Quick road trip in progress so just a few scattered impressions from the hotel room, and pre-coffee so I can’t be held accountable.
Yesterday’s retail sales numbers were a concern because there’s a negative trend there — see figure — over the last quarter (April, May, June) which corresponds to the slower growth in the job market. Lower gas prices were part of the story, but not all of it. From Moody’s.com:
Gasoline station sales again led the declines, but even core sales excluding gasoline stations and auto dealers posted the third consecutive monthly decline.
Sales represent the largest part of GDP, and forecasters got busy marking down their second quarter GDP growth expectations from around 2% to 1.5% or lower. That’s moving from trend growth to below trend growth. Not good from the perspective of lowering the jobless rate.
Related to the decline in energy/gas prices, overall inflation was unchanged in June, and as I’ve stressed in recent posts, that’s helping to goose real earnings a bit. The pace of core inflation hasn’t changed much (see figure) so I’m less worried about deflation here.
Real weekly earnings were up 0.6% over the past year, which may not sound huge, but is a lot better than the recent trend (see figure). In fact, that’s the strongest growth rate of real paychecks in over a year. And what’s notable here is that the while the weak job market is leading to slower nominal wage growth, that’s being more than offset by lower inflation. A year ago, nominal weekly earnings grew 3.1%, yr/yr, but fell in real terms. Now they’re growing 2.2% before inflation but increasing in real terms.
So, what we may be seeing here are some lagged effects in consumer spending that could improve, based on recent real wage gains. However, as long as the job market is pushing the other way — and if real GDP slips below trend — don’t count on it.
Now, since we’re in the heart of election silly season, I am compelled to add: these weakening trends in jobs, nominal wages, and sales could have been mitigated if not avoided had we taken stimulative actions that the President was promoting a year ago. This summer could have seen, for example, repairs and maintenance to tens of thousands of public schools so kids could return to a better learning environment in September. But the politics would not allow it — more precisely, conservatives touting austerity blocked it.
Two items from the papers to highlight.
First, this remarkable piece by Jason DeParle in the NYT from Sunday. I don’t have time to go into the nuances, and there are many — just read it. A few points:
—The single mom, a steadily employed, hard worker with some college who’s the focus of the story, earns $12.35/hr, “simultaneously in management and on food stamps” as DeParle puts it.
—She lacks paid time off, and loses important money when she’s sick. I recently spoke on this issue and noted that the people, like her, who need this policy the most, are the least likely to have it. And every other advanced economy provides it, btw.
—In recent presentations, like this one (e.g., slide 10), I’ve stressed linkages between inequality and the diminished opportunities faced by kids in lower-income families. Jason DeP links this convincingly to the heightened economic stress of single parenting.
—But what explains all this, particularly the increase in single parent households? I’m not sure you get that from the piece — not a criticism — this is journalism, not social science. Some have talked about the decline in “marriageable males” — fewer man around who have the means, drive, skills, opportunities to provide for a family — but I’m not sure what to make of that. It doesn’t really ring true beyond the observation — which is very much true — that there are fewer good jobs for non-college educated workers now than in the past.
—Anyway, whatever’s behind this, and it’s complex, I’m sure, the main point is that we need to make sure that families like the one in the story, who are trying really hard to make things work, get the help they need. That includes robust earnings subsidies like the EITC, health coverage, and I’d argue more opportunities for the kids. These days, the reality is that you can’t count on most schools to provide all the learning, the sports, the arts, the science, the language, the trips, the experiences…that kids need to realize their potential. They’ve got to try to get that after school. And too few single parents have the time or resources to provide those opportunities.
Second, Sen Patty Murray has real spine when it comes to the fiscal cliff. She was on the supercommittee and it looks to me like she took that experience seriously and learned important things from it. The R’s refusal to compromise led to some very tough outcomes. Now they want to blow past all of that and once again kick the fiscal can down the road. Good for Sen Murray for calling them on it and using some real leverage to try to get a balanced deal out of this.
I’m not saying it’s a “no-risk” strategy re the already wobbly economy. But I do believe it’s the right strategy. At some point, a grown-up has to pull back the veil on all this no-new-taxes-ever-on-anyone and insist on what should drive politics at difficult times like these: compromise.