workers were laid off or furloughed. Total wages paid have nearly caught up to their February level, although employment remains about 6 percent lower. The average hourly wage per job (medium brown line) has risen nearly 4 percent. Average hours worked have also increased, so average monthly wages per job (dark brown line) have increased over 6 percent.
Surprisingly, these wage increases have taken place across the economy. Figure 2 shows changes in both employment levels and average hourly wages in a number of sectors.
This result is somewhat counterintuitive. When the supply of something (unemployed workers) goes up, the price (wages) should go down. But even in the hard-hit leisure and hospitality sector, average hourly wages are slightly up. Again, this could be because more low wage workers were let go, and high wage workers retained. It could also be that as the economy recovered, businesses found that they had become more productive and would be better served by paying higher wages to improve worker retention than by hiring more lower wage workers.
There may be an Amazon effect at work in retail. Many retail workers are paid less than Amazon warehouse workers, and as stores shed their lowest wage workers and Amazon added higher paid warehouse and delivery workers, the overall retail sector would see higher average wages.
Things are a bit less encouraging on the consumption side. Figure 3 shows several measures of consumer spending.
Total personal consumption expenditures, the blue line, remain somewhat below the February level, as households continue to put a lot of money into the bank: personal savings in November were still piling up at twice the normal rate. Total retail spending in stores, the green line, has been above February, as households continue to substitute goods (food to cook at home) for services (food in restaurants). The brown line, eating and drinking places, remains low, and dipped down in November as new pandemic restrictions took effect.
Gasoline production, the gold line, which closely follows gasoline sales (there is not much storage space for gasoline) is a good proxy for mobility, travel and general activity. Nationally, production neared February levels in the middle of summer, and has dropped a bit, as would be expected in the fall. With gasoline production at about 95 percent of normal, we are seeing more commuting, more errands and more road trips. People are clearly not hunkering down as much as the public health authorities would like them to.
We are still seeing the 5-percent-problem that emerged few months ago. Employment and consumption remain stubbornly down about 5 percent (when accounting for inflation). That last 5 percent will not return until the public is convinced that the vaccine program is working and that it is safe to go back to restaurants, airplanes, nail salons and concert venues.
The country is hardly in the dire straits that many politicians had been arguing in order to justify higher pandemic relief payments. The vast majority of Americans are just fine. But too many are still idle and, unfortunately, we cannot expect much improvement before spring.
The bigger question is what happens when consumer confidence returns and trillions of dollars come fluttering out of the nation’s savings accounts. This is an important macroeconomic question that receives little attention.