Biden and Media Spin Economic Data

• Inflation increased in January by the largest percentage since last October
• Food prices continue to outpace the CPI index, rising 11.3% in the last 12 months
• Consumer debt has reached an all-time high and household savings rates have plummeted
• Despite robust wage growth, real wages are declining at a record pace 

President Biden shuffled a victory lap after the Bureau of Labor Statistics (BLS) released its Consumer Price Index (CPI) report for January.   "Inflation in America is continuing to come down, which is good news for families and businesses across the country," the president crowed to the media.

His words were dutifully mimicked by the nation's pliable media:

The New York Times: "Pace of U.S. Inflation Eases Slightly Again, Data show."'

The Wall Street Journal: "January CPI Reports Shows Annual Inflation Cooled."

The Washington Post: "Inflation Eases Again, But Bringing Prices Further Down will Take Time."

Truth is elusive even when the economic data is staring you in the face.  The lackadaisical media apparently read the headline of the BLS report and nothing else.  The CPI Index came in at 6.4%, which represents the increase in prices over a 12-month period ending in January.  

The headline number--6.4%--sounds marginally better, compared to December's 6.5%. But wait, the data shows prices increased by .05% month-over-month, the largest jump since last October. No matter what you read, inflation increased.  That's not good news for American families or businesses.

Food costs continue to spiral.  The food at home index has risen 11.3% over the last 12 months.  It climbed 0.5% in January.  Prices for major grocery staples are marching upward.  Meats, poultry, fish and eggs ticked up 0.7% in January, compared to the previous month.  

Americans household budgets also took a blow from energy prices. Gasoline prices soared 3.2% and the index for natural gas spiked 6.7% over the previous month.  Electricity prices were up "only" 0.5%, which may provoke jubilation in Washington but not among Americans grappling with inflation

Month-over-month, the CPI has increased every month since August of last year.  That fact is lost in the blizzard of news about the rolling 12-month data.  Americans are feeling the pinch with nearly two-thirds (63%) of households now living paycheck-to-paycheck, according to LendingClub. 

The other shoe dropped when the Labor Department reported that the producer price index (PPI) surged 0.7%, the steepest monthly increase since last summer.  Inflation at the wholesale level usually seeps into the retail costs for inflation weary consumers.

Wall Street likes to point out that consumers are still spending based on January's 3% hike in retail sales. But the spike reverses two consecutive months of declining sales.  Consumers are financing spending with debt. Credit card debt reached an all-time high this month: $930 billion, leaping 18.5%.  

Americans also are paying near record interest rates for debt, topping 20% on outstanding balances. With debt climbing,  savings rates, which rose to 33% in 2020, are now hovering at a paltry 2%. The data suggests consumers may be on a last gasp spending spree.

Often the administration stubbornly insists Americans are doing well because wages are increasing. Really?  The latest report from BLS shows real average hourly earnings, adjusted for inflation, dipped 0.2% in January from December.  Over a 12-month period, hourly earnings decreased 1.8%.

In fact, since Joe Biden became president wages are up 9.5%, a fact he often touts.  However, after adjusting for inflation, real wages have plunged 4.1% since 2021. Americans wages have not kept up with inflation, which explains why credit card debt is ballooning and savings rates have cratered.

Those wizards on Biden's economic team beat you over the head with the jobs numbers whenever you use the "I" word (inflation).  In the January report, U.S. payrolls added an impressive 517,000 jobs, the largest gain since July, 2022.  That appears to be good news without impartial perspective.

More Americans are working two jobs, an estimated 400,000 according to the BLS.  A second job counts as a new job in the data. Overall, the economy added an unprecedented 4.5 million jobs in 2022.  Yet there are nearly three million fewer workers in the labor force compared to February, 2020.

The Great Resignation also weighs heavily on the job data.  On average, 4 million workers quit or lose their jobs monthly. Figures for the latest month reveal 5.9 million Americans quit, were laid off or discharged. Layoffs at large and medium-sized firms have picked up steam since the fourth quarter. 

Hiring in low-paying jobs in the hospitality and leisure sector is fueling the job growth.  Since 2021, those jobs have fluctuated between 7 to 9 percent of total hiring, outpacing other sectors. The  Labor Department estimates the sector still has about one million fewer jobs than it did before the pandemic.

Simply put, all those jobs lost during the pandemic are the main reason behind the robust job data as Americans gradually return to the workforce and pandemic unemployment benefits expire.    

Americans rarely get any perspective on the data gushing out of Washington.  Relying on the media for an honest interpretation is pointless.  Household budgets are the real gauge for Americans.  No matter how the data is spun, most Americans are worse off than they were a year ago.

Wage-Price Spiral Threatens American Economy

Menacing economic storm clouds looming on the horizon threaten America's growth.  Wages are rising at the highest peak in decades. Prices for goods and services are spiking.  As a result, inflation is marching upward, triggering a risk of a wage-price spiral that will cripple the economy.

During the double-digit inflation of the 1970's, wages and prices chased each other.  Spiraling inflation eroded the standard of living for workers.  Employees demanded higher wages to offset inflation's erosion of their purchasing power.  Businesses, in turn, jacked up prices to cover the increased wages.   

This never ending cycle of wage-price pressure fueled a 12% inflation rate in 1974. Once started, wage-price spirals are like trying to brake a speeding locomotive.  The inflation rate zoomed to 14.5% in 1980. Companies' profits slumped and consumer spending plunged, stalling economic growth.

After years of dithering, the Federal Reserve finally acted in 1979 when Paul Vocker took the reins.  He ended the days of easy money by rapidly hiking interest rates.  The prime lending rate kept climbing until it hit 21%.  Volcker's tough medicine stabilized prices, but triggered two recessions.

There are eerie similarities between that inflationary crisis and today's economic environment.  Most economists and stock market promoters shun any comparison because they fear the stock market will crater.  They have a boatload of reasons why this period of swollen inflation will be different.

As the inflationary storms brewed last year, economists, stock analysts and the Federal Reserve Bank dismissed surging prices as a transitory hiccup. They predicted the supply side would soon catch up with the post-pandemic spending spree, restoring price equilibrium.  They were appallingly wrong.

Despite warnings from a few bank CEO's, the Fed stubbornly dug in its heels on increasing interest rates to temper inflation.  When the Fed finally changed direction, it was too late.  Fed Chairman Jerome Powell has signaled three interest rate hikes this year. The threat of a fourth is a real possibility.

The Fed's inaction is hard to fathom.  The data has been streaming in from the Bureau of Labor Statistics (BLS), the Department of Commerce and the Federal Reserve's 12 district banks. (Note: Data used in this blog comes from those three sources.) The indicators were clear but Powell demurred.  

Since last year, the economy has been on a treadmill of higher wages and higher prices.  Private sector wages increased 4.1% in November the largest jump since September of 2001 when wages spiked 5%. Both figures are 12-month rolling averages. Fourth quarter gains were 4% as wages keep rising.    

In 1974, wages skyrocketed 6%, contributing to a double-digit inflationary rate. The U.S. may soon hit that number because every day brings news of more companies hiking wages to attract workers and then hiking prices. Inflation in November hit 7% and forecasts are for higher rates ahead. 

The top line inflation number doesn't tell the whole story.  Food prices were up 5% in November.  Energy costs escalated 29.3% on a 12-month rolling average.  In the 1970's, runaway oil prices were one of the key drivers of inflation.  Few will concede the connection today.  

The Fed's key inflation gauge, Personal Consumption Expenditures Price Index or PCE Price Index, soared by 5.8% for the year.  That topped the previous period's increase of 5.7%, becoming the fastest inflation since 1982.  This is exactly what happened in the 1970's. Denial doesn't change facts.

Workers are hard to find, adding to wage pressure.  Thousands either left their jobs or were furloughed or terminated in the pandemic.  A large number have decided to remain on the sidelines. Others rejoined their firms, then left for higher paying jobs.  The share of workers leaving their jobs has risen to 3%.

The labor participation rate--an estimate of the economy's workforce--stands at 61.9%, which is 1.5 percentage points lower than the level in February, 2020. It means there are less people working or actively looking for a job. There are currently nearly 11 million job openings in the U.S.

An estimated 10 million workers are missing, compared to the pre-pandemic numbers. President Biden points to the 3.9% unemployment rate as proof the job market is robust.  However, that figure does not include millions of discouraged workers and those marginally attached to the workforce.

The wage-price spiral deniers point to the fourth-quarter 6.9% growth in the country's Gross Domestic Product, the broadest measure of the nation's production of goods and services, as proof of a healthy economy. However, most of the growth owed to businesses restocking depleted inventory.

That means the GDP uptick was not the result of increased consumer spending. Excluding the inventory effects, the nation's output grew at a puny 1.9% in the fourth quarter. That is a worrying sign for economic growth this year.  It portends only modest gains in growth for this year. 

All the data paints an ominous economic landscape. Inflation continues unabated.  Wages are billowing to catch up in a job market that has more openings than qualified workers.  Inflation and wages moving in tandem will feed the vicious inflationary cycle that will force the Fed to keep boosting interest rates.

Because the Fed sat on its hands for too long, the danger is an overcorrection.  As the Fed tinkers with rates, the cost of borrowing, credit card debt, car financing, home mortgages and home equity loans  spike.  In the face of the onslaught, consumer spending will retreat, making a recession more likely.

The Fed is standing on a precarious precipice. With the mid-terms lurking, it may be difficult for the Fed to remain independent and do what's best for the long term, instead of caving to political pressure. If the Fed crawfishes on its announced rate hike schedule, inflation will get worse.        

The American Job Machine Purring

Nattering nabobs of negativism cloaked in coats of doom croaked like frogs when the American jobs figures were released this month.  The economy added "only" 75,000 jobs in May, they grouched.  Ersatz economists, media carpers and political pundits forecast the demise of the economic revival.

The scale of deliberate deception would make Herr Joseph Goebbels blanch.  Despite the collaborative clamor, rumors of the death of the economic recovery are greatly exaggerated.  If you doubt it, spend a few minutes delving behind the job numbers.  No media person will do it.

As a primer, job additions are a popular test of the country's economic health published monthly by the Bureau of Labor Statistics (BLS).  It tracks the total number of people being paid for work.  Often it is misinterpreted as a measurement of how many jobs industry and government created.

With that perspective, scrutiny of the May data reveals a very different interpretation than what has been offered by the cynical skeptics.  Here is an abbreviated version of what is happening: America is running out of qualified workers for an expanding number of jobs.  

The data confirms the economy is soaking up most of the labor pool, including many who had given up looking for jobs. In the last 12 months, the number of involuntary part-time workers has declined by 565,000.  That means people who were forced to work part-time, have found full-time jobs.

Since the end of the 2016, the unemployment rolls have thinned by 1,667,000 in 17 months.  The unemployment rate at the end of May stood at 3.6 percent, the lowest in 49-years. Unemployment for minorities, African-Americans (6.2%) and Hispanics (4.2%) are at historic troughs.

Only one demographic continues to experience stubbornly high unemployment: teens aged 16-19.  Unemployment averages 12 percent.  It is no coincidence they are the least educated and most unskilled in the labor force.  Fewer job opportunities exist for this group in the new economy. 

The government calculates there were 7.4 million job openings at the end of April, the latest available data.  It marks 14 consecutive months with more job openings than unemployed people.  Further evidence that there are just not enough workers to take advantage of the sonic boom in jobs.

The Labor Participation Rate, a measurement of the people aged 16-to-64 employed or seeking work, has nudged up to 62.8 percent, compared to 62.4 percent at the end of 2016.  Robust hiring has increased the size of the American workforce by 395,000 in 17 months.

According to BLS statistics, the economy has added 5,892,000 jobs since 2016.  During the previous eight years (96 months), job growth was 10,389,000.  This is an apples-to-apples comparison because the same government data source was used to calculate both figures.

To comprehend job additions, it helps to understand the derivation of the number.  The BLS tallies total hires and subtracts the job separations, which includes layoffs, firings, retirements, and employee resignations.  Total separations have remained flat while hiring has expanded.

Prophets of doom rushed to judgment on May figures.  Logically, it is an aberration.  The average monthly measure since the first of the year has averaged 164,000 jobs.  Historically, job growth figures between 100,000 and 150,000 represent a positive trend for the economy. 

The denizens of darkness have seeded the media with propaganda that low-skilled workers have been left behind.  The New York Federal Reserve has reported that for the first time in decades, it is harder to find blue-collar workers than white-collar prospects.  Low-skilled workers are in demand.

May wages for non-supervisory workers jumped 3.4 percent.  This marks the 10th consecutive month of rising pay after a dismal stretch of eight years when wage raises never attained the three percent level.  Wages rose for workers in hotels, restaurants and retail, traditional low-paying jobs.

The chronic complainers incorrectly claim job openings are mostly low wage opportunities.  Not according to the New York Fed.  Their data validates that average starting wage for full-time employees hiked from $58,035 last November to $66,415 in March, the most recent figures.

In review, job creation is pulsing.  Unemployment is sinking.  Wages are swelling.  Labor participation is ascending.  More people are joining the workforce.  More jobs are going unfilled, because hirings are depleting the labor pool.  So what's the beef about May's one-month snapshot?

The current economic surge has proven beyond a doubt that everyone, the under employed and professionals, benefit from roaring growth.  Unlike wealth redistribution and government handouts,  economic prosperity fuels competition for employees, which advantages all American workers.