A Holiday for the Record Books

The Pitch: Economic Update for November 30, 2023

Friends,

As Americans sat down for Thanksgiving dinner this year, they had one additional thing to be thankful for: The average cost of Thanksgiving dinners declined for the first time since the pandemic began.

Every November, the American Farm Bureau sends shoppers out in all 50 states and Puerto Rico for a comprehensive survey of the costs of traditional Thanksgiving items. In their latest report, the AFB finds that “this year’s classic Thanksgiving feast for 10 will be $61.17, or approximately $6.12 per guest. This represents a 4.5% decline from historically high prices last year, driven by a decline in the price of the Thanksgiving dinner centerpiece — the turkey.”

While the price decline is good news, it’s impossible to ignore that the average cost is still a full 25% higher than the average 2019 Thanksgiving prices. We know that turning the world’s supply chains off and then on again in order to combat the pandemic caused temporary slowdowns and snarls throughout the global economy, kicking off the inflationary price increases that climbed throughout 2021 and 2022.

But that’s not the whole story here. Since then, a lot of those price increases we’ve been paying at grocery stores are the result of runaway greedflation — in other words, big corporations have taken advantage of the economic environment by jacking up their prices and padding their profits. They’re doing this not out of necessity — their costs have stopped increasing — but simply because they can get away with it.

But maybe the tide is finally turning against greedflation. Last week, just before Thanksgiving, Mark Sumner reports at Daily Kos, a federal jury in Illinois found that “two of the nation’s largest egg producers conspired to restrict the availability of eggs and drive up prices.” And even though the court found that this price-fixing scheme goes back decades, long predating the rising inflation of the last two years, egg producers really pumped up the volume when inflation hit. During 2022, one of the egg companies found guilty in the suit, “the nation’s largest egg producer, Cal-Maine Foods, reported a 200% increase in revenues and an astounding 718% jump in profits for the previous quarter” while still selling the same quantity of eggs. You’ll probably recall that the average price of a dozen eggs more than doubled between June 2022 and January 2023, from $1.92 to $4.82.

In other words, the biggest egg producers in the United States have been caught red-handed in a court of law for forming a decades-long conspiracy to kill competition and drive up the price of their eggs. That’s a big deal, for multiple reasons. First, this case confirms the existence of the corporate greedflation that so many economists and mainstream media outlets have been denying since we started talking about it in June of last year. And most importantly, those rising prices negatively affected virtually every American household — and hopefully those same families will see a little relief from lowered egg prices as a result of this court action, too.

The Latest Economic News and Updates

It’s Not Just Turkeys and Eggs. Diet Coke Greedflation Is Real.

Hopefully, egg producers are just the first in a long line of big corporations forced to acknowledge the price-gouging that they’ve committed. For Vox, Emily Stewart looks at greedflation through the lens of a single product with a committed fanbase: Diet Coke.

“The price of soft drinks has increased significantly over the past couple of years,” Stewart writes. “According to the St. Louis Fed, the average price of a 12-ounce can in a package of 12 was under 34 cents in April 2018. As of October 2023, it’s over 56 cents. That’s a nearly 65 percent increase.” And diet soda prices have increased on average ten cents higher per can than non-diet sodas.

Those higher prices aren’t going into fixing supply chain disruptions, better wages for workers, or improving the product. Stewart talks to an analyst who explains that Coke traditionally reports quarterly profits of four to six percent. Since the pandemic began, though, he says, “They’ve been growing double digits, and the reason why they’re growing double digits is because their pricing growth has been so strong.” That “pricing growth” is a tricky case of finance-speak meant to obscure the reality of the situation: It’s code for “raising prices for the same product even though costs aren’t increasing.”

Why have Diet Coke prices soared even higher than regular Coke? Stewart says that the leading diet drink has “a high degree of ‘demand inelasticity,’ meaning demand stays where it is even when prices change.” She explains, “If you like Diet Coke, you want Diet Coke, and you may not be eager to switch over to Diet Pepsi or a generic brand, assuming you can find one, as there’s not a lot of competition in the soft drink industry.”

If I may add to Stewart’s explanation here, there’s a reason why the soda industry has so little competition: Corporate consolidation. For decades, Coca-Cola and Pepsi have swallowed up small upstart and regional soda competitors, cornering the market and ensuring that Americans only have one or two suppliers for their preferred beverage.

For the American people, this could not be a more cut-and-dried case: Nobody resents businesses drawing a profit from healthy sales. But when corporations kill competition and jack up prices to pad their profits, that’s not capitalism anymore — it’s price-gouging, plain and simple. President Biden, thankfully, has taken notice:

That’s a message that will appeal to Americans who are exhausted by higher prices, but there will need to be strong policy suggestions behind the tough words. There is no federal law against price-gouging, but most states have anti-gouging laws on the books, though most of them require a state of emergency to be declared in order to go into effect. (If you’re unsure whether your state has price-gouging protections, you should click through the above link and check. For all the progressive strides my home state of Washington has made in recent years, it’s disappointing that we are one of the 13 states that do not have protections against price-gouging in place.)

Perhaps the tax code might be an effective way to curb this price-gouging: Experts have floated the idea of a windfall tax that would only affect big corporations which pump their prices in the name of outsized profits. Lots of smart people are offering good ideas to address this problem: Economist Isabella Weber, for example, has recommended a system of targeted price controls that build off of a gas-price brake that has long been in place in Germany.

In any case, the Biden Administration should pick some smart fights against other obvious examples of price fixing, for which there’s a huge federal precedent. Doing so would not only signal to the American people that greedflation is real and that leaders are working to do something about it — it would also signal to corporations that the days of needlessly raising prices as a steroid to supersize quarterly profit margins are officially over.

Low Gas Prices Spur a Holiday Weekend for the Record Books

Lower meal prices weren’t the only big win for Americans this Thanksgiving — in one of the busiest travel weeks of the year, gas prices dipped lower than at any point since 2021, before the Russian invasion of the Ukraine.

“The primary reason for lower gasoline prices is the recent weakness of oil prices, which have fallen by more than $15 a barrel, or nearly 20 percent, since early September,” writes Clifford D. Krauss at the New York Times. “Demand for fuel has been weak in China and parts of Europe, while production has been strong in Brazil, Canada and the United States. Gasoline production at American refineries is running above demand in some parts of the country.”

Lee Hepner at the BIG newsletter writes about another huge win for American travelers: “October 2023 airfares dropped 13.2% compared to a year prior, and 5.3% from pre-pandemic levels in October 2019.”

Those low airfare prices were undoubtedly a factor in making the Sunday of Thanksgiving weekend the busiest travel day ever — not just since the pandemic, ever. Thankfully, we didn’t see a repeat of last year’s delay-plagued holiday air travel season, in which some travelers were stranded in airports around the country for days. In fact, 2023 has seen the fewest flight cancellations in the last five years. Maybe airline CEOs were inspired to clean up their acts, now that the Biden Administration has proposed new rules which would require airlines to compensate passengers for delays and cancellations.

Americans didn’t restrict their holiday record-breaking to air travel last weekend, either: Melissa Repko reports for CNBC that “a record 200.4 million people hit stores and searched websites for gifts from Thanksgiving Day through Cyber Monday, according to a survey by the National Retail Federation,” adding, “Holiday sales in November and December are expected to rise by 3% to 4% year over year to between $957.3 billion and $966.6 billion, according to the NRF. That’s slower growth than during the pandemic, but roughly in line with average sales increases before Covid.”

So Americans are traveling and shopping in record numbers, which could indicate that those polls about dire economic feelings might not be telling the whole story about consumer confidence. Record-breaking travel and spending surges aren’t typically how skeptical consumers behave if they suspect that the economy is about to take a nosedive.

And in fact, the economy actually yet again outperformed expectations in the third quarter, according to Lucia Mukitani at Reuters: “Gross domestic product increased at a 5.2% annualized rate last quarter, revised up from the previously reported 4.9% pace, the Commerce Department’s Bureau of Economic Analysis (BEA) said in its second estimate of third-quarter GDP.” Keep in mind that back in 2015, even 4% GDP growth was considered a laughable fantasy.

Are Low-Wage Workers Falling Behind? Here’s a Simple Fix.

The biggest warning signal that I can find from the holiday weekend is the fact that consumers are turning more and more to “buy now, pay later” services to fund their gift shopping. Of the $12 billion or so that American consumers spent on Cyber Monday, Reuters reports that “$782 million of purchases made with BNPL services, including Klarna and Affirm, representing a surge of nearly 19% from last year.”

Consumer spending is one of the most important economic indicators we have in our toolbox. Virtually every other economic signal springs from spending numbers, including employment and small business starts. But if Americans on the lower end of the income scale have to spend beyond their incomes in order to go about their day-to-day lives, that’s a blinking warning light for the economy.

It’s not yet clear if the higher adoption of BNPL is such a warning sign. This year’s numbers could just represent the fact that technology companies have made the services more easily available to consumers. But it’s something to keep an eye out for in coming weeks and months, and now that these microloans are available almost everywhere at the touch of an icon on a screen — you can even pay for your morning latte in four easy installments at some coffee shops — our regulatory agencies should be working to ensure that Americans have some guard rails in place.

But if low-wage workers are turning more to credit services to scrape by, the best policy solution for that is to focus on growing their paychecks. While low-wage workers led the pandemic-era wage boom, the Wall Street Journal reports that their historic paycheck growth is now slowing down faster than the other quartiles. “Workers in the bottom quarter of the wage distribution received a 5.9% raise in October compared with a 7.2% increase in January according to data from the Federal Reserve Bank of Atlanta,” Amara Omeokwe writes.

If wage increases for these workers continue to drop, the single easiest way to grow their paychecks would be to finally substantially increase the federal minimum wage from $7.25 per hour, where it has languished for 14 years. Raising the federal wage to $15 per hour would increase the pay of at least 32 million American workers, making it easier for them to fully participate in the economy. That would indirectly raise the wages for many more workers as wage rates adjust up through the income distribution scale — and of course those workers will spend their bigger paychecks in their communities, creating jobs with their increased demand.

Meanwhile, Gwynn Guilford at the Wall Street Journal reports that hiring in the healthcare sector has sped up in recent months, becoming the fastest-growing sector of the labor market. “Healthcare providers — including hospitals, clinics, pharmacies and doctors’ offices — accounted for 30% of U.S. job gains in the six months through October, though less than 11% of the country’s total employment,” she writes.

You may recall that the healthcare workforce saw some pretty significant drops as the pandemic rolled on over the last couple of years, with burnt out nurses and doctors leaving the field entirely. How have healthcare providers managed to bring workers back to the job? The answer is pretty simple: Bigger paychecks. Since June of this year, dozens of major employers have raised the wages of healthcare workers by double-digit percentages in an effort to hire and retain staff.

But trickle-down economists are always telling us that raising wages kills jobs — who could have possibly guessed that better pay would attract workers? (Aside from every worker in the country, I mean.)

This Week in Middle Out

• The Biden Administration this week announced a suite of new policies intended to improve the supply chain and bring costs down, including a way to combat drug shortages by making medicines here in the US, more data sharing across the supply chain to spot potential weaknesses, and a series of checks and balances to ensure long-term supply chain resilience to help avoid future crises.
• The Office of Information and Regulatory Affairs has announced a tweak to its rulemaking process that will make it easier to enact regulations in the future. In a wonky piece explaining how the new rule works, Lee Harris explains that it essentially makes it easier for OIRA to calculate the real-world impacts of a regulation, and to take issues like class and race into account when determining how a regulation would play out when enacted. In short, the rule will make government more nimble when it comes to establishing regulations that in the past have taken years to enact.
• Jim Tankersley and Lauren Hirsch at the New York Times explain how the Biden Administration’s green energy law “effectively created a financial trading marketplace that helps smaller companies gain access to funding, with Wall Street taking a cut.” By tying the fortunes of big financial institutions to the creation of small companies in the green-energy space, the bill “could soon facilitate as much as $80 billion a year in transactions that drive investments in technologies meant to reduce fossil fuel emissions and fight climate change.”
• As part of that push for a green economy, the New York Times reports that the $1 trillion infrastructure bill is offering investments to help “small- and medium-sized manufacturers bring clean-energy jobs to former coal communities” in Pennsylvania, West Virginia, Texas, and Colorado, reinvigorating towns that have been falling behind for decades.
• The Center for American Progress reports that the Biden Administration’s electric-vehicle incentives are expected to create nearly 85,000 manufacturing jobs, and that electric vehicles will constitute more than two-thirds of vehicle sales by 2032.
• Farah Stockman explains how the Biden Administration has changed course on a too-cozy relationship between Big Tech and government that basically allowed huge Silicon Valley corporations to write American trade policy. “The United States now has an opportunity to hammer out a sensible global consensus that gives tech companies what they need — clarity, more universal rules, and relative freedom to move data across borders — without shielding them from the kinds of regulations that might be required to protect society and competition in the future,” she writes.
• Trickle-downers love to claim that taxation kills progress and investment, but the Washington Center for Equitable Growth spotlights a new study which shows that eliminating corporate tax breaks on investments doesn’t eliminate corporate investments at all.
• Dylan Scott at Vox investigates health care in America, and he finds that thanks to solutions built on top of the Affordable Care Act, several states have essentially built something approaching universal health care programs. “Today, 10 states have an uninsured rate below 5 percent — not quite universal coverage, but getting close. Other states may be hovering around the national average, but that still represents a dramatic improvement from the pre-ACA reality: In New Mexico, for instance, 23 percent of its population was uninsured in 2010; now just 8 percent is,” he writes.

This Week on the Pitchfork Economics Podcast

While the Federal Reserve has been trying to slow the economy down to fight inflation, many experts are convinced that we should instead be passing policy which encourages full employment, growing wages, and shared prosperity. Nick and Goldy this week welcomed Arnab Datta to the podcast to talk through Employ America’s growing body of research that explains why the best way to fight inflation and other economy-threatening issues is to push for full employment to improve the conditions of working Americans.

Closing Thoughts

Home prices climbed for the eighth straight month in September, reports Anna Bahney at CNN. “​​Prices rose 0.7% in September from the month before,” she writes. The last year has seen a record increase in prices. “Year to date in September, the national composite [of home prices,] which covers all nine US census divisions, has risen 6.1%. That is well above the typical annual increase over the 35 years that S&P has tracked the data,” Bahney writes.

Keep in mind, too, that that’s just home prices. Mortgage rates are also higher than they’ve been in recent memory, thanks to the Federal Reserve’s campaign to raise interest rates. Those high rates have convinced many Americans to stay put in the houses they already own, rather than incurring huge additional monthly expenses in the form of new mortgage payments. (Thankfully, the Fed has been signaling that the rate increases are likely over for now.)

But Justin Lanhart explains that even if mortgage rates were to decrease significantly, housing would still be out of reach for many Americans. There simply isn’t enough affordable housing supply available to meet the needs of buyers. “Take mortgage rates all the way down to 5%, versus September’s 7.2%, and the Atlanta Fed’s measure shows that housing costs are still nearly 25% beyond affordable” for the average American, Lanhart writes. “One way to make the numbers work at a 5% mortgage rate would, of course, be to boost household incomes by about 25%. The other would be to drop home prices by about 25%.”

Many potential homeowners are forced by these high prices to keep renting. But while rents are beginning to decline over pandemic-era highs, Will Parker at the Wall Street Journal reports big corporations that have scooped up thousands of single-family homes to rent in desirable markets are raising their rates even higher than other rentals: “Landlords Tricon Residential, Blackstone-owned Invitation Homes, and AMH, which together own about 180,000 rental homes, each posted rent increases greater than 6% for the third quarter over the same period a year prior.”

If prices continue to level out elsewhere in the economy, these high housing prices will stick out like the proverbial sore thumb for consumers. I’ve said it before and I’ll say it again: Some bold new housing policy solutions are necessary, and affordable housing could prove to be one of the most important issues in the 2024 election, from the very top of the ticket to local races for mayor and city council.

Be kind. Be brave. Take good care of yourself and your loved ones.

Zach