Scrutinizing Those US Economic Numbers

Flurries of numbers shower Americans each month when the Bureau of Labor Statistics (BLS) unveils the latest economic data. The blizzard is left to the media and financial experts to interpret.  Too often, Americans are fed headline numbers and little else, instead of contextual clarity. 

Confusion has persisted about U.S. economic numbers since the Bureau of Labor began collecting and publishing employment and payroll data in October, 1915.  Over time, the methodologies and terminology have changed, adding to the public bewilderment.  

A looming presidential election likely will turn on economic issues, underscoring the importance of understanding the data.   Wall Street and the media appear to have little interest in peering beyond the numbers, based on current reporting and the rose-colored economic forecasts.

Amid the dizzying amount of economic data, here are some current headline numbers that are ripe for interpretation  

The pace of inflation is cooling.

The BLS reported inflation for August rose 0.6%, based on the Consumer Price Index.  The monthly increase follows 0.2% upticks in July and June. August numbers indicate that inflation may be heating up again. The government is quick to point out gasoline prices accounted for the lion's share of the gain.

The media dutifully reports the monthly data in headlines without the same attention to the 12-month change in inflation.  Prices have increased 3.7% since last August. That is higher than the 3.2% increase in July and 3.0% in June.  Clearly, inflation is proving to be stickier than experts forecast.

To justify the narrative that inflation is slowing, the media and Wall Street remind Americans the current inflation is lower than the 8.0% inflation rate for calendar year 2022.   True but hardly comforting to consumers. 

Whenever the CPI drives up inflation, the media and Wall Street turn to so-called core inflation, the preferred measurement for the Federal Reserve. Core inflation excludes prices for food and energy because of volatility.  Core inflation inched up 0.3% in August, which is 4.3% higher than August, 2022.

For average Americans, the core inflation number might as well be an unlisted telephone number.  Americans don't have the luxury of excluding energy and food from their budget.  

For further context, consider that inflation has risen 16% since January 2021, when prices roared at historic levels.  Most consumers cannot quote that number, but they know their household budgets have been impacted more than the 0.6% August increase.   

Workers wages are continuing to rise.

Americans' wages are riding an upward trajectory.   Beginning in April of 2021, wages and salaries have risen steadily more than 3.4% every month,  hitting 6.7% in July of 2022.  That same month inflation was 8.5%.  The latest available data for June shows wages and salaries climbed 4.7%.

February marked the first month since 2021 that wages grew faster than inflation, according to data compiled by Statista. 

For hourly workers, the wage growth has failed to keep up with inflation for most of this year.  June marked the first month weekly earnings rose faster than inflation.  The latest data from July revealed average hourly wages are up 1.1% on an annual basis.  

Hourly workers are falling further behind the inflation rate, which is the reason there are mushrooming demands from unions for higher wages.   

Rising wages is usually a positive sign, but inflation has made today's dollar worth less.  The BLS calculates that a dollar today only buys 88.6% of what it did in 2021. Inflation is sapping Americans purchasing power.  

Job growth points to a healthy economy.

The economy added 6.7 million jobs in 2021, the largest annual total in U.S. history. That was followed by an impressive gain of 4.5 million last year.  Year-to-date the economy has created 1.6 million jobs. That's a total for 12.8 million jobs in less than three years. An estimated 72% of the job growth represents jobs lost during the pandemic.   

Average monthly job growth has moderated this year, despite the addition of 1.6 million jobs.  The average monthly growth rate this year is 258,000 compared to nearly 400,000 last year.  In the most recent report, the economy added 187,000 jobs in August.  Job growth is decelerating.   

Last year's booming job market wasn't as robust as the monthly numbers published by the media.  That's because the BLS adjusts the figures each month.  The trend has been that the adjustments wind up reducing actual job growth.  The media usually downplays the data or ignores it.

For example, in March the BLS revised the job growth downward by 306,000.  Do you recall reading or hearing that number?  June and July numbers were reduced by a combined 110,000.  Over the last three months, the economy recorded a modest average monthly gain of 150,000 after adjustments. 

Unemployment is at historic lows.

In the latest report, the unemployment rate ticked up to 3.8%.  The rate inched up from July's 3.5%.  That still reflects a healthy job market.  However, the BLS headline number for unemployment rate is just one indicator of employment.  And it may not be the best. 

A person out of work may not be counted as unemployed. The BLS unemployment figure does not include the following: 1. Millions of so-called discouraged workers. 2. The underemployed--part-time workers who prefer a full-time job. 3. Those who don't have a job but claim they have looked for one in the past four weeks.

To get an honest picture of the employment landscape, the BLS publishes a U-6 unemployment figure that measures the total number of employees who are part of the labor force, but without a job. For example, the U-6 rate was 7.2% in August, slightly higher than the July figure of 7.1%. 

However, you will never read or hear about the U-6 data because it is entombed  in rows of tables that are included in the monthly BLS unemployment report. 

By now, you may be shaking your head and asking: "Does any of this really matter?"  This writer believe it does.  We are a nation of economic illiterates, unfortunately.  (Excluding of course you dear reader.) That matters when the economy is the top issue with voters in most years.

Americans don't have to be economic experts.  But an informed voter is best for our democracy. And the media and Wall Street are flubbing their responsibility to provide context and interpretation to help Americans digest the government data.

U.S. Economy Slips Into Recession Quicksand

The U.S. economy is sinking into a recession, a persistent, widespread contraction of economic activity.  It will not become official until July 28 after the government releases the data for the Gross Domestic Product (GDP).  However, the economic storm clouds have been forming this entire year. 

In the face of warning signs, economists, market analysts and the Biden Administration never wavered from rosy economic predictions. Even when the GDP declined 1.6% in the first quarter, they spun the news as a speed bump. The economy was poised for a rebound.    

There will be a rude awakening when the second quarter GDP data drops on Wall Streets this week. The Atlanta Federal Reserve, which tracks GDP weekly, is forecasting a 1.6% decline.  Negative growth in two consultive quarters meets the economic criteria for a recession. 

Experts assured Americans that inflation was only temporary.  The economy was just shaking off the cobwebs after the pandemic lockdown.  Recession was a distant chance. How did everyone from Treasury Secretary Janet Yellen to Fed Chairman Jerome Powell to Wall Street get it so wrong?   

The answer: They viewed the current economic conditions through the lens of past economic recoveries. 

There has never been a volcanic disruption as what occurred in 2020 with the exception of the Great Depression.  The U.S. sustained massive job losses, extensive business closures, broken supply chains and the shutdown of manufacturing. This was unlike any past economic jolt.  

For months, the recession-deniers have pointed to strong job growth as a sign the economy is rebounding from the first quarter GDP doldrums.  In the past, job growth indicated a growing economy.  But the job figures are not a reliable predictor in the wake of the pandemic that shutdown the economy. 

The American economy lost 22 million jobs from February to April, 2020.  By the end of that year, there were still more than 11 million unemployed Americans.  In 2021, the economy added 6.7 million jobs. This year the job gains stand at 2.74 million.  That's 9.4 million jobs in one-and-a-half years. 

For the most part, these gains reflect people returning to their former jobs after being laid off. Most are not new jobs created by innovation or business investment, which would indicate growth. Federal Reserve data shows the number of workers today are 500,000 below the level in February, 2020.

In the midst of reported job gains, 11 million job openings remain unfilled, despite six million unemployed workers.  During the economic boom of 2019, job openings averaged 7 million.  America's labor supply has been depleted because fewer workers are in the job market.

The labor pool shortage may be partially attributed to the 2.4 million workers who retired early in the first 18-months of the pandemic. Total retirements from March 2020 to July 2021 reached 4.2 million. Anecdotal evidence suggests some retirees are re-entering the workforce due to inflation. 

A phenomenon know as the "Great Resignation" is also roiling the job market.  The BLS reports 47 million workers voluntarily quit their jobs in 2021.  The trend is likely to continue.  A McKinsey study finds 40% of workers and the self-employed expect to leave their jobs in the next three to six months.

Many take time off to re-evaluate their career options and personal priorities. If they return to a job, it usually is for better pay, more opportunities for advancement, improved work-life balance and job flexibility.  This constant churn in-and-out of the workforce helps explain the 11 million job openings. 

Confronted with this evidence, experts cite the low unemployment of 3.6% as as sign a recession is unlikely. Bureau of Labor Statistics unemployment data does not count so-called discouraged workers or those "marginally" attached to the workforce who haven't sought a job in a month. 

Buried in the BLS statistical tables is a figure known as the U-6 data. The St. Louis Federal Reserve watches this number more closely than the headline figure generated by the government.  The metric measures real unemployment at 7.0%, by including discouraged and marginally attached workers.

Another measurement of economic activity is total retail sales, a key indicator of consumer spending.  Retail sales ticked up 1% in May, but adjusted for 1.3% price inflation for the month, sales actually declined.  

Consumer spending is the best barometer of the economy, because it accounts for about 70% of the GDP.   Looking back, the feverish spending of late 2021 and earlier this year was predictable. 

The average American had saved 33% of household income during 2020, building a financial cushion. Coupled with stimulus payments, consumers were flush with cash. After paying off $82 billion in credit card debt in 2020, credit availability shored up consumer confidence to keep shelling out money. 

However, as inflation heated up, soaring to 9.1% recently, spending began tapering off over time.  Stimulus payments dried up.  Enhanced unemployment benefits ended. Americans began dipping into savings to sustain spending.  Today households  are saving just 4.4% of income.   

The latest data from the Bureau of Economic Analysis shows credit card debt jumped 20% in April (the latest figure available) to a near record of $1.103 trillion.   The Fed reports revolving debt and credit card balances combined skyrocketed 19.6% from the previous year in April. 

In another harbinger of a slowdown, June saw a 20-year low for home mortgage applications as average home prices hit a record.  A spike in interest rates, orchestrated by the Fed, discouraged many first-time homebuyers from purchasing a home.  Homebuilders are are preparing for a downturn. 

Perhaps, the clearest clue of economic trouble is Americans are cutting back on driving.  Motorists purchased almost 10% less fuel in the week ended July 9 and an estimated 7.8% less in the week ended July 16.  Gas prices are falling because inflated prices are curbing demand.  

With the spending binge ending, consumers are in a gloomy mood. Consumer Sentiment data tracked monthly by the University of Michigan reveals confidence has fallen to 51.1% from 81.2% just a year ago. When people feel less confident, it influences their spending and saving habits. 

Businesses are grappling with uncertainty too.  Microsoft, Tesla, Netflix, Google and J.P. Morgan head a list of business firms either laying off workers or reducing hiring. In May, the latest figure available, 1.4 million workers were laid off and discharged.  Jobless claims in June were the highest since January. 

Once the government data confirms what consumers already know, don't expect an about face from the experts or an admission of failure to forecast the recession.  The usual suspects, Wall Street and the administration, will begin preaching a recovery is just a quarter away.

No doubt, at some point, the economy will begin to right itself.  But the lingering question is: "How long will that take?" Be forewarned that no one really knows that answer, however, you can bet there will be plenty of forecasters touting a turnaround soon.