The good and better news about the economy

Everyone who carefully follows the news about the economy knows that we are in the middle of the Second Great Depression. On the other hand, those who read less news, but deal with things like jobs, wages, and bills probably think the economy is pretty damn good. We got more evidence on the pretty damn good side with the December jobs report and other economic data released in the last week.

The most important part of the jobs report was the drop in the unemployment rate to 3.5 per cent. This equals the lowest rate in more than half a century. While many in the media insist that only elite intellectual types care about jobs, not ordinary workers, since the ability to pay for food, rent, and other bills is tightly linked to having a job, it seems that at least some workers might care about being able to work.

For these people, the tight labor market we have seen as the economy recovered from the pandemic recession is really good news. Not only do people have jobs, but the strong labor market means they can quit bad jobs. If the pay is low, the working conditions are bad, the boss is a jerk, workers can go elsewhere.

And, they are choosing to do so in large numbers. In November, the most recent month for which we have data, 2.7 per cent of all workers, 4.2 million people, quit their job. This is near the record high of 3.0 per cent reported at the end of 2021, and still above the highs reached before the pandemic and at the end of the 1990s boom.

The ability to quit bad jobs has predictably led to rising wages. Employers must raise pay to attract and retain workers. Real wages were dropping at the end of 2021 and the first half of 2022, as inflation outpaced wage growth, but as inflation slowed in the last half year, real wages have been rising at a healthy pace.

From June to November, the real average hourly wage has increased by 0.9 per cent, a 2.2 per cent annual rate. (We don’t have December price data yet.) Workers lower down the pay scale have done even better. The real average hourly wage for production and non-supervisory workers, a category that excludes managers and other highly paid workers, has risen by 1.4 per cent since June, a 3.3 per cent annual rate of increase. In the hotel and restaurant sectors, real pay has risen by 1.8 per cent since June, a 4.4 per cent annual rate of increase.

These real pay gains follow declines in 2021 and first half of 2022, but for many workers pay is already above the pre-pandemic level. For production and non-supervisory workers, the real average hourly wage is 0.3 per cent above the February, 2020 level. For production and non-supervisory workers in the hotel and restaurant sectors real pay is up by 4.7 per cent. The overall average for all workers is only down by 0.3 per cent, a gap that will likely be largely eliminated by the wage growth reported for December.

While we may still have problems with inflation going forward, the sharp slowing in recent months was an unexpected surprise. We saw gas prices fall most of the way back to pre-pandemic levels. Many of the items where prices rose sharply due to supply chain problems, like appliances and furniture, are now seeing rapid drops in prices. Rents, which are a huge factor in the Consumer Price Index (CPI) and people’s budgets, have slowed sharply and are now falling in many areas. It will be several months before this slowing shows up in the CPI because of its methodology for measuring rental inflation, but based on private indexes of marketed housing units, we can be certain we will see rents rising much more slowly soon.

In short, there are good reasons for believing that we will see much slower inflation going forward. If we continue to see moderate nominal wage growth in 2023, that will translate into a healthy pace of real wage growth.

Also, contrary to what is widely reported, we had a largely positive picture on housing in the last three years. While current mortgage rates are pricing many people out of the market, homeownership did rise rapidly since the pandemic

The overall homeownership rate increased by 1.0 per centage point from the fourth quarter of 2019 to the third quarter of 2022. For Blacks, it rose by 1.2 per centage points, from 44.0 per cent to 45.2 per cent. For young people it rose by 1.7 per centage points, from 37.6 per cent to 39.3 per cent. For lower income households it rose by 1.3 percentage points from 51.4 per cent to 52.7 per cent.

It is striking that this rise in homeownership, especially for the most disadvantaged groups, is 180 degrees at odds with what is being reported in the media. These data come from the Census Bureau, which is generally considered an authoritative source. Nonetheless, the media have insisted that this has been a period in which young people, minorities, and low-income households have faced extraordinary difficulties in buying houses.

The media have also frequently told us that people are being forced to dip into their savings and that the saving rate is now at a record low. While the saving rate has fallen sharply in the last year, a major factor is that people have sold stock at large gains and are now paying capital gains taxes on these gains. Capital gains do not count as income, but the taxes paid on these gains are deducted from income in the national accounts, thereby lowering the saving rate. It’s not clear that people who sold stock at a gain, and then pay tax on that gain, are suffering severe financial hardship.

We also have the story of rapidly rising credit card debt. This has been presented as another indication of financial hardship. There actually is a simple and very different story. In 2020 and 2021, tens of millions of homeowners took advantage of extraordinarily low mortgage rates to refinance their homes. When they refinanced, they often would borrow more than their original mortgage to pay for various expenses they might be facing.

Counterpunch