Tuesday, April 13, 2021

Monthly consumer inflation rate increases by most in 10 years; real wages decline, but real aggregate wages increase


 - by New Deal democrat

Seasonally adjusted consumer prices rose 0.6% in March. This was the biggest single month gain since June 2009, coming out of the Great Recession:

Leaving aside the pandemic, since the 1980s recessions have only happened when CPI less energy costs (red) had risen to close to or over 3%/year, usually driven by increases in the price of oil by more than 40% YoY. Even with this month’s spike, YoY inflation ex-energy is only up 1.9%:

Because in the first few months of the pandemic during the lockdowns there was a spurt of deflation as shown above in the first graph, in the below graph I’ve normed the values to 100 as of May of last year. In the 9 months since, total inflation has been up 3.5% (for a 4.7% annual rate), while inflation ex-energy has risen 2.0%, (for a 2.7% annual rate):

This is still not enough to be of concern on a transient basis.

Now let’s take a look at how inflation has affected real wages. 

Because wages are “stickier” than prices, typically as recessions beat down prices (or at least price increases), in real terms wages rise, either during or just after a recession. That was the case for the coronavirus recession as well. As prices increase with renewed demand, and employers are able to add workers from the larger pool of the unemployed and underemployed, real wages decelerate and even decline.

That was the case for March. Real wages declined -0.5%, and are -3.1% off their all-time high set last April:

They are still 0.9% above their previous 1973 peak.

As more low-wage employees in service industries like dining and entertainment are called back to work, the YoY% change in real wages has decreased from over 7% last April to 1.9% in March:

A further decline in real wages is quite likely. As a result, YoY real wage increases have declined from over 5% last I suspect we will see an actual YoY decline in real wages by the end of this year.

A bright spot is that real *aggregate* payrolls for nonsupervisory workers did increase:

These are now only -2.1% below their pre-pandemic peak, and equivalent to where they were in July 2019. If vaccinations succeed in controlling the pandemic, it is quite likely that these make a new all-time high by the end of the year as well.

Monday, April 12, 2021

Coronavirus dashboard for April 12: more good news, more bad news


 - by New Deal democrat

The good news is, vaccinations work.

Vaccine effect in the UK:

By age group:

Vaccine effect in France (in the face of an increasing case count):

Vaccine effect even in Chile:

While confirmed cases have gone up by 100% in Chile, deaths have “only” gone up by 50%. Even employing a 4 week lag, 4 weeks ago cases had gone up 50%, while deaths are up 33% from 4 weeks ago:

Vaccine effect in the US:

Now, the bad news.

A 4th wave has clearly begun in the US, as confirmed cases are up over 30%, from 53,300 3 weeks ago to just over 70,000. Deaths have plateaued:

One week ago I said that Michigan would be the acid test for what happened with deaths in the face of a 4th wave of infections even with a substantial portion of the population having been vaccinated. And the news is not good:

Deaths have followed new infections higher with a 3.5 week lag. And worse, so far deaths have increased at the same rate as new infections since the bottom.

One final note: I have seen several stories recently about “breakthrough” infections, I.e., infections which are claimed to have begun *after* a person was fully vaccinated, and even a few hospitalizations and deaths. There are two important caveats to those stories: 

(1) the studies are based on *diagnoses* more than 14 days after the 2nd vaccination. They are not based on *when the person was infected.* In other words, a person who first felt symptoms and got tested 14 days or more after their 2nd vaccination may well have been infected shortly after, or even *before* their 2nd shot. These studies would have a lot more credibility if the test were first performed more than 28 days after the 2nd shot, so that the infection would have almost certainly begun more than 14 days later. Until we see such studies, take the “breakthrough” claims with many grains of salt. 

(2) the vaccines have never been claimed to be 100% effective. At roughly 95% effective, that means a certain small number of infections are still likely to take place. As yet, however, I do not know of even a *single* death that we are sure resulted from an infection that began more than 14 days after a person’s 2nd shot.

Saturday, April 10, 2021

Weekly Indicators for April 5 - 9 at Seeking Alpha


 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

The big news continues to be bifurcation between the currently unfolding Boom, fueled by the fire hose of monetary and fiscal stimulus, and the fallout in the long leading forecast based on the increase in interest rates as a result.

As usual, clicking over an reading will bring you up to the virtual moment on the economic data, and reward me with a penny or two for my efforts.

Friday, April 9, 2021

With a Booming economy comes at least transitory inflation: March producer prices


 - by New Deal democrat

One of the economic subjects you are going to hear a lot about this year is inflation. We are recovering from a sharp if brief recession, and with the dual firehoses of fiscal and monetary stimulus, entering a Boom such as we have probably not seen in over 50 years.

Unsurprisingly supplies of commodities and goods that had been cut back during the recession are going to be stretched thin and much competed for now, generating at least a brief burst of inflation.

With that background noted, this morning producer prices for March were reported up 1.3% for that month alone. YoY producer prices are up 6.0% (blue in the graphs below):

Much of the increase has been due to gasoline. Take out energy costs and producer prices were up a more modest 3.3% (red in the graph above).

Typically producer and consumer prices move in sync, with no more than one month’s variation in YoY peaks and troughs. But consumer prices are much less volatile (gold in the graph below):

Because producer prices frequently actually decline during a recession, as they did in March and April of last year, it is not a surprise that some of their biggest YoY increases occur right thereafter, as recessionary price declines are replaced by strong gains due to increased demand:

And that’s what is happening now. 

I am expecting inflation to abate next year after a great deal of caterwauling from Doomers this year. One negative this year, however, will likely be that average wages will not keep up, resulting in an actual decline in purchasing power for many ordinary workers.

Thursday, April 8, 2021

Jobless claims: progress pauses, as a new surge in COVID in Michigan and the Northeast causes concern


 - by New Deal democrat

New jobless claims are likely to the most important weekly economic data for the next 3 to 6 months. As the number of those vaccinated continues to increase, I expect a big increase in renewed consumer and social activities, with a concomitant gain in monthly employment gains - as we saw in the March jobs report last week.

Three weeks ago I set a few objective targets: I am looking for new claims to be under 500,000 by Memorial Day, and below 400,000 by Labor Day. This week didn’t help us, although it is more of a pause than a significant increase.

On a unadjusted basis, new jobless claims rose by 18,172 to 740,787. Seasonally adjusted claims rose by 16,000 to 744,000. The 4 week average of claims also rose by 2,000 from last week’s pandemic low of 721,250 to 723,250. 

Here is the close up since last August (recall that these numbers were in the range of 5 to 7 million at their worst in early April): 

Focusing just on the less volatile 4 week average since September shows that the last several weeks have been more of a pause at the recent low rather than a notable reversal:

Note that I have discontinued the YoY comparisons, since we would be comparing agains the very worst weeks of the initial lockdowns last year.

Continuing claims, which historically lag initial claims by a few weeks to several months, continued to make new pandemic lows yet again this week. Seasonally adjusted continuing claims declined by 16,000 to 3,734,000, while the unadjusted number declined by 67,666 to 4,031,531:

Seasonally adjusted continued claims have now slowly declined to levels last seen in the summer of 2011, when weekly jobless claims were just over 400,000 and the unemployment rate was 8.2%.

I remain bullish that the ever-increasing pool of fully vaccinated adults - 64,300,000 as of yesterday, or almost 25% of the entire adult population - together with the ongoing seasonal shift from indoor to outdoor activities, is going to continue to result in a dramatic fall in jobless claims over the next few months.

I have to acknowledge, however, that I am growing more concerned at the big spike in new coronavirus cases from the now-dominant UK variant in Michigan and the Northeast, which is now showing up in increased deaths as well. It is at least reasonably possible that this will entirely counterbalance progress on the vaccine front for the next 2 to 3 months.