A ‘Biden Boom’ And Americans Haven’t Yet Noticed

Update to A ‘Biden Boom’ And The Corporate Media Is Parroting GQP Gloom And Doom Propaganda.

The corporate media is complicit in recklessly feeding self-fulfilling inflation psychology with hysterical reporting on inflation, by reporters most of whom never even took an Econ 101 class in college. They know not of what they speak, so they are parroting GQP talking points. Once again, Republicans know nothing about economics. So just call this journalistic malpractice.

Robert Shapiro, the chairman of Sonecon and a Senior Fellow at the McDonough School of Business at Georgetown University, and previously served as Under Secretary of Commerce for Economic Affairs under Bill Clinton and advised senior members of the Obama administration on economic policy, writes at the Washington Monthly’s Political Animal blog, It’s a Biden Boom—and No One Has Noticed Yet (excerpt):

[D]emocrats have a problem these days talking about good news, especially on the economy.

[O]ver the first three quarters of this year, real GDP increased at a 7.8 percent annual rate—that’s adjusted for the current inflation. The Federal Reserve expects real growth of 5.9 percent for all of 2021, followed by another 3.8 percent increase in 2022. By any recent standard, these are extraordinary gains. From 2000 to 2019, real GDP grew at an average annual rate of 2.2 percent and never reached 3 percent. Investors have noticed: From January 20 to December 7, 2021, the S&P 500 Index jumped 21.7 percent.

Strong growth usually means healthy income gains, and the disposable income of Americans grew 3 percent after inflation over the 10 months from January to October. That far outpaces the gains of only 0.5 percent for the comparable period in 2019 and 1.7 percent in 2018. Wages and salaries comprise nearly all of most households’ incomes, and those earnings also are rising much faster than normal. From January through October, all wage and salary income paid by private businesses increased 2.4 percent after inflation, compared to gains of 0.3 percent for the comparable period in 2019 and 0.7 percent in 2018.

The main reason for the big increase in total wage and salary income is that 5,675,000 Americans who were unemployed when this year began had found new jobs by November. With support from the rounds of pandemic stimulus enacted in December 2020 and January 2021, the jobless rate fell from 6.3 percent last January to 4.2 percent in November, or by one-third over 11 months. Following the Great Recession, it took six years for the jobless rate to fall by one-third.

While the large job gains lifted total wage and salary income well above inflation, new hires typically earn less than the average in their industries. One result is that as prices have risen at a 6 percent annual rate over the past six months, recent gains in average hourly and weekly earnings have lagged the recent inflation. That may be temporary, since wages and salaries generally take more than six months to catch up when inflation heats up suddenly.

For now, 45 percent of households surveyed by Gallup say that inflation is straining their finances. One reason is that the price hikes have especially affected food and gasoline, two items most people have to purchase every week. This sensitivity is also fairly concentrated among lower-income Americans: 71 percent of people in households earning less than $40,000 per year consider inflation a “hardship,” while 71 percent of those in households earning $100,000 or more say it poses no problem.

No one knows yet how long the current uptick in prices will last. However, we can say that this is not a case of the 1970s redux, when a 350 percent jump in oil prices embedded serious, sustained cost increases in almost everything. For one, oil prices have fallen by more than 20 percent over the past three weeks. In any case, most of the current run-up in prices is tied to supply chain bottlenecks and labor shortages, not global commodities.

Americans last experienced this type of inflation in 1946–47, when bottlenecks and shortages arose from the economic restructuring required to pursue years of total war. This time, logistical adjustments should address many of the supply chain issues over the course of a few months. Accordingly, Federal Reserve Chair Jerome Powell says he expects broad price increases to ease substantially over the next six months. Financial markets agree: The yield on 10-year Treasury bonds was less than 1.5 percent this week, which is lower than in mid-February, before prices began to accelerate.

If investors are right—and assuming Omicron doesn’t upend everyone’s lives—the conditions for a very strong economy through 2022 are in place. The personal saving rate spiked from March 2020 to July 2021 at the highest levels since World War II, giving tens of millions of households the means to continue to make purchases put off during the pandemic. Employment will continue to rise, and with it, total wage and salary income. The 2022 rollout of infrastructure projects authorized last month will further support more gains in growth, jobs, and incomes, as will the first tranche of spending from the Build Back Better program if Congress approves the measure.

Given this year’s remarkable gains in growth and employment, why is Biden’s approval on the economy so far underwater? It’s really not very mysterious: Americans’ perceptions of the economy always lag actual economic conditions when those conditions have recently changed. Everyone remembers how terrible the economy was less than one year ago, and many Americans are still unconvinced that the turnaround will last.

So, if the economy continues to improve as economists expect, people will come to believe again. In that case, the midterm elections could well unfold during a formidable Biden boom, which certainly would be good news for the Democrats.

Update:

To be more concerned about inflation than a plot to end democracy is pretty much a definition of the choice made by many in pre-WW2 Germany.

— stuart stevens (@stuartpstevens) December 11, 2021

Kevin Dugan explains at the New Yorker, Everything’s Getting More Expensive. Here’s What You Can Blame It On. (excerpt):

[T]here are three factors that have played a particularly important role in driving up November’s inflation numbers — and probably your monthly credit-card bill.

The supply chain is still screwed up

One of the clearest ways to understand why prices are rising is to track how physical goods have been stuck in place. This is generally what’s meant when people refer to problems in the supply chain, an interconnected global web of manufacturers, ships, ports, trucks, and deliveries meant to get goods into the hands of you, the consumer. Normally, things run pretty smoothly, but wave after wave of COVID infections in places like Vietnam — the sixth-largest goods supplier for the U.S. — have pushed back manufacturing, leading to a domino effect for everything down the chain.

This summer and fall, the backlog of containers at major ports was so severe that one ship waited nearly eight weeks before it could dock and unload its cargo, according to the Wall Street Journal. Facing bare shelves and delays, stores started to raise prices on the goods they did have. The Biden administration proposed billions in funds to keep the flow of goods going, and while the delays have eased up since then, that has more to do with conditions getting better in Asia. Still, there’s reason to think that things are slowly getting back to normal. “It looks like we’re past the worst,” Paul Gruenwald, global chief economist at S&P Global Ratings, told Intelligencer. But it hasn’t been an even recovery across the country’s ports. Back in March, before prices really started to rise, it took a little under 20 hours before goods delivered into the Port Authority of New York and New Jersey would get offloaded, according to data from the agency. Now, it takes about 32 hours. “Our analysts who are looking at that sector still see another six months more or less of kind of stickiness and congestion in the supply chain,” Gruenwald added. It shows that even if one snarl in the supply chain loosens up, another problem — say, a shortage of truckers — could still weigh things down.

Energy prices spiked in November 

Earlier this year, concerns about persistent inflation weren’t taken very seriously because the rise in prices was concentrated around things like rental cars — not a major, recurring cost for most people, and something that had a lot to do with the bankruptcy of Hertz during the early months of the pandemic. Now, it’s all about the spike in the price of oil and gas — the lifeblood of the economy, the way most people heat their homes and get to work. It was serious enough that the Biden administration released 50 million barrels of oil from its strategic reserves, enough to cover more than five days the country’s energy needs.

The November data, too, appears to reflect the peak of prices. Last month, a barrel of oil hit a high of $85, more than double where it was a year ago. Since then, it’s fallen to a little above $70, due to the brief panic over omicron and an increase in production from oil-producing countries. When prices are this high, shale producers in the U.S. also tend to start taking oil out of the ground, since the high prices justify the expensive work. “Prices are still highish. They’re in the low 70s. But the inflation part of that story is over. We don’t think prices are going to be going up from here,” Gruenwald said.

People are still spending their stimulus money [pandemic relief money]

The last two years have seen an unprecedented $5 trillion sent directly to U.S. citizens and businesses in order to keep families from starving and businesses from closing while states ordered people to stay at home. At the same time, the Fed kept interest rates at practically zero, making it cheaper and easier than it had been in years to borrow money for things like a house or a car. Thanks to additional social programs like the child tax credit, financial cushions are more stable than ever for more people. The result? There’s more money in the system and consumers have done what they do best — buy stuff, price and supply chain be damned. “Demand across the economy recovered a lot faster than most households and businesses anticipated,” said Joel Prakken, chief U.S. economist for IHS Markit.

On the other side of the supply-and-demand equation, corporate America has also had a role in rising prices. Public companies had one of their best earnings seasons ever last quarter, boosted not only by the stimulus money that’s leaving customers’ accounts, but by the subsidies that came directly from the government for the businesses. That gave them the leeway to raise prices — even on products that weren’t facing supply-chain problems. “It does put sellers in the driver’s seat in terms of being able to raise prices without fear of losing market share,” Prakken said. While companies are preparing to use some of that money to raise workers’ pay next year, any wage gains will probably come as the Fed cools down the economy. Powell has signaled that he’s ending a massive market-stimulus program in which the central bank purchases debt. After that, the central bank is likely to start raising interest rates, making it more expensive to borrow money for a home or a car, or even just to carry a balance on a credit card. That, of course, tends to tamp down demand and cool inflation. But higher rates affect consumers to — so even if prices now are higher than normal, it might still be a good time to buy. [Argh! This is inflation psychology.]