So the corporate cable jockeys are predictably doing their scripted freak-out today over the annual inflation rate for 2021, the second year of a lingering Coronavirus pandemic – a “pandemic of the unvaccinated” – which is still causing global economic disruptions during an economic recovery.
I can almost guarantee you that not one of these cable jockeys has a clue what they are talking about when they use media buzzwords like “historic” (today’s inflation rate is nowhere near historic). I doubt that any of them even took an Econ 101 class when in college, given how little actual knowledge they demonstrate when talking about economic issues.
There hasn’t been a good economics reporter on television since the late great Irving R. Levine, NBC’s chief economics reporter from Washington, D.C. in the 1980s. ( TIME magazine once described Levine as a “pioneer” in economics reporting on television. More like a “unicorn.” Levine has not been followed by others.) And no, that Wall Street investor crap on CNBC and Fox Business is not economics reporting.
Last week there was good economic news which was almost universally downplayed by the “nattering nabobs of negativism” in the corporate media. Here’s a fair headline from the AP. US unemployment sinks to 3.9% as many more people find jobs:
The nation’s unemployment rate fell in December to a healthy 3.9% — a pandemic low — even as employers added a modest 199,000 jobs, evidence that they are struggling to fill jobs with many Americans reluctant to return to the workforce.
The drop in the jobless rate, from 4.2% in November, indicated that many more people found work last month. Indeed, despite the slight hiring gain reported by businesses, 651,000 more workers said they were employed in December compared with November.
* * *
For now, steady hiring is being driven by strong consumer demand that has remained resilient despite chronic supply shortages. Consumer spending and business purchases of equipment are likely propelling the economy to a robust annual growth rate of roughly 7% in the final three months of 2021. Americans’ confidence in the economy rose slightly in December, according to the Conference Board, suggesting that spending was probably healthy for much of last month.
Wages also rose sharply in December, with average hourly pay jumping 4.7% compared with a year ago. That pay increase is a sign that companies are competing fiercely to fill their open jobs. A record-high wave of quitting, as many workers seek better jobs, is helping fuel pay raises.
And what did most reporting on the jobs number focus on? The jobs number (which is only an estimate, always adjusted in later months) did not meet economists forecasts (even less reliable). So we’re playing an expectations game now, are we?
Media critic Eric Boehlert writes at Press Run, Economy soars while press plays jobs “expectations” game:
The U.S. economy just set the record for the most jobs created in one year, but you’d never know it from the continuing doomsday economic coverage under President Joe Biden.
The new jobs report, released Friday, offered the latest evidence of the purposeful disconnect the media maintain, and specifically how journalists rely on consistently unreliable “expectations” for job report numbers in order to portray the results as “disappointing,” and to paint a picture of a faltering U.S. economy even as it shatters growth records.
The U.S. economy just posted 199,000 new jobs in December, during a pandemic surge. That sounds like a good thing, right? Especially considering that in December 2020, under Trump and during another wintertime pandemic surge, the U.S. lost 140,000 jobs. Instead, the press was uniformly pessimistic about Friday’s news.
It was a “major disappointment,” CNN announced, despite the fact employee wages hit record heights and the unemployment rate tumbled to 3.9 percent. (Last winter, the CBO predicted it would take five years for the U.S. to reach an unemployment rate that low.) NPR stressed the US added “only” 199,000 jobs. Hiring had “faltered” the New York Times reported. All because the key number failed to meet estimates.
The expectations game is set by economists and banks which publish their estimates on the eve of each job survey. It’s an easy-to-use model the press has employed for decades to analyze monthly results. But economists’ expectations no longer work during the pandemic. They’ve been wildly inaccurate during the Biden recovery and should no longer serve as the determining factor in how jobs reports are presented by the press.
David Lynch at the Washington Post concurs. Here’s another thing the pandemic has screwed up: Economic forecasts. “Ian Shepherdson says he realized that the pandemic had rendered traditional models — based on macroeconomic indicators such as industrial production and oil prices — “more or less useless.”
“During one of the most volatile periods in recent memory, private and public-sector economists have a less firm grasp of what the labor market is doing,” the Wall Street Journal recently conceded. During 2021, economists cumulatively missed the jobs mark by well over 1 million jobs. And that’s in a year when the U.S. created more than 6 million jobs, the most since records began in 1939.
The expectations model often produces dubious journalism.
[A]nother key hurdle is that the government has shown for the last year that it chronically undercounts, by large margins, the job gains data that are released to the public, and when it goes back and quietly post revisions they’re mostly ignored by the media.
[T]he problem is that during the pandemic, the percentage of employers who are responding to the survey has dropped dramatically, which means the initial numbers are less reliable. Yet those numbers are still the ones the press blasts out in headlines the first Friday of every month, when the unemployment figures are released.
It’s a one-two combo: The BLS is regularly undercounting jobs, which is bad news for the White House, and economists are regularly overestimating what the monthly BLS jobs number will be, which is also bad news for the White House. Then when the BLS revises the monthly gains, the media are nowhere to be found.
Wash, rinse, repeat.
Media critic Dan Froomkin adds at Press Watch, Which newsrooms are trying to make the economy look bad?:
Friday’s jobs report provided a highly effective Rorschach test for our major newsrooms. What did they see in it? And what did that reveal about them?
News organizations have personalities and politics, whether they admit it or not. (They don’t.)
It’s in coverage like this that their natural impulses are easiest to divine. Faced with a combination of positive and negative indicators, what do they reflexively focus on?
What the evidence below suggests is that newsrooms that tend to see everything as a political story – like the New York Times and the Washington Post — were more likely to focus on the negative elements of the jobs report. The addition of 199,000 jobs in December was disappointing, they concluded.
Those newsrooms consistently link President Biden’s re-election hopes to the health of the economy, so one could argue that stressing negative news about the economy reflects either a need to put a negative spin on everything — or some sort of latent anti-Biden bias.
Biden himself said on Friday that the report marked a “historic day for our economic recovery,” and credited it in part to his American Rescue Plan and widespread distribution of the Covid vaccines. “This is the kind of recovery I promised and hoped for for the American people,” he said.
And many other newsrooms saw the report, with its record low unemployment numbers, as hugely positive. Newsrooms serving the business community in particular saw it as signifying a booming recovery.
Froomkin argues that the AP report above “is both a truer reading of the data and a much more edifying story for the readers.”
He then breaks down several other news organization’s repoting in his piece.
Nobel prize winning economist Paul Krugman explains, Don’t Tell Anyone, but 2021 Was Pretty Amazing: a closer look at a recovery for the record books (subscriber content).
NYT's @paulkrugman, Nobel prize winning economist:
"One thing is clear: 2021 was a banner year for economic recovery. And people should know that."https://t.co/Iab3rWetUj
— Emilie Simons (@EmilieSimons46) January 4, 2022
So the media freak-out today is US consumer prices soared 7% in past year, most since 1982.
Paul Krugman explains in another column the economic tradeoffs, The economic case for Goldilocks:
For the U.S. economy, 2021 was both the best of times and the worst of times — well, maybe not that bad, but still.
The good news: Unemployment plunged thanks to rapid growth and job creation, falling as fast as it did during the “morning in America” recovery of the early 1980s.
The bad news: Inflation hit its highest level in decades. So economists who warned early last year about inflation were right, while those of us who downplayed the risk or predicted only a brief interlude of rising prices were wrong.
There are, however, two questions about the mix of good and bad news that people should be asking, but for the most part, at least as far as I can tell, aren’t. Could we have had substantially lower inflation without a much worse job picture? And, if not, would accepting a slower employment recovery in return for less inflation have been a good idea? I’m a definite no on the first question, and a probable although not completely certain no on the second.
If I’m right on both counts, however, a surprising conclusion follows: Economic policy in 2021 was actually pretty good. In fact, given the dislocations associated with a continuing pandemic, we ran what was in effect a Goldilocks economy, one that was neither too cold nor too hot.
I can already hear the screaming, but bear with me for a bit.
Let’s start with what should be an unobjectionable point: The COVID-era recovery has been very unbalanced. Fear of infection has limited demand for in-person services like restaurant meals, and people have compensated by buying physical goods like cars and household appliances. Real purchases of consumer durables are still running more than 20% above the pre-pandemic level, while purchases of services have only recently returned to their level of two years ago.
And supply chains have had a hard time keeping up with surging goods purchases.
Econ 101 tells us what should happen in the face of skewed demand and constrained supply: The prices of the things people are scrambling to buy should rise relative to the prices of things people are still shunning. Sure enough, the ratio of the price index for durable goods to that for services has risen substantially, reversing its normal technology-driven downward trend.
This relative inflation in the prices of goods as compared with services was unavoidable if we didn’t want to experience crippling shortages — which we did, in fact, avoid: Some consumer items have been hard to get, but predictions of a holiday-season “shipageddon” didn’t come true.
But we could have had lower overall inflation if we had squeezed service prices — say, by slashing aid to families or raising interest rates, and thereby restraining private spending — instead of doing what we did, which was to make the whole adjustment via higher goods prices. Would that have been a better path?
Well, I don’t see any way we could have squeezed service prices without also squeezing service-sector employment. That is, unless policymakers have access to some magic wand I haven’t heard about, we could have kept 2021 inflation down only at the cost of a substantially slower jobs recovery.
And that would have been a bad thing. High unemployment isn’t just harmful when it’s happening; it also has destructive long-term effects, because the evidence says that young people starting their work lives amid economic weakness suffer persistent damage to their earnings.
So holding back the recovery would have been a serious mistake if — and it’s a big if — the inflation spike of 2021 doesn’t turn into a wage-price spiral, and we can eventually get inflation back down without having to go through a serious recession. Not to put too fine a point on it, it would have been a tragedy if hundreds of thousands of currently employed Americans had been denied jobs merely in order to reduce congestion at the ports of Los Angeles and Long Beach.
So can we unwind inflation fairly gracefully? The Fed thinks we can. So do most independent forecasters. So do I, although of course we could all be wrong.
Beyond that, not gonna try reading the cpi entrails. Much more curious about next employment cost index/2
— Paul Krugman (@paulkrugman) January 12, 2022
And for those following the financial news, no, indications from the just-released Fed minutes that officials are concerned about inflation and expect to raise interest rates this year aren’t an admission that they were wrong to keep rates low last year. When I’m merging with highway traffic, I keep my foot on the gas pedal while accelerating, then let up once I’ve reached cruising speed. What do you do?
As I suggested earlier, I expect many people to be very upset at any suggestion that economic policymakers have done a pretty good job lately. Before you start ranting about inflation, however, ask yourself what you would have done differently and whether your alternative policies would have been consistent with the very good news we’ve had on jobs.
I’m not saying that we should ignore inflation. The Fed is right to be considering interest rate hikes now that the economy appears to be getting close to capacity. But accepting inflation for a while was probably the right call.