Inflation Climbs to Highest Level in 40 Years

The new CPI data released today by the BLS shows what many of us are feeling when we buy gasoline and groceries: inflation is here and it is not going away immediately.  The year-over-year measure was up to 7% in December 2012 and this is the highest level since June 1982.  The graphic below shows annual inflation since 2000.

Inflation 0122

The table below, from the BLS report, shows increases in the major category areas.  Year-over-year increases are shown in the last column.

CPI categories 0122

Over the course of the year, you can see that gasoline prices rose 49.6% and Used cars and truck prices rose by 37.3 percent.  But even grocery prices (food at home) rose by 6.5 percent.  

This inflation won't go away anytime soon.  Even if prices don't rise at all for six months, the inflation rate will be over 4% in June because of the way this statistic is computed (using all data from the previous 12 months).  Unfortunately, prices are probably going to continue to rise throughout this spring.  

 


Jobs Growth Resumes

Today's jobs report from the BLS is a dose of much-needed good news.  The unemployment rate dropped again to 4.6 percent.  More importantly, 531,000 new jobs were added (to nonfarm employment).  The graph below shows monthly growth in nonfarm employment in this calendar year.

Employ1021

After robust growth in the summer months, fewer jobs were added in August and September. All of this is closely linked to the spread of COVID, as the Delta variant spread rapidly in August and September, before slowing in October.  

Let's hope that today's announcement regarding the Pfizer COVID-19 pill will lead to even more economic progress over the coming months. 


Recovery Slows in Third Quarter

Real GDP grew at just 2% in the third quarter, after consecutive quarters of more than 6% growth.  New data released from the BEA confirms that the Delta variant of COVID-19 significantly slowed the return to normal economic growth.  The Figure below compares real GDP with a trend line based on growth since 2010.

GPD2021.III

As a recap, shutdowns in early 2020 led to a 5% drop in the first quarter and then a 31% drop in the second quarter.  Then, as many businesses adapted, the recovery began with a whopping 33.8% growth of real GDP in the third quarter.  The first two quarters of 2021 yielded 6.3 and 6.7 percent growth as vaccine availability expanded.  But the Delta variant clearly slowed the progress back toward trend, leading to just 2% real GDP growth in the most recent quarter.

Like everyone else, economists are hopeful that the recent decline in COVID-19 cases will help return us to pre-pandemic economic conditions, but 2% growth will not accomplish that.


Jobs Growth Slows Even as Unemployment Falls

The latest jobs report from the BLS is one of those weird times when the unemployment rate falls even while the overall report is not positive.  All of this stems from this strange and uneven recovery from the COVID-19 recession in 2020.  

Let's start with the good.  The graph below shows the unemployment rate over the past 5 years.  The latest data shows a 0.4% drop to just 4.8% in September.  Normally, this would be heralded as great news.

Unemp1021

Now, let's look at jobs growth by graphing total nonfarm employment.  In September, nonfarm employment rose by 194,000.  This would often be considered solid growth.  But right now, we are recovering from a drastic drop in overall employment.  Given the plunge in total jobs in 2020, this level of growth is just not enough to get us back to a healthy level of jobs anytime soon.  In the graph below, you can see that jobs growth is slowing and that we still have 5 million jobs to add before we are back to the pre-pandemic level of employment.

Employ1021

Students might wonder how such a significant drop in the unemployment rate can be viewed as anything but great news.  It can help to show the labor force participation rate (LFPR).  In September, the LFPR actually fell, from 61.7% to 61.6% (see graph below).  This is especially concerning as we are recovering from the huge drop in employment and firms are struggling to find workers. 

Lfpr1021

It's always good for the unemployment rate to drop 0.4 percentage points.  This means that people who are actively looking for work are having an easier time securing a new job.  But it is hard to rejoice in this economy right now with so many sitting on the sidelines and employers having difficulty luring them into the labor market.  It will be interesting to follow these trends over the next few months.


GDP Grows at 6.7% in Second Quarter

The U.S. economy continues to climb out of the COVID-induced recession of 2020.  The latest GDP data, released yesterday by the BEA, revised the real GDP growth estimate for the second quarter up to 6.7%. 

GPD2021.IIC

In normal times, 6.7% real GDP growth is phenomenal.  But now, 6.7% doesn't even get us all the way back to the Pre-COVID trend.  Of course, the main culprits continue to be the Delta variant and also supply-chain issues that remain unresolved.  This Washington Post article is a good resource for an overview of some remaining supply chain issues.   

 


Inflation Continues

Inflation over the last 12 months in the U.S. remained over 5 percent.  The August release of  the Consumer Price Index (CPI) data indicates that prices continue to rise way above normal as the economy tries to recover from the COVID-19 recession.  The figure below shows CPI inflation since 2011.

Inflation0821

In recent history, inflation has averaged 2% or less, but the COVID recession and Federal Reserve responses have definitely pushed up price level increases over the past year.  Prices of some items in a typical consumers budget have risen drastically in the past year.  Among the biggest increases price increases were gasoline (+42.7%), car and truck rental (+52.6%), used cars and trucks (+31.9%).  Prices that fell over the past year include cheese (-2.4%), prescription drugs (-2.7%), and music subscriptions (-1.4%).  


Jobs Growth Slowing

The latest jobs report brings news of lower unemployment and a growth in jobs in August. The unemployment rate for August, ticked down to 5.2% and nonfarm employment increased by 235 thousand jobs. In normal times, this would be great news. But these are not normal times.  

Unemp0921

We can't celebrate over this news because it is a clear slowing of the recovery that was roaring through the early summer months.  In June and July, the U.S. economy added 962 and 1,053 thousand jobs.  In comparison, the August figures are just discouraging.  

Furthermore, we've still got a long way to go before the economy really recovers from the darkest COVID days of last year.  The graph below shows total nonfarm employment in the U.S.  This is how we generally measure the level of jobs in the country. At the beginning of 2020, there were more than 152 million jobs.  This plummeted to just 130 million during the COVID shutdowns, but the recovery thus far is clearly incomplete.  Total nonfarm employment in August was just 147 million, down 5 million from the peak and at least 7 million from the pre-recession trend.

Nonfarmemploy0921

We all know the slowing is due to the Delta variant of COVID-19. And the effects are very real.  For example, as the BLS jobs report notes, 5.6 million workers were unable to work because "their employer closed or lost business due to the pandemic."


New Slides for COVID-19 Crisis

Are you wondering how to think about this COVID-19 crisis in terms of economics?  You've come to the right place.  The Mateer and Coppock textbooks present relevant information for life, and this pandemic crisis is no exception.  

If you are a teacher or student of economics and you are using our books, we have prepared PowerPoint slides to correspond with each chapter in the texts.  

Click this link to download the slide deck.

Micro examples include:

  • PPC shifts for the crisis
  • Demand shifts as preferences change
  • Price gouging for safety masks
  • Externalities during a pandemic
  • Shut-down decisions of firms
  • Price Discrimination and fast food

Macro topics include:

  • Macro data before and after the crisis
  • Creative destruction and the move to new technologies
  • The crisis in the AD-AS model
  • Fiscal and monetary policy responses in the AD-AS model
  • Federal budget effects
  • Trade effects

We have a slide for every chapter, something every instructor can use and every student can learn from.

 

 

 


Imports Are Not Negative!

The BEA released the first estimate of 2019 GDP yesterday.  The headline number is fourth quarter real GDP growth, which came in at 2.1 percent.  This made the estimate of real GDP growth for all of 2019 just 2.3 percent.  Now, 2.3 is not terrible, but given the low low low unemployment rate of 3.5%, it feels like GDP should be stronger.  Keep in mind, the 50-year average growth rate of real GDP is about 2.8 percent.

The graph below shows quarterly real GDP growth for the past 5 years.

GPD2019.IV

There is a statement in the official BEA release that got me worked up.  It's not technically wrong, but it is certainly misleading.  The last paragraph on the first page ends with this sentence: 

Imports, which are a subtraction in the calculation of GDP, decreased...

Sentences like this support the general misunderstanding of how imports affect GDP data and also the misunderstanding of the way imports affect our economy.  Of course, imports DO enter the GDP accounting equation negatively: Y = C + I + G + (X - M), but then they also affect other components of GDP.  So the effect nets out "in the calculation of GDP!"  As I told my class this week, when we import a $30K Toyota from Japan, imports increase but so does consumption.  

I think this wording irritates me because it gives fodder to the populist-isolationist view that imports are bad for our economy.  By the way, there is a really nice Page One article from the St. Louis Fed on this very topic.

 


Real GDP Continues Growing

Real GDP grew by 1.9 percent in the third quarter of 2019, according to the report released by the BEA on October 30. This follows a 2.0% increase in the second quarter. Keep in mind, this is the first ("advance") estimate of third quarter data, and will be revised later. 

GDP2019III

Consumption alone accounted for the 1.9 percent increase in real GDP.  Together, the other three components (investment, government spending, and net exports) were essentially unchanged.  

Real U.S. GDP has grown at a relatively steady rate since 2009. It is currently estimated to be over $19 trillion.