The mixed state of the American economy

The mixed state of the American economy

While the Daily Dime took its annual summer hiatus, the American economy kept right on growing, notching a record 121st consecutive month of growth. Jobs continue to be added, and the unemployment rate is low. As The Washington Post columnist Robert Samuelson reports, the expansion is finally starting to reach those who have long been left behind, drawing unskilled workers into the labor force. The chairman of the Federal Reserve Board hopes for that trend to continue, which is why he led the effort to cut interest rates last month: 

For years, some economists have argued that a “hot” labor market could pay huge social dividends. By “hot,” they meant a situation where the demand for workers equals, or outstrips, the supply. The pressures would push up wages, which, in turn, would cause people not in the labor force (defined as neither having a job nor searching for one) to look for work. Once employed, these relatively unskilled workers would develop competencies and contacts that would help them get work. Sounds simple. It wasn’t. There was always an imposing obstacle: inflation. The effort to employ society’s least-employable people created a general wage-price spiral that typically forced the Fed to tighten credit, which in turn slowed the economy or led to a recession. But this time might be different, Powell seems to be betting. For reasons not well understood, inflation has remained low. In the past year, the consumer price index has risen 1.6 percent. That’s slightly lower than the Fed’s official target of 2 percent using another, slightly different inflation indicator. As a result, the Fed may be in a better position now to test the “hot economy” theory than at any time since World War II. 

But The New York Times’ Neil Irwin sees some worrying signs in the otherwise rosy monthly jobs report. The “goods producing” sector – manufacturing, mining and construction – was averaging 58,000 new jobs per month in 2018. That’s slowed to 23,000 this year and 15,000 in July. 

The trade war is probably part of it, both directly and indirectly. Many manufacturers have cited trade as a reason for slower growth, both in surveys and in conference calls with investors, and the numbers support the idea that they have become more cautious. The strength of the dollar on international currency markets has probably contributed as well, by making American exporters less competitive. … Prices for oil and other commodities have fallen in recent months, contributing to the fall in mining jobs — down 5,100 in July alone (the category includes oil and gas extraction, as well as “support activities” for mining). This too is tied to broader trends, as the trade wars have caused slower world economic growth and thus driven down commodity prices.

Meanwhile, The Wall Street Journal reports that millions of Americans are taking on increasing amounts of debt in order to maintain a middle-class lifestyle. While median incomes have mostly been stagnant for decades, despite the recent uptick, student loans and automobile debt have skyrocketed. 

Median household income in the U.S. was $61,372 at the end of 2017, according to the Census Bureau. When inflation is taken into account, that is just above the 1999 level. Without adjusting for inflation, over the three decades through 2017, incomes are up 135%. Average tuition at public four-year colleges, however, went up 549%, not adjusted for inflation, according to data from the College Board. On the same basis, average per capita personal health-care expenditures rose about 276% over a slightly shorter period, 1990 to 2017, according to data from the Centers for Medicare and Medicaid Services.


Good news and bad on public education
Public school students in Louisiana head back to class this week following a legislative session that saw teachers get only their second pay raise in a decade. The good news is that Louisiana kids are graduating high school at record rates, earning more college credit while still in high school and qualifying for college in greater numbers than ever before. The bad news is that other states are making even more rapid gains, which means Louisiana remains mired at the bottom of national rankings. The Advocate’s Will Sentell reports:

Educators and others often note that Louisiana is one of the most poverty-stricken states in the nation. Nearly 70 percent of the state’s 720,000 public school students are classified as “economically disadvantaged,” including those who qualify for free and reduced-price lunches. State aid for public schools was frozen for 10 of 11 years starting in 2008. “Education has not been adequately funded,” said Mike Faulk, executive director of the Louisiana Association of School Superintendents and former superintendent of the Central School District. However, national gains are tough when revamping public schools is a political juggling act.


“The kindness of strangers” is not a good health plan
While the Affordable Care Act has meant that more Americans than ever before are covered by health insurance, millions of Americans are still stuck with high-deductible policies that leave them with massive out-of-pocket costs after a major illness or accident. When the bills pile up, people are increasingly relying on charity to pay what they owe. The Los Angeles Times’ Noam Levey has the story: 

(T)he growing reliance on charity — though sometimes celebrated in inspiring stories of generosity — means patients and their families must devote time and energy to raising money, often when they are most stressed and in need. This threatens to widen inequalities, giving an advantage to those with more resources, larger social networks and stories better suited to dramatic online appeals. Funding healthcare through charity can also distort markets, particularly for prescription drugs, research shows. “We shouldn’t be the solution,” said GoFundMe Chairman Rob Solomon. “We know we’ve become a kind of de facto safety net.… But we’re only scratching the surface of all the need out there.” GoFundMe, the nation’s largest online crowdfunding site, is now dominated by healthcare campaigns. An estimated one-third of the more than $5 billion raised each year through the platform goes to support someone who is ill, according to the company.


Louisiana’s “resource curse”
Candidate qualifying starts Tuesday for the Oct. 12 primary elections, and with it begins the quadrennial debate about how to make Louisiana’s economy more competitive with neighboring states. With that in mind, The Advocate’s Mark Ballard looks back on three generations of chief executives and the role that Louisiana’s reliance on oil and gas in putting us near the bottom of most national rankings. 

It’d be fair to say that Louisiana’s fiscal situation is caused by what economists call the “resource curse.” Basically, the theory goes that many countries, or in this case a state, with a lot of oil and natural gas live large off the abundance and never pursue the development that leads to economic growth. “What would Texas do” is a popular refrain among Louisiana politicos, but it’s mostly applied as an argument against increasing taxes. What Texas did was funnel much of the proceeds from high property taxes and oil production into higher education, good roads and investments in other industries. The Texas Medical Center in Houston, for instance, a Lone Star state project, now employs more than 100,000 people, most of whom have advanced degrees with mid-six figure annual incomes.


Number of the Day
65 – Number of people murdered by white nationalist terrorists in eight mass shooting incidents dating back to December 2017. (Source: New York Times)