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.


More Good News

Everybody wants to talk about an impending recession but let's take a moment to appreciate the longest expansion in U.S. history.  The first estimate of real GDP growth for the third quarter of 2019 is 1.9%.  This means the current expansion, which began in July 2009, is now marching into its eleventh year.  The graph below shows quarterly U.S. real GDP growth rates since 2015.

GPD2019.III

I'm first to admit that this expansion lacks the zip of many previous expansions.  But we haven't seen recession now for over 10 years and the unemployment rate is just 3.6 percent.  

So while Hong Kong now seems to be in a recession, with real GDP falling 3.2% in the last quarter, the U.S. economy just keeps marching on.  At least for now.


Inflation Almost Nonexistent in September

Month-over-month changes in the Consumer Price Index (CPI) have been nearly zero for much of the past year.  The graph below shows monthly inflation over the past two years. 

Inflation0919

In September, the CPI rose just 0.0226 percent - that's pretty much "zero."

These low numbers astonish many people who see grocery prices or college tuition rising. But remember, the CPI measures the overall price level, with weights given to prices of individual categories based on the consumption patterns of an average consumer. 

So even though food prices rose o.1% in September, gasoline prices fell 2.4% (in just one month!).  


Annual Inflation Stays Below 2%

The latest Consumer Price Index (CPI) report from the Bureau of Labor Statistics (BLS) shows very little estimated inflation  - just 0.1 percent in August.  Over the past year, the CPI increased just 1.76 percent, in line with recent history of 2% or less.  

Inflation0819

But remember that the CPI is an aggregate statistic and includes prices of typical U.S. consumers. When the inflation rate is 2%, many prices rise faster than 2% and many prices even fall.  The table below shows the change in selected prices over the past year in the United States. 

CPI Table 0819

College tuition and fees increased just 2.5% and textbook prices were actually flat.  Gasoline prices fell over the course of the year and gasoline spending takes up about 4% of the typical consumer budget.  


Not All Jobs Are Created Equal

The unemployment rate remained at the historically low 3.7 percent in August, according to the jobs report released today by the BLS.  

Unemp0819

This good news is somewhat dampened by the apparent slowing of private sector hiring.  While 130,000 new jobs were added in August (by this first estimate), part of this is due to temporary government hiring of 25,000 workers for the 2020 Census.  The graph below shows monthly changes in nonfarm employment since 2016.

Employ0819

As you can see, jobs growth has slowed this year.  Average growth in 2018 was 223,000 per month but just 158,000 so far in 2019.

 


The Longest Expansion Ever

Folks, the economy may be slowing, but we are now actually working on the longest U.S. economic expansion on record.  It has literally been a decade since the last recession.  To be fair, the effects of that recession (the "Great Recession") lingered long after it was officially over.  But strictly speaking, the last recession finished in June 2009.  Prior to this current expansion, the longest on record was March 1991 to March 2001, so we are just now edging out that previous record (assuming we don't go into a recession this month!).

The newest data release from the Bureau of Economic Analysis estimates real GDP growth for the second quarter of 2019 at just 2.0 percent, which is not great.  But the economy is still growing.  And don't forget the unemployment rate is still at historically very low level of just 3.7 percent.  

That said, many economists are starting to worry about a possible recession on the horizon.  The figure below shows two sub-par (less that 3%) growth quarters in the past three.

GPD2019.IIb

Economists blame the escalating trade war with China (and others) for the slowing economy.

But let's not end on that negative note: this U.S. economic expansion is the longest on record.