Monday, August 16, 2021

With jobs and wages booming, GOPs are scaring consumers by talking up inflation

Jobs are bouncing back in big numbers, and demand is so strong that many service industries can’t find enough people to replace those who were laid off in 2020. So the result is that consumer sentiment in America…. is tanking in August?

The University of Michigan’s gauge of consumer sentiment plunged to a preliminary August reading of 70.2 from a final July reading of 81.2. Economists polled by the Wall Street Journal had expected an August reading of 81.3.

It is the lowest sentiment reading since December 2011, below any level in the beginning of the pandemic last year…..

The decline was due to consumers sensing that the delta variant of the coronavirus means that the pandemic will not end soon. This caused an emotional reaction and generated negative assessments about the economy’s likely performance.

The economy had been humming along and the Fed was preparing to exit its ultra-easy policy stance. If consumers stop spending and avoid crowds, the outlook could darken quickly. Price gains seen this year are unlikely to unwind quickly, and this could result in stagflation – higher prices and a slumping economy.
I don’t think stagflation is happening in a time when we’re adding 2.5 million jobs in 3 months. That’s just a boom that causing everything to go up (including pay). While you may be concerned that
the increase in average hourly wages hasn’t been keeping up with the overall increase in prices, I’d encourage you to take a step back and realize that real wages are up a solid amount compared to where we were 2 years ago.

And much of this rise and fall is related to the fact that lower-wage jobs were the ones most likely to be terminated as COVID first broke out in 2020, and wages fell as those jobs have come back (in fits and starts) since May 2020 and prices rose back to reflect the post-2020 normal. I think June or July 2021 marks a good baseline to see where things go from here, as much of the (prior) COVID overhang had mostly cleared by then.

To me, the real reason for the decline in consumer confidence seems to be two-fold:
1. Real concerns about whether the resurgence of COVID leads to more shutdowns and disruptions in the economy (and I think that would be more likely to happen through choices made by consumers on their own vs formal government lockdowns/restrictions).

2. Republicans are dishonest Pom-Pom wavers on pretty much anything (so the same situation results in positives for GOPs and negatives for Dems), while Dems are more likely to analyze the situation straight-up. That sounds like a partisan slap, but it’s backed by pretty much any poll on a variety of issues.

I’m not overly worried, other than the concern about whether COVID’s continued growth slams the brakes on consumers’ desires to go places and spend money. But the person doing that will be more likely to be a Dem that’ll take precautions than some MAGAt screeching about “FREEDUM” and not wanting to take measures to stem the tide of this virus.

Living in heavily-vaxxed Madison, I don’t see a lot of a slowdown or change in spending habits yet, but we haven’t been hammered like the South has, so maybe the cutbacks have already started (hard to go to restaurants from a hospital bed…or the grave). Which makes this week’s retail sales report a lot more important than we thought it would have been a week ago.

The consumer confidence report also tells us that we can’t afford to use a shortage-based jump in inflation as a reason for policymakers to stop helping the economy. In fact, targeted help for industries that are especially susceptible to a COVID cutback might return to the agenda, along with a long-overdue remaking of priorities in an economy that relies too much on trading paper over taking care of human needs.

Just tax the rich, and that takes care of a lot of this asset inflation that is part of the concerns that many have, which is likely leading to the shakiness that some are feeling about the economy. But don’t count on Republicans to do anything to help, and not only because they are allergic to anything that would make their oligarch puppetmasters pay another dime in taxes.

GOPs know that if the economy stalls out between now and Fall 2022, it helps their chances in the elections. Until it started killing their voters and making their pro-COVID governors in Texas and Florida look bad, they had no problem with COVID coming back and causing more economic problems. And you can bet they will blame any COVID-caused slowdown on “failed Dem policies”, even though Biden and Dems are the only ones trying to stamp down COVID flare-ups.

No comments:

Post a Comment