Housing Is a Labor Issue

The Pitch: Economic Update for August 1st, 2024

Friends,

Last week, I reported that a growing number of economists were urging the Federal Reserve to lower interest rates at their meeting on July 31st in order to bring down housing prices for ordinary Americans and to add some energy to the labor market.

Unfortunately, yesterday the Fed ignored that growing drumbeat. “Federal Reserve officials left interest rates unchanged at their July meeting, as economists had expected, and hinted that recent progress in lowering inflation could enable them to cut interest rates soon,” the New York Times’s Jeanna Smialek writes. The interest rate is now stuck at 5.3 percent, which is the highest it’s been in over two decades.

Fed Chair Powell didn’t offer much insight into why the Fed decided to keep rates high, aside from vague statements that “we’re getting closer to the point” to lower rates, but that “we’re not quite at the point.”

Powell heavily signaled that at the Fed’s next meeting on September 18th, they are likely to lower rates, and the Fed reported that inflation is now only “somewhat elevated.” Last month’s Personal Consumption Expenditures Index found that prices increased overall by 2.5%, which is a dramatic decrease from the early days of pandemic-era price increases but still higher than the Fed’s target of 2%. (That target, again, is not based on anything more than vibes.)

Thankfully, American workers are holding the economy up while the Fed wastes its time prevaricating. “When it comes to the consumer, recent data points have offered encouraging news. Friday’s report suggested that consumers continued to spend at a healthy pace in June. Consumption picked up by 0.3 percent from a month earlier, and May spending data were revised up,” Smialek writes.

“That came on the heels of a very positive second-quarter gross domestic product report on Thursday. That data suggested that the economy is still expanding at a solid pace as households continue to open their wallets and businesses invest.”

The Fed will be under intense pressure from economists and Wall Street insiders to start bringing rates down in September, and Smialek notes that many are expecting the Fed “to cut rates a second and even third time before the end of the year.”

Smialek explains what a best-case scenario for lower rates would look like: “As of their June economic projections, Fed forecasts implied that central bankers could cut roughly every other meeting once they got started. That would lower rates to 4.1 percent by the end of next year and 3.1 percent by the end of 2026,” she writes. That means rates would remain higher than at any point since the height of the Great Recession, about a decade and a half ago.

It is pretty clear at this point that housing costs (and credit cards and loans) are going to remain high for the next couple years, and that leaders should be working on policy solutions, including at the state and local level, to try to make homes and rental properties more affordable for working Americans. I’d direct those leaders to a new report on housing from the Center for American Progress that offers a bunch of policy solutions, from rental assistance to massive construction investments to zoning reform.

The Latest Economic News and Updates

As Hiring Slows to Normal, Layoffs Hit a Record Low

Meanwhile, the labor market continues to slow down from the highs of the pandemic. “There were 5.3 million hires in June, 314,000 fewer than in May, according to the latest Job Openings and Labor Turnover survey released Tuesday morning,” writes Courtenay Brown at Axios.

There’s some very good news for Americans who are already employed, though: The spate of layoffs that frightened pundits into another round of recession panic earlier this year has died away. “ The layoff and discharge rate was 0.9% — the lowest level on records that date back to 2000.”

So while hiring rates have basically retracted to prepandemic levels, workers still have more pull than they used to. Employers aren’t firing the workers they have on staff.

“The overall picture that emerges, combining data, surveys and anecdotes, is one of a job market that is coming off the boil, but not one that is falling apart,” writes Jeanna Smialek at the New York Times.

As with everything else in the economy right now, the labor market is also being pressured by high housing prices. Abha Bhattarai reports at the Washington Post that the number of unhoused Americans in the workforce is rising as even good-paying jobs still don’t pay enough to acquire nearby housing.

“Homelessness, already at a record high last year, appears to be worsening among people with jobs, as housing becomes further out of reach for low-wage earners, according to shelter interviews and upticks in evictions and homelessness tallies around the country,” she writes. “The latest round of point-in-time counts — a tally of people without homes on one given night — show a discernible uptick in homelessness in many parts of the United States, including Southeast Texas (up 61 percent from a year ago), Rhode Island (up 35 percent) and northeast Tennessee (up 20 percent).”

And make no mistake: While some try to portray homelessness as a problem of drug addiction or mental illness, there is a clear line connecting the rising cost of housing and the number of unhoused people. “In interviews with 30 people in 17 states who recently became homeless while employed, nearly all said exorbitant rents had not only tipped them into homelessness, but also were preventing them from securing new housing,” Bhattarai writes. To end this growing crisis, that leaves two solutions available to civic leaders: Either rents have to come down, or wages have to go up. (Or both.)

This is a good reason why unions are still wildly popular with American workers. For the American Prospect, Macy Stacher reports that in the anti-union south, a relatively new “nontraditional cross-sector union” called the Union of Southern Service Workers is making great progress toward organizing workers at Waffle House, the southern comfort food restaurant chain.

“According to the MIT Living Wage Calculator, a living wage in Conyers, Georgia — the home of one Waffle House where workers went on strike — comes out to $24.40 for a single adult,” Stacher writes. “Most Waffle House associates make nowhere near living-wage estimates, as almost a quarter of the company’s 42,473 employees take home between $2.13 and $10 an hour, in both wages and tips.” If workers can’t afford to live where they work, what are we even doing as a society?

The High Price of High Fast Food Prices

On social media sites like Twitter and Reddit, the price of fast food is often used as a data point to represent rising prices throughout the economy. It makes sense: Fast food restaurants are everywhere in the country, and low prices have been a pillar of the experience since Ray Kroc expanded McDonald’s from a hamburger stand into a nationwide franchise operation.

On closer investigation, it turns out that fast food does serve as a remarkably good example of the high prices that Americans are paying these days. Greedy fast-food corporations have reported record profits while raising prices higher than most Americans can bear. In a perfect example of greedflation at work, Dee-Ann Durbin at the Associated Press reports that “McDonald’s saw fewer customers [last quarter] but it said those who came spent more because of price increases.”

Customers have noticed, and they’re taking their business elsewhere. “McDonald’s global sales fell for the first time in nearly four years as inflation-weary customers looked for cheaper options,” writes Diego Mendoza at Semafor. Clearly, their moronic choice to squeeze more money out of an ever-shrinking market of consumers isn’t working out well for the company.

McDonald’s is blaming inflation and “rising labor costs” for the menu price increases, but The Street looks at individual menu item increases and finds the difference between 2019 and 2024’s prices to be too exorbitant to chalk up to just those factors: The average price of a McDonald’s cheeseburger climbed by an eye-watering 215% in that five-year span, and the price of medium fries shot up by 134%. Overall, the average price increase for all five menu items in the Street’s study was 141.4%. Over the same time frame, McDonald’s annual profit skyrocketed from $11 billion dollars in 2019 to $14.5 billion last year, while labor costs at its company-owned restaurants stayed roughly the same — $2.7 billion in 2019 and $2.9 billion in 2023. Those higher prices went straight to the bottom line.

And it’s not just McDonald’s, but the whole fast food sector that’s in trouble: “Customer traffic at US fast-food restaurants fell 2% compared to the same period last year,” Mendoza explains at Semafor. If you change a central pillar of your brand — in this case, affordability — in exchange for a few quarters of record profits, your customers will punish you.

For her part, Vice President Harris is making greedflation a major issue in her campaign. On Tuesday in Atlanta, she promised that “On day one [of a Harris administration] I will take on price gouging and bring down costs,” citing “corporate landlords, Big Pharma and hidden fees” as some of the greed she hopes to curb. The price of your french fries might not be included on that list, but housing and healthcare are pretty important factors for most working Americans, too.

Courts Giveth, and Courts Take Away

Let’s start with the good news, out of Michigan. David Eggert at Crain’s Detroit Business writes, “A legislative maneuver that weakened Michigan minimum wage and paid sick time laws was unconstitutional, the Michigan Supreme Court ruled, ordering that wage increases, the elimination of the lower tipped wage and more generous leave requirements called for by 2018 ballot initiatives take effect in February.”

This court victory will make Michigan the first state east of the Mississippi River to eliminate the tipped subminimum wage — a huge win for working Americans, and an important inroad to the Midwest for the Fight for $15 movement to raise the minimum wage.

(I’m proud that my home state of Washington was one of the first in the union to eliminate the tipped subminimum wage, but it’s important for Michigan workers to remember that no labor rights are ever truly settled: Just this week, a Seattle City Councilmember proposed creating a permanent subminimum wage for tipped workers, and workers are gearing up for a fight, urging the Council not to go back on the deal they made with workers. Trickle-downers are always looking for a chance to roll back middle-out victories.)

So Michigan workers won a big fight in their courts. Unfortunately, workers and consumers have lost some important courthouse battles this week, too.

Let’s begin with a fight that the conservatives on the Supreme Court seem to be itching to take up: “A federal judge in Texas on Tuesday cast new doubt on the National Labor Relations Board’s ability to oversee labor disputes, agreeing with Elon Musk’s SpaceX that the agency’s board members and administrative law judges are likely serving unconstitutionally,” writes Stephen Paulsen at Courthouse News.

The NLRB operates as an intermediary between unions and employers, and it has the power to protect workers organizing for better pay and conditions, regardless of whether they’re part of a union or not. In that way, it serves as a counterbalance to the incredibly uneven power disparity between employers and workers. The NLRB has been under assault by trickle-downers for decades, but now they’re angling to dissolve the NLRB entirely, and a judicial path seemingly exists for that to happen. Though that path is a little tortured: The “unconstitutional” ruling is a bit surprising and feels like an overreach, given that the NLRB has been an established part of the federal government for 90 years.

And in another terrible ruling that could affect millions of Americans, The Hill reports that “A federal appeals court has temporarily blocked the Biden administration’s new rule that requires airline companies to disclose extra fees on purchases.”

You read that right: Airlines sued the Biden Administration to kill a rule that said they had to be transparent with consumers — and they’ve won a temporary pause in the case. As it stands, airlines are slapping unsuspecting customers with additional and unlisted “charges for checked bags, carry-on bags and changing or canceling reservations.” The airlines argued that being more transparent with their customers “would ‘confuse’ customers and ‘complicate’ the purchasing process.”

In a statement responding to the court’s decision, the ordinarily eloquent Transportation Secretary Pete Buttigieg released a statement saying “For once, I am speechless.” The Department of Transportation also said their fight to stop airlines from soaking their customers will continue.

This Week in MIddle Out

• Heather Long and Aden Barton’s piece for the Washington Post comparing the Trump and Biden economic records isn’t what I’d call a must-read. It’s got some equivocations and some trickle-down assumptions that make the comparison a little muddier than it should be. For instance, the below chart showing job growth in both administrations removes the pandemic from Trump’s record but includes the pandemic’s ups and downs for Biden’s administration. Even with one hand metaphorically tied behind his back, Biden clearly has created more jobs than Trump in every relevant sector.

• At the New Republic, Dean Baker looks back on Biden’s record and finds a lot to celebrate. “Much of what happens under a president’s watch is beyond their control. However, the economic turnaround following the pandemic can be directly traced to Biden’s recovery package, along with his infrastructure bill, the CHIPS Act, and the Inflation Reduction Act, all of which have sustained growth even as the impact of the initial recovery package faded,” he writes. The whole piece is a testament to how much good President Biden’s middle-out economic agenda was able to accomplish in less than four years.

• Meanwhile, Kevin Drum examines the investments in manufacturing that the Biden Administration has made and determines that “If you believe in restoring America’s manufacturing capability, the past three years have been a golden era.” In fact, the second quarter of this year saw the single biggest investment in building factories in American history:

• And lastly, David Dayen looks at the curious phenomenon of billionaires who are begging Vice President Harris to remove antitrust champion Lina Khan from her position as the chair of Joe Biden’s Federal Trade Commission. I’d say the fact that so many billionaires are on Khan’s case is a testament to her success as a fighter against market consolidation and unchecked corporate power.

This Week on the Pitchfork Economics Podcast

Lindsay Owens, Executive Director of the Groundwork Collaborative, joins Nick and Goldy on the podcast this week to talk at length about the greedflation phenomenon we touched on earlier in this email. She explains how rampant corporate consolidation and a lack of competition in the marketplace is really to blame for those higher prices, and she proves that those higher prices went to pad quarterly profit margins. This is a great episode to share with folks in your social circles who still believe that government policy or higher wages had something to do with the rampant price increases over the past year.

Closing Thoughts

While plenty of old clips of Republican presidential candidate JD Vance are circulating around right now, there’s a lesser-known clip that I think is especially illuminating with regard to middle-out and trickle-down messaging.

The clip in question is from an old Vance appearance on the Charlie Kirk Show. Below, I’ve transcribed the entirety of Vance’s comments

We need to reward the things that we think are good and punish the things that we think are bad. So you talk about tax policy, let’s tax the things that are bad and not tax the things that are good. If you’re making $100,000 or $400,000 a year and you’ve got three kids, you should pay a different, lower tax rate than if you’re making that same amount of money and you don’t have any kids. It’s that simple.

Let’s set aside for a moment the bizarre concept of using taxes as a disciplinary tool, rather than a source of revenue to fund necessary investments in the economy. The obvious problem with Vance’s argument here is that we already do offer parents tax deductions for children. And for a while during the pandemic, we offered an even bigger tax break for parents in the form of the Child Tax Credit, which virtually eliminated child poverty in the United States by sending direct cash payments to families. Given his comments here, you think Vance would be in favor of the Child Tax Credit, right? After all, it rewards families with children, which he has repeatedly claimed is one of his biggest issues.

Unfortunately, this year Senate Republicans — including Senator Vance — refused to pass the Child Tax Credit bill that the House overwhelmingly passed. I can’t find any record of Vance making a statement on the bill one way or another, but the fact remains that he didn’t actually stand up for the kind of policies that he spent years promoting.

There’s a broader messaging lesson here, and I think it partially explains why Vance is a historically unpopular vice presidential candidate. Vance could be making an optimistic case for deep investments in American families — directing revenue toward child care, education, and other programs that create better outcomes for children and parents. That would be the middle-out frame: It’s optimistic, it uses government to create outcomes that benefit the broad majority of people — and through those people, benefit the whole economy.

But Vance seemingly can’t help but think of government policy as anything but a way to punish behaviors he doesn’t like. That’s the trap of the trickle-down frame: It imagines every contact with government as a penalty, and it fails to understand the fact that good policy creates good outcomes for everyone in an economy.

And I do mean “everyone.” It’s true that Americans who don’t have children pay more in taxes than Americans with children. Homeowners with no children pay property taxes to fund schools that do not directly benefit them. But it benefits everyone in the community when kids have quality education and care. It benefits the entire community when parents have the time and freedom to work knowing that they won’t pay more for childcare next month than their monthly car payments.

More to the point, none of my friends without children are tabulating how much value they’re getting out of property taxes compared to their friends with children. That would be weird. They understand that this is what living in a society is all about: We all pay taxes to invest in our homes, our general welfare, and our future. We understand that everyone’s needs are different, and we try to accommodate everyone’s needs because that’s what neighbors do.

Vance’s strange argument is one of the best real-world examples I’ve ever seen of the difference between the optimistic middle-out worldview and the regressive, punitive trickle-down worldview. I know which understanding of the economy really resonates with me and my experience in the world. How about you?

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

Zach