Are Recession Fears Receding?

The Pitch: Economic Update for February 16, 2023

Friends,

“Data released by the Bureau of Labor Statistics on Tuesday morning showed prices rose 6.4 percent in January compared to the year before,” reports Rachel Siegel at the Washington Post. “That marked a slight step down from the 6.5 percent rate notched in December, and a drop from last summer’s peak of 9.1 percent. It was also the smallest 12-month increase since October 2021,” Siegel continued.

Naturally, the seventh straight month of declining inflation is good news, and the media responded with a wave of positivity, right? Not so fast! Anyone who has paid attention to economic headlines over the past two years knows that econ reporters can always find a way to turn good news into a scary headline, such as the one on Jeanna Smialek’s New York Times coverage: “Inflation Cooled Just Slightly, With Worrying Details.”

Those worrying details get a little blurry when you examine them closely. Siegel points out that half of the inflation rate was due to housing costs. But Robert Kuttner explains the folly of the Bureau of Labor Studies’ measurement of housing in the monthly CPI report.

“An accurate accounting would show that both rents and prices of owner-occupied housing have been declining — offsetting other modest price increases in other sectors,” Kuttner writes. But the BLS doesn’t actually account for immediate price increases or decreases in housing, choosing instead to measure the “imputed rental value” of housing, and it incorporates that measurement using a lag of anywhere between one year to 18 months, meaning the housing contribution to the monthly CPI report is both inexact and old.

The traditionally more conservative Wall Street Journal addressed this nuance in their coverage of the CPI report, and the result is a much more positive perspective on what to expect in the months ahead. The WSJ interviews Jake Oubina, senior economist at investment banking company Piper Sandler, and he “expects housing will continue to boost inflation but that its contribution to the 12-month increase in CPI will peak in June and shrink by 0.7 of a percentage point by December, relative to a year earlier.”

The facts that these journalists are reporting are true — inflation is decreasing — but the analysis they’re providing — the “worrying” part — stems from American journalism’s obsession with contrasting two opposing sides in order to seem “fair” or “objective,” even if it doesn’t actually reflect how the economy actually works.

The Latest Economic News and Updates

Three Signs That a Recession Is Probably Not Right Around the Corner

Those who were predicting a recession based on declining retail sales will now need to find a different indicator. “The consumer roared back last month with a 3% increase in retail spending that was the largest monthly gain in nearly two years,” reports the Wall Street Journal’s Austen Hufford.

In conjunction with January’s strong jobs report, this surge in consumer spending is a powerful sign that, contrary to popular belief, a recession is not likely to be right around the corner. Even though prices are still far higher than they were pre-pandemic, people are still spending money — and remember, it’s your spending that powers the economy, creating jobs with consumer demand.

At the same time, Axios reports, America’s manufacturing output increased by a full percent last month in order to keep up with all that spending.

And Steve Lohr at the New York Times writes that despite the layoffs at big Silicon Valley companies, American employers are spending big on technology. “In a recent poll of corporate technology managers in the United States by the research firm IDC, 82 percent said they expected a recession this year. But 62 percent replied that technology spending at their companies would be the same or increase compared with 2022,” Lohr writes.

As a rule of thumb, I recommend paying little attention to self-reporting surveys. Every time a city considers raising the minimum wage, for instance, local business owners tend to report that they’ll either close their businesses or hire fewer workers — but those predictions never actually pan out once the minimum wage goes up. I’d apply the same lens to the above survey: Though businesses report that they expect a recession, their tech spending indicates that they’re not behaving as though a recession is imminent.

Why, in the face of all these positive data points, are so many employers still talking about an upcoming recession as though it’s a certainty? For one thing, the media holds tremendous sway over our feelings about the economy — and as I wrote above, the media is in a skeptical stance when assessing positive economic news these days.

For another thing, acting as though a recession is imminent puts businesses in a better bargaining position with their employees. Plenty of bosses have told workers through the years that they can’t afford to give out raises because “times are tight.” Workers are less likely to demand higher wages to pay for inflationary price increases if they believe their jobs are on the razor’s edge of a recession.

If you’re thinking about heading into your boss’s office to ask for a raise anytime soon, I’d advise you to consider what your employer is doing — what investments they’re making, how they’re spending money — over what your employer is saying about the state of the economy.

How’s That Corporate Greed Going?

Though inflation is declining, Isabella Simonelli reports for the New York Times that some corporations continue to jack up prices quite dramatically. “On Thursday, PepsiCo reported that it raised prices 16 percent in the fourth quarter from a year earlier, while sales volumes, which measure the number of Mountain Dew cans and bags of Doritos that were sold, fell 2 percent,” she writes.

Also on Thursday, Unilever said it raised prices for its products, which include Ben & Jerry’s ice cream and Dove soap, more than 13 percent in the fourth quarter, the eighth consecutive acceleration in prices. It also reported that its sales volumes shrank, but by a lot less than prices rose. Revenue growth at both companies beat analyst expectations.

So consumers are buying less from Unilever and PepsiCo, but both companies are making more money because they’re raising prices at alarming rates. Some large corporations have learned the wrong lessons from the recent spike in inflation. They’re raising prices with impunity because they’ve learned that many consumers will absorb those price increases and blame them on inflation, and they’re altogether writing off those consumers at the bottom of the economy who can no longer afford their products.

This is a dangerous trend for American capitalism. Not every brand can or should be a luxury brand. When the CEO of Chipotle, which has been raising prices consistently throughout the inflationary crisis, brags in an earnings call that the company “continue[s] to see the higher-income consumer, the individual that earns over $100,000, coming more often,” just months after he admitted that “lower-income consumer[s are] further reducing frequency” in their visits to Chipotle because they can’t afford it, something is deeply wrong with the business model.

Without some kind of policy intervention like price controls or a tax on extraordinary corporate profits, there are only a few ways this trend can end: Either consumers stop buying these products and the corporations lower prices to win them back; or some corporate “innovator” posts record profits after “discovering” that lower-income consumers will flock to buy their product if they drop prices low enough, and the rest of Wall Street follows suit.

Female workforce participation rebounds, outpaces men

When lockdowns spread across the nation in the early days of the pandemic, female workforce participation plummeted, with women leaving work and losing their jobs at unprecedented rates. But now, the Washington Post reports, women have returned to the workforce since lockdown at such a fast rate that they have outpaced male workforce re-entry.

To discover why women are returning to the workforce faster than men, the authors interviewed “nearly a dozen” women, hardly a scientific sample, but their discoveries seem fairly sound. Schools have largely done away with the pandemic-era closures that forced many women — still the primary caregivers in most American homes — out of the workforce. And more employers, faced with a tight labor market, are offering part-time and remote work options in order to fill jobs, which allows mothers to balance childcare with work in a way that wasn’t possible in pre-pandemic years.

This Week in Economic Policy

As the Biden Administration continues to roll out funds from its three signature pieces of economic legislation last year, we’re starting to see its effects around the country — both in terms of economic gains and political behavior.

• Jonathan Weisman at the New York Times explores how a combination of union protections and tax incentives written into green-energy legislation is creating jobs and driving up paychecks in blue-collar areas of the country like West Virginia, while also moving employers in those areas into environmentally friendly green energy.
• Defying economic predictions, the price of electric vehicles could match the price of gas-powered cars for the first time this year. Experts predicted that we wouldn’t reach that level much later this decade, but tax incentives and falling prices could see us hit this important milestone way ahead of schedule.
• David Dayen writes that Democrats, emboldened by their legislative victories of the last two years, have finally rejected the trickle-down talking point that the social safety net must be slashed in order to balance the budget. “Democratic rejection of deficit politics leaves Republicans politically exposed,” Dayen writes, “And so their leadership is compelled to take it off the table and publicly announce that Social Security and Medicare won’t be touched.”

Meanwhile, two new policies are building on the middle-out successes of the last two years and moving them forward into the future.

• Jonathan Weisman looks into a $500-a-month guaranteed income program in Chicago. “With so many social service programs struggling under the weight of bureaucracy and inefficiency, the Chicago-area pilot programs are aimed not only at efficiently delivering assistance, but also at rescuing citizens’ faith in government at a time when democratic principles are being questioned.”
• Emily Stewart at Vox looks into President Biden’s plan to eliminate extractive hidden fees, like the $200 surprise fee to cancel your cable account or the endless additional fees Ticketmaster charges people who just want to go to a concert. “The idea here isn’t necessarily that companies can’t charge for their services, but instead that they’ve got to be fair and honest about those charges and compete for consumers’ business in a way that isn’t, to put it plainly, tricky,” Stewart writes. “If the only way to get a Beyoncé ticket or book your Cancún vacation is to pay the extra charges, they’re not really extras anymore, they’re just kind of the price.”

Big Personnel Changes at the White House Economics Team

And just an update to a previous story here in The Pitch. Back in January, I wrote about the rumors that President Biden was considering New York Fed Vice Chair Lael Brainard as the new head of the National Economic Council, which would have put her in charge of the White House’s economic policy. “Let’s hope this [rumor] turns out to be true, because it could be the most consequential staffing decision President Biden could make in the second half of his first term,” I wrote at the time.

I’m happy to report that the rumor was true, and Brainard has been announced as the new National Economic Council head. She’ll now be the chief economic strategist for the nation, helping the president come up with new policies and helping to implement middle-out economic thinking across all government agencies. Biden also moved two of the brightest young lights in economics, Joelle Gamble and Bharat Ramamurti, to new positions high up in his economic brain trust. (If you’d like to learn more about those two, Gamble was a guest on a 2020 episode of our podcast, PItchfork Economics, and Ramamurti appeared on the podcast in 2021.)

We’ll undoubtedly be seeing more from all three of those names as they ease into their positions and start making and communicating President Biden’s major economic policies. It’s safe to say, based on these personnel changes, that President Biden isn’t backing down from his middle-out economic narrative for the next two years — in fact, he’s doubling down on building an economy that works for everyone, not just Wall Street and the super-rich.

Real-Time Economic Analysis

Civic Ventures provides regular commentary on our content channels, including analysis of the trickle-down policies that have dramatically expanded inequality over the last 40 years, and explanations of policies that will build a stronger and more inclusive economy. Every week I provide a roundup of some of our work here, but you can also subscribe to our podcast, Pitchfork Economics; sign up for the email list of our political action allies at Civic Action; subscribe to our Medium publication, Civic Skunk Works; and follow us on Twitter and Facebook.

• In this week’s episode of Pitchfork Economics, Goldy and Nick talk with David Dayen about an excellent story he wrote about an important executive order President Biden signed into law two years ago. Dayen explains how the order creates economic competition in the American economy by curbing corporate power through rulemaking across 17 government agencies. This is an approachable conversation about a complicated topic that will have positive economic effects for years — probably decades — to come.

Closing Thoughts

Because of the transformative nature of the State of the Union address, we’ve been talking a lot about President Biden over the past month. But I don’t want you to get the idea that we’re only in the business of applauding Democrats in The Pitch. this newsletter isn’t about partisanship or politics — it’s about spotlighting good economic ideas, no matter where they come from. And that’s why I want to talk about a proposal made this week by New Hampshire’s Republican Governor, John Sununu.

But first, a little background: Every state in the union has licensing requirements for people who want to work in certain fields. Hair stylists must meet certain basic requirements in order to be certified, for instance, and electricians need documentation to prove that they’re competent and safe practitioners of their craft. These are important regulations — licenses help ensure that professionals meet health and safety guidelines, and they give consumers a certain piece of mind that they’re hiring a professional.

But because we live in a union of fifty state governments, and every one of those governments has established its own licensing protocols, professionals often find it difficult to move from one state to another. It can be an expensive, time-consuming process for a plumber to move, for instance, because even though they have all the skills necessary to safely and knowledgeably perform their job, they have to meet slightly different licensing requirements in their new home. A 2020 study found that these differences in licensing decrease interstate migration among certain professionals.

In other words, some workers don’t have the freedom to move where they want because they’ll have to jump through a confusing and often expensive set of hoops, just to prove that they can meet the standards of the job they’ve been doing for their entire adult lives. These occupational licensing hurdles can reduce competition in the workforce and shrink paychecks by keeping workers geographically constrained to areas that pay less.

This week, Governor John Sununu announced that he would enact licensing reform in the state of New Hampshire, recognizing the licensing of other states and making it easier for professionals to get licensed when they move to New Hampshire. Republican State Majority Leader Jason Osborne captured the absurdity of the problem of occupational licensing migration in a statement: “The notion that someone loses the ability to practice their vocation after crossing state lines is absurd, and it’s time for our laws to reflect that.”

Of course, Sununu and Osborne framed their reform in trickle-down anti-regulatory language, implying that government regulations are an unnecessary burden in many cases. I don’t know about you, but I prefer knowing that the electricians I hire have been adequately trained, and that the person cutting my hair didn’t just pick up a pair of shears for the first time that morning. Regulations are essential for public safety and for the security of hard-working professionals.

But the fact is that many states see regulatory migration as a source of revenue, basically double-dipping on professionals to make a quick buck. The goal for these states should not be to charge workers for a license they’ve already earned — it should be to make sure that consumers have access to a competitive marketplace of certified professionals who know how to safely and legally perform their jobs.

For whatever reason, conservative politicians have owned occupational licensing migration as a policy. But smart interstate licensing reform shouldn’t be a partisan issue — we should all be invested in the idea that competent workers can go wherever they like in order to make a living. Making it easier and more affordable to transfer licenses across state lines would increase competition and prosperity for everyone, which means it’s a middle-out policy.

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

Zach