Around the Economy: Consumer Shifts, Productivity, the Stock Market, And Of Course Inflation

How are we doing now?  If not consistently well, what’s the problem?

According to Emily Stewart, in “America has a ‘trapped in place’ economy” (Business Insider, March 20^th), your economic happiness depends on whether “you like your situation right now – your job, your house, your car,” in which case “you can keep it.”  However, “if you aren’t so satisfied,” then ”well, tough luck, because you might have to keep it anyway.”  Her thinking was that buying things in general costs more from the past few years’ inflation, interest rates have gone up with mortgages up from 2.5% in 2019 to about 7% recently, substantially fewer businesses are hiring, and housing prices are “47% higher than they were in 2019.”  Although our 3.9% unemployment is historically low, that is more a matter of existing positions staying than new ones opening.

One improvement relatively new to 2024 is that “Productivity is way up” (Neil Dutta, Business Insider, March 21^st).  The boost from artificial intelligence hasn’t much happened yet, but “labor productivity – the wonkish measure of how much a worker can get done in a given hour – is already on the rise.”  Productivity results have previously been distorted by factors having little to do with people creating more – for example, it jumped in the early pandemic because workers in the least productive fields, such as food service and preparation, were losing their jobs and dropping out of the calculation.  One element that legitimately contributes, though, is the thinning out and consolidating of corporate positions, as slack time is reduced.  In all, higher productivity is good, but it must be accompanied by other positive measures to be meaningful.

One area of prosperity has been fantastic – stock performance.  As of late yesterday morning, the Dow Jones Industrial Average was up 5.69% this year and Nasdaq has risen 14.12%.  Both have seen frequent all-time highs, with a large milestone for the former, about which Paul Krugman asked “What Does the Dow Hitting 40,000 Tell Us?” (The New York Times, May 20^th).  He concluded that while “by the numbers, the economy looks very good,” with 27 straight months of sub-4% joblessness, inflation “way down from its peak in 2022,” and “U.S. economic growth over the past four years… much faster than in comparable major wealthy nations,” stock prices are not “a good measure of economic success.”  There is still no denying, though, that they are “hitting new highs.”

That brings us to inflation in particular.  First, Krugman in the Times again, with “Remember that news report about low gas prices?  Neither do I.” (May 7^th).  The author presented several graphs intended to debunk common incorrect assertions.  The first showed “rates of wage growth” of the bottom and top income quartiles, showing that for every month from 2020 to 2023 the bottom quarter’s average percentage increases had been higher.  The next compared “wages and inflation” for almost the same period, with the latter, different for every income cohort, being outstripped by wage growth for “bottom,” “middle,” and “top” groups, the largest difference in the lowest.  His second-to-last chart was a stunning look at “TV mentions vs. nominal gas price,” with a consistently close relationship between higher levels of both.  That showed how easy it is for distorted price perceptions to be facilitated, even if unintentionally.

On May 15^th a key measure came in, reported on that same day in “Inflation Moderated Slightly in April, Offering Some Relief for Consumers” (Ben Casselman, The New York Times).  The Consumer Price Index edged down from March’s 3.5% year-over-year reading to 3.4%, as “the “core” index – which strips out volatile food and fuel prices… – rose 3.6 percent last month, down from 3.8 percent a month earlier.”  Later that same day, also in the Times, Krugman returned with “Is Disinflation Back on Track?”  He concluded, considering business price-change expectations, that “underlying annual inflation is probably around 2.5 percent, maybe even less,” but said “even if I’m right, it’s going to take at least a fer more months of good inflation news before this happy reality sinks in.”

Yet, consistent with the first article mentioned in this post, not all recent economic news is good.  I end with “Rent Is Harder to Handle and Inflation Is a Burden, a Fed Financial Survey Finds” (Jeanna Smialek, The New York Times, May 21^st).  “American households struggled to cover some day-to-day expenses in 2023, including rent, and many remained glum about inflation even as price increases slowed.”  However, “households feel good about their job and wage growth prospects and are saving for retirements.”  On inflation, though, “65 percent of adults said that price changes had made their financial situations worse,” as a depressing “ninety-six percent of people making less than $25,000 said that their situations had been made worse.”  Overall, “the report underscores that even though inflation is cooling, it remains a major concern for many Americans, one that may be a big enough worry to take the shine away from an economy that is growing quickly and adding jobs.”

That’s the problem.  Lower current inflation does not mean prices are returning to even 2022 levels.  They are higher, and people are feeling it.  That is the reason why so many Americans say the economy is going poorly.  That is also why as small as inflation seems to be, it is still important that we bring it down.  I expect we will, but if we don’t, we can expect some real social problems – and a presidential election result many of us do not want.