While many parts of the economy remain stubbornly slumped, and newly imposed pandemic restrictions threaten to slow recovery, some big-picture measures look pretty good. We’ll update you on three measures we have been tracking.
The rapid changes in consumer demand over the past six months—more toilet paper and flour, fewer pants and shoes—and cutbacks in production due to worker health and safety concerns, should raise inflation worries. But price data for October, just released by the Bureau of Labor Statistics, provides little reason to fret—at least for now. Figure 1 shows price changes in a number of sectors over the past 12 months, from before the pandemic shutdown to last month, when most industries had found an equilibrium.
Used car prices are up sharply, as more commuters move away from transit and have had stimulus dollars to buy cars. Food prices are up, both at home and for dining out, as food processors adjust to more consumer packaging and as restaurants struggle to remain profitable in the face of pandemic restrictions. Prices are down in predictable places. Airlines fares rose last month but remain sharply down from pre-pandemic levels. The drops in car insurance rates and fuel cost reflect less driving.
All in all, prices across the market basket are up only 1.2 percent in the past 12 months. This is well below the Federal Reserve’s normal target of 2 percent, but above a level that would raise concerns about deflation.
One of the emerging good news stories of those distant, pre-pandemic days, was the rise in wages for middle class jobs. After years of stagnation, Americans were beginning to take home more pay in real terms. Then came the massive layoffs and furloughs, which threw all measurements into the air. But now, we can see that not much damage was done to earnings across the economy for those who have kept their jobs. Figure 2 shows growth over the past 12 months in hourly earnings, hours and weekly earnings for all employees and for production/non-supervisory employees.
For those who are working, this is good news. The labor market was quite tight a year ago, so to see an increase in hours worked, while unemployment is still high, means that employers are still reluctant to hire and are getting the most out of their existing workforce. The increase in wages and hours during a recession is atypical. We would expect to see both drop, but the solid demand across most (but, of course not all) of the economy is good news for the workers who have jobs.
And the fact that pay for production and non-supervisory employees is growing faster than pay for all workers is good news for lower paid workers.
As for the workers who do not have jobs, the ranks are falling, but very slowly across the state. “Continued claims” for unemployment insurance benefits in Washington fell by just 2.5 percent in the past week to 128,000. This is down 50 percent from early August and is one quarter of the claims at the peak in May, but the rate of reduction has slowed dramatically.
National media continue to ignore the truly exceptional state of the money supply and bank deposits. They continue to grow, as federal programs put money into Americans’ pockets through one-time payments, expanded unemployment benefits and payroll support. Figure 3 shows the growth in the components of the money supply over the past year (left axis). The darker two areas at the bottom make up the M-1 money supply, and all four together make up the M-2 money supply. The red line, measured on the right axis, shows the velocity of money.
This is a massive jump in the money out there in the country: $3.6 trillion or a 24 percent increase. But it is not being spent at the rate that we need to get the economy fully recovered. The velocity of money, the number of times a dollar changes hands in a given period of time, has fallen dramatically. People are still sitting on their money.
The biggest concern right now is further lockdowns that will keep consumers at home and not spending the money languishing in their bank accounts. Inflation is not a big concern, and the workers with jobs are getting pretty good paychecks. But they need to get out and spend those dollars on services that may be discretionary to them but that provide the livelihood of millions of Americans.