Democrats: We Need More Jobs For Workers Republicans: We Need More Workers For Jobs
Boom. That’s the best one-word summary of the state of the American economy. Later this month or sometime in June the economy will be back to the size it was before the pandemic hit. By year end, it will have made up the growth lost during 2020 and be as large as if China had never included the virus among its massive exports to the US. The economy that was believed headed into a deep, long-lasting recession a bit more than a year ago proves to have a foundation that could be shaken but not collapsed, at least not by a mere virus, although its resistance to attack from malign policies remains untested.
Americans are snapping up cars and small trucks at a rate not seen since the autumn of 2017.
Dealers shifted $11.6 billion worth of furniture from showrooms to homes in March, a record.
More than one million new single-family homes were sold in March, more than in any month in about 15 years.
Thanks to rising orders and export sales, the service sector is growing at its fastest rate in more than a decade.
“CEOs across America’s industrial heartland are looking ebullient,” reports The Economist.
Corporate earnings are growing faster than at any time since 2010.
“Firing on all cylinders” is how Chris Williamson, chief business economist at data firm IHS Markit, describes the economy. “Puzzling” is how observers describe the job market, which produced a mere 266,000 jobs in April, far short of the predicted one-million-plus, and the March increase was revised to 770,000 from the initial 916,000. This despite a 331,000 jump in jobs in leisure and hospitality as economies re-opened, with hotels in Las Vegas reporting 85% occupancy rates. There now are reasonably close to as many job openings as there are workers displaced by the pandemic, and “help wanted” ads dot cityscapes. But despite rising wages (up at an annual rate of 8.4% last month) and inducements such as wage payment on the day the work is performed, labor shortages persist. The reasons might be that government unemployment benefits and other beneficences are so generous in President Biden’s entitlement state, or that many states have relaxed the requirement that benefit recipients must show proof of job-seeking, or because teachers’ unions’ refusal to allow in-person teaching in many schools pins down parents who otherwise would return to work, or because some workers fear Covid, or because the statistical seasonal adjustment to the unadjusted figure of more than one million is not quite correct. The President says the jobs figure is proof of the increased strength of the economy, thanks to his policies, and of the need for more spending to strengthen the jobs market that is failing to create enough jobs.
The worker shortage of which every employer is complaining is one part of a supply side that is not expanding quickly enough to satisfy the new, unleashed level of demand. A much-publicized chip shortage has forced auto makers to shut down some production lines, causing the sales rise to deplete inventories, Microsoft and Apple complain of chip shortages, and sex toy manufacturer Crave, Inc., tells The Wall Street Journal it is hedging against chip shortages by redesigning many of its products, some of which contain 30 different electronic parts. The relation of that to the decline in the birth rate during the pandemic cannot be determined from the statistics.
Shortages of semiconductors, raw materials and transportation are making it difficult for manufacturers of large mining and construction equipment to meet customers’ demands. Add shortages of everything from cardboard boxes to ketchup, America’s most popular condiment, and it is no surprise that prices are under pressure.
The consumer price index jumped 2.6% in the year ended March, the biggest such increase since August 2018. Producers of tools, air conditioning equipment, razors, detergents, chemical compounds, peanut butter, toilet paper, “pet snacks”, diapers, steel, aluminum, copper, cereals, agricultural products, have announced price increases, as have home builders facing a recent tripling in the price of lumber, and according to The Wall Street Journal, KFC and other fast-food chains are translating a doubling in the price of chicken into record prices for chicken wings. Investors and CEOs are celebrating the return of pricing power.
Little wonder that 87% of Americans are very (46%) or somewhat (41%) concerned about the rising cost of running their households, up ten percentage points since March. But Fed chairman Jay Powell, who last week warned, “Should risk appetite decline from elevated levels, a broad range of asset prices could be vulnerable to large and sudden declines which could lead to broader stress to the financial system”, took such a possibility as still another reason “for financial conditions to remain accommodative to support economic activity.”
He remains unperturbed by increases not only in the price of assets – “a bit frothy” – but in the prices of the stuff of everyday life. He insists that the current inflationary spurt is a transitory phenomenon, although evidence mounts that chip factories are not built in a day, and broken links in supply chains are not easily repaired or replaced. The chairman wants to keep the economy at top speed until workers who have dropped out of the Labour market return, and groups hardest hit by the pandemic – especially Hispanics and Blacks – unemployment rates 7.9% and 9,7%, respectively – share in the recovery. And he notes that “lately” there has not “a strong connection” between deficits and inflation. Cheers from the MTT crowd could be heard in the background.
For all of these reasons, and buoyed by the anemic job report on Friday, the Fed chairman is “not even thinking about thinking about raising [interest] rates” from their negative real level. So he said and so he insists.
But he undoubtedly began thinking about thinking about it after Treasury Secretary Janet Yellen, one-time Fed chair, publicly warned, “It may be that rates may have to rise somewhat to be sure that our economy doesn’t overheat”. The thought of a treasury secretary gone rogue set the wheels in motion for Washington’s version of Hollywood’s “You’ll never work in this town again”. In only a few hours, Yellen recanted. Nevertheless, investors are guessing the Fed will use the annual August confab of central bankers at Jackson Hole to hint that it has begun to think about thinking about tightening policy, especially if the jobs picture brightens by then and the “upward pressure on wages” cited in the jobs report increases.
Meanwhile, Americans are getting jabbed and returning to normalcy, which on Wall Street means returning to the office. By autumn, JP Morgan CEO Jamie Dimon, who has canceled his Zoom meetings and ordered his bankers to pack their sales kits and head for far-flung clients lost to firms that encouraged such personal solicitations, wants the office to “look just like it did before…. Yes, people don’t like commuting, but so what?”, the kindly CEO told reporters.
For consumers, normalcy includes returning to the shops. Foot traffic at apparel and accessories retailers recovered to 2019 levels in March. “I am starting to buy real clothes again, and it makes me feel alive,” one shopper told reporters. A case of what Mary Daly, President of the San Francisco Fed, calls a “freedom-induced demand spurt”.
That spurt, predicts Goldman Sachs, will take the unemployment rate down from 6.1% to 4.1% by year-end. Not good enough to make Powell tighten, but good enough to allow the inflation genie to enjoy a spurt of its own.