Friday, April 22, 2022

Inflation, Employment, Recession, and Housing: Where the Economy Is Now, and Where It Is and Isn’t Heading

What’s happening with our financial system?  We’ve heard a lot about inflation, but there’s more on other aspects as well.  All from the last month – let’s go!

The Washington Post’s Breaking News told us on April 12th that “Prices climbed 8.5% in the year ending in March, amid growing fears that inflation will cause a broad economic slowdown.”  This is a fresh 41-year high, but at least the rate seems to be topping off, and seems unlikely to reach even 10%.  With booming weaker-Covid demand, the Ukraine war, Chinese pandemic problems, nagging supply chain issues, and even another Japanese earthquake it won’t go away soon, though, but will start falling this summer, such general optimism supported by Paul Krugman in the March 24th New York Times “How High Inflation Will Come Down.”  However, if you are thinking about buying a vehicle, you might as well do it soon, as per Jeanne Smialek in the April 10th New York Times, we’re looking at “Few Cars, Lots of Customers:  Why Autos Are an Inflation Risk,” with one dealer saying “If I could get 100 Toyotas today, I would sell 100 Toyotas today,” and their supply-demand situation calling for them to fetch maximum prices indefinitely.  Emma Goldberg told us that “With Inflation, Workers Are Facing Return-to-Office Sticker Shock” (The New York Times, April 20th), meaning there is a new disadvantage of not being able to work from home, as gas, coffee, and lunch food all cost more and the differences can add up quickly.

Again in the Times, Andrew Ross Sorkin et al. posed the question “Is U.S. employment at Its Peak?” on April 1st.  That’s good to ask, with official joblessness under 4% and still dropping, the count of open job advertisements of variable quality reaching all-time highs, and the American Job Shortage Number (AJSN) within one or two good employment reports of reaching a decade-plus-long latent-demand low.  The economy is still “two million jobs short of its prepandemic peak,” but two years of intensified efficiency and automation, along with the usual globalization, account for much of that, and national population growth, about one-third of that time’s level, has not been able to help.  We may soon drop through unemployment’s 3% and the AJSN’s 16 million, and if we do we will know the March report was not the high mark.

You may have heard of the Big Mac Index, which uses international prices for that sandwich to assess whether their currencies are overvalued or undervalued relative to others, but how about the men’s underwear index?  I learned about that in “Is a recession coming?  Alan Greenspan days the answer is in men’s underwear” (Nicole Goodkind, CNN Business, March 26th).  The former Federal Reserve chair supports the idea that, since other people rarely see other men’s shorts and their sales are “usually stable,” when they decline “that means that men are so pinched that they are deciding not to replace underpants.”  The piece contained no data on this metric, but also mentioned the “skyscraper index,” based on the notion that “an increase in very tall buildings happens as we’re approaching a bust,” and the “lipstick index,” trading on the thought that cosmetics function as economic inferior goods, as in hard times “women replace more expensive purchases with small pick-me-ups.”  None of these things are comprehensive, of course, but all seem worthwhile.  As for a recession soon, since neither employment nor consumer demand seem at all likely to crash, and cited precedents were all without pandemics, there’s little reason for a gloomy forecast.

“Is the U.S. already in a housing bubble?”  Brock Sumas asked this in Fox Business on April 20th.  Real estate prices are not a “paradox,” as Krugman has put it, but only a combination of burgeoning demand offset somewhat by higher mortgage rates.  As for a “bubble,” defined by a quoted economist as “an unsustainable period of house price growth generated by artificial demand, such as loose underwriting or speculative demand” – and we have seen both this century – this same source opined that higher prices are now “supported by the fundamentals and characterized by a shortage of supply relative to demand.”  Suras said that the presence of a bubble was “open to debate,” and there surely will be some localized price decreases, but to me it looks nonexistent.

We end with another, more comprehensive query: “Is America’s Economy Entering a New Normal?” (Jeanna Smialek, March 24th, The New York Times).  With Covid-19 still in progress, it seems too soon to answer anything this long-range, or be surprised that “economists have spent the past two years expecting many of the pandemic-era trends to prove temporary, but that has not yet been the case.”  We also need to understand that we will have gone through a significant amount of time, with as before change in some areas being accelerated, when American new case numbers drop below 1,000 per day and deaths reach double figures or less.  Other changes, such as more remote work, have been cyclical, and other factors, such as pooling up of money and most work acceptors not being technically unemployed, long predate the first coronavirus case.  Six to twelve months from now, an aggressive if anything estimate on the pandemic’s fading, is as soon as we should even consider what will happen long-term with our economy – and, even then, we will be unsure.  That may not be encouraging, but it is realistic – and realism is what we need.

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