Corporate profits as a percentage of GDP are at an all-time high. Commodities prices have decreased over the last two years, while price inflation remains mostly flat.
Economic study has taught me, and logic confirms, that consumer prices should be a function of labor costs, raw material costs, and profit margins. Labor costs may outweigh commodity inputs for many businesses, but it stands to reason that a change in any underlying cost could affect prices.
Stephen Colbert coined “truthiness” to convey weakness in the veracity of some assertions. We at AIER have coined the term “moneyness” meant to describe the potency that money exerts as it flows through the economy. Moneyness is a concept that helps us understand the ability of money to fuel the economy.
Headline inflation figures remained flat for November. But price pressures lurk underneath, awaiting a trigger.
The headline data again suggest next to no change in prices. November actually saw declines across several measures of inflation. A strengthening economy coupled with a sustained influx of money from the Fed has economists shrugging their shoulders and squawking, “Where’s the inflation?”
The towns and cities of the College Destinations Index return to pre-recession strengths.
As cities and towns recover from the recession, changes in economic activity have had an impact on their rankings in AIER’s 2013 College Destinations Index. Charlottesville, Va., for example, rose four spots among college towns, from 13th to ninth in its category. Albany, N.Y. jumped nine spots among small cities, from 21st to 12th. Los Angeles, surged from 15th in the rankings for major metros, to score the seventh spot on this year’s list. In contrast, Oklahoma City didn’t fare so well. It dropped nine places, from third to 12th, in the mid-size metro category.
Increased output, rising demand from a recovering economy, and the continued expansion of the money supply keep prices rising higher.
According to the official Bureau of Labor Statistics news release, the Consumer Prices Index (CPI) rose 0.2 percent in September (seasonally adjusted). What the report did not say is that while overall price levels rose 1.2 percent over the last 12 months, all of that increase was in the last five months. An increase of 1.2 percent in five months is very different from 1.2 percent in 12 months.
A slow inflationary trajectory emerges as the world economy revives, production ramps up, and confidence grows.
Over the last year or so, headline price numbers have been held in check by a weak U.S. economy, slower growth in China, and recession in Europe. However, we can no longer count on a worldwide weakness to limit inflationary pressures.
Retirees will see their monthly Social Security checks increase slightly beginning January because of the 2014 cost-of-living adjustment or COLA. AIER experts estimate that the COLA next year will be between 1.4 and 1.6 percent, a bit smaller than the 1.7 percent increase in 2013.
The increase is in line with the rise in the costs that seniors face. But Social Security reforms under discussion in Washington may reduce future COLAs.
Transitory factors, such as the sputtering economy in late 2012, helped contain inflation. Now, GDP is back on track, setting the stage for more normal price increases.
July’s 0.2 percent increase in the Consumer Price Index for All Urban Consumers (CPI) reflects the continued healing of the United States economy following the tough economic challenges of the last nine months.
With an increase of 1.8 percent year-to-year, the U.S. Bureau of Labor Statistics’ most recent Consumer Price Index paints a picture of tame inflation. But that is more about where we’ve been than where we are going.
Prices are showing a lot of volatility, with a high variance across goods and wild period-to-period swings in the broad indices. (See chart below.) This is signaling a change in the inflationary environment.
When economics is living up to its promise as a science, economists collect data, run equations and come up with answers about what people in societies do with their real and financial resources. Based on these dispassionate findings, individuals make decisions, businesses develop plans, and governments form policies that effect millions of lives. But economics hasn’t always been so data-driven, and some economists have a different agenda. They cling to an older, nonscientific approach, driven by value-laden inquiries into what is best for society.
Using monetary policy to boost growth and employment worked. Then people caught on.
According to scientist and futurist Isaac Asimov, the most important thing that separates humans from other animals is not speech or the use of tools. It is that we are willing to play with fire. We are willing to take something that can cause us great pain, even death, and attempt to harness it.
Beginning January, recipients should see payments go up by at least 1.5 percent. But the increase probably won’t be enough to cover higher everyday prices.
Social Security recipients will see their checks increase in January, but the cost-of-living adjustment, or COLA, will be much smaller than last year. Our estimate puts the COLA for 2013 at 1.5-1.7 percent. This is roughly two percentage points below last year’s increase of 3.6 percent. It’s probably not large enough to fully compensate for the rising prices of everyday goods and services.
Small towns rule in the 2012-2013 Top 10 College Destinations.
The recent economic downturn had a disproportionate effect on the 227 cities and towns that make up AIER’s College Destinations Index. Four Major Metros—Boston, New York, Washington, and San Francisco—were knocked out of the overall Top 10 list, although they remain consistent draws for students. They were replaced by College Towns with populations under 250,000 such as Morgantown, W. Va.; Ithaca, N.Y.; and Ames, Iowa.
Manufacturing flexes its muscles as foreign and domestic firms expand their U.S. operations.
Manufacturing, one of the hardest-hit sectors in the U.S. economy, has recently experienced a substantial revival. Since late 2011, manufacturing employment has been growing fairly steadily at a rate of about 2 percent per year. (See chart below.) While this is hardly dazzling, it is the industry’s highest rate of growth in more than a decade.
It is also big news for a sector that lost about 2.5 million jobs between January 2007 and January 2010, an 18.2 percent decline. According to the latest available data from the Bureau of Labor Statistics, 312,000 jobs remain unfilled in the industry.
Whether or not higher rates are politically popular, they cannot solve the problem of the rising federal budget deficit.
Federal tax revenues have averaged 19.6 percent of GDP since World War II. As the chart above shows, federal receipts broke the 20 percent ceiling only once, reaching 20.6 percent during the tech boom of 2000.
This has led many economists to argue that it is irresponsible for the U.S. to make long-term commitments to expenditure levels above about 20 percent of GDP. Nonetheless, government expenditure was 25.5 percent of GDP in 2011 and is projected to be more than 24 percent this year.
In the aftermath of the meltdown, many older nurses kept working. This temporarily ended a shortage, but set up problems for the future.
Some of the problems plaguing today’s job market are unique to recessions brought on by financial meltdowns. In a typical recession, people may lose their jobs, but their assets stay relatively safe. But when the stock market and the housing market collapsed during the 2007-2009 recession, the net worth of the American family at the median income level fell nearly 40 percent. Without nest eggs to fall back on, many Americans nearing retirement stayed on the job. Others returned to work. The generation now entering the workforce faces a bottleneck.
When it comes to altering domestic prices, low-cost foreign goods don’t hold a candle to Fed policy.
A popular notion holds that low-cost imports have driven down U.S. consumer prices. That does not seem to be true.
A 1 percent increase in the prices of imports from the European Union, for example, resulted in 0.11 percent growth in the Consumer Price Index, according to an AIER analysis. The analysis is based on data collected since December 2003 by the Bureau of Labor Statistics. The analysis also shows that a 1 percent price increase for Latin American imports resulted in 0.04 percent growth in the CPI.
Usually a sign of confidence, climbing credit card use reflects the uneven impact of the recovery.
American consumers are sending two different signals about their faith in the economic recovery. On one hand, after years of paying down credit card debt, Americans are back to borrowing. Revolving debt, most of which is made up of credit card debt, surged by 11.2 percent in May at an increase of $8 billion. That’s the biggest borrowing jump the economy has seen since the comparatively halcyon days of November 2007.
For years, a strong dollar policy reined in inflation and helped fuel a boom. We are now paying the price of the reckoning.
In January 1995, soon after taking the post of Treasury secretary in the Clinton administration, Robert Rubin began to promote the idea of a strong dollar policy. Combined with a policy that encouraged foreign investment, the strong dollar addressed a number of related problems.
The combined strategy allowed for low inflation in the face of relatively easy money. It pumped up asset markets and created a strong market in which to sell the U.S. national debt.
All actors share the fault for the subprime lending crisis.
Kathleen C. Engel is the associate dean for intellectual life and professor of law at Suffolk University Law School in Boston. She is a national authority on mortgage finance and regulation, subprime and predatory lending, and housing discrimination. She also is the co-author of The Subprime Virus: Reckless Credit, Regulatory Failure and Next Steps, published by Oxford University Press in 2011.
This article is adapted for print from a talk Engel gave at AIER on June 21 as part of the Summer Fellowship Program. The presentation was moderated by Alan Chartock, president and CEO of WAMC Northeast Public Radio. It aired on the radio station, which broadcasts to seven states in the Northeast, at 90.3 FM and on the web at wamc.org.
America pays to educate thousands of international students in critical fields. Then immigration policies make it hard for them to stay.
At a time when the global demand for advanced degree holders is rising, the United States sends an estimated 50,000 educated workers out of the country every year. This is the result of the stringent caps on temporary employment visas that have been in effect for 45 years and equally stringent caps on permanent visas that are 20 years old. As a result, the U.S. economy is losing some of the world’s brightest minds. It is also losing the benefits of billions of dollars spent on student grants that could generate returns for this country.