October 23, 2022
When the Washington Post’s news editors take a position, they are prepared to go to great lengths to follow through. As regular BTP readers know, the paper has decided the economy has been awful ever since President Biden took office.
This means that the paper has downplayed or ignored, the unprecedented pace of job growth, the unemployment rate reaching of a 50-year low, the rise in real wages for workers at the bottom, the sharp drop in the number of uninsured, and savings of thousands of dollars a year in interest costs by tens of millions of homeowners refinancing their mortgages. Instead, the Post has decided the story would be inflation belting hardworking families, even if it had to play a bit fast and loose with the data to make this case.
The Post went a step further today with a piece that preemptively sought to discredit the positive GDP report that we are likely to see from the Commerce Department on Thursday. The headline of the piece told readers:
“U.S. economy likely grew a lot last quarter. Most people didn’t notice.”
Of course, this is true in a trivial sense. People don’t directly notice GDP unless they happen to be data nerds who regularly read the monthly reports released by the Commerce Department. What they do notice are things like jobs and wage growth.
On these matters, it is a bit hard to understand what the Post can possibly mean by its assertion that “most people didn’t notice.” The economy created 1.1 million jobs in the quarter. People couldn’t notice that?
The unemployment rate hit 3.5 percent, the lowest level since the late 1960s. The Post doesn’t think people could notice that it is relatively easy to find jobs?
They also saw healthy growth in real wages. The average hourly wage rose 1.1 percent over the last three months. That exceeded the 0.4 percent inflation reported by the consumer price index by 0.7 percentage points. That translates into a 2.8 percent annual rate of real wage growth. That’s really good by any standard.
So, what the hell does the Post mean by people won’t notice? I sure can’t think of any real world substance to that assertion.
If the paper is making the point that the economy is not out of the woods, that’s fine, but a totally different issue than how things looked in the third quarter. We have had high inflation and we have a Federal Reserve Board raising rates aggressively to slow inflation down.
The rate hikes are slowing growth and weakening the economy. They will likely raise the unemployment rate in the months ahead and quite possibly could throw the economy into a recession.
This is definitely a risk and could be a really bad story, however the third quarter GDP could be very good news on this front. In the first half of this year productivity growth tanked. The most recent data show productivity declining at a 7.1 percent annual rate in the first quarter and a 4.1 percent rate in the second quarter. This is the largest two quarter decline ever reported. The reasons for this drop are not clear, the surge in omicron probably explains part of it, as does the rapid turnover in the labor market. Supply chain disruptions were likely also a major factor.
But, regardless of the cause, the decline in productivity in the first half of 2022 was a major source of inflationary pressure. Employers, who were getting less output for each hour of work, were seeing their costs soar.
The healthy GDP growth we are expecting for the third quarter means that productivity will likely again be on a path of at least modest positive growth. This will help alleviate inflationary pressure in the economy by reducing labor costs.
Of course, we should never make too much of one quarter’s productivity data. The numbers are erratic and are subject to large revisions. Nonetheless the data we will be getting for this quarter will be good news and a huge turnaround from the productivity numbers we saw in the first half of 2022.
But Washington Post readers are not likely to hear about this productivity turnaround. It doesn’t fit with the Biden bad economy story it is pushing.