{"id":1698,"date":"2020-04-10T09:54:41","date_gmt":"2020-04-10T13:54:41","guid":{"rendered":"https:\/\/naroffeconomics.com\/?p=1698"},"modified":"2020-04-10T09:54:41","modified_gmt":"2020-04-10T13:54:41","slug":"march-consumer-prices-and-real-earnings","status":"publish","type":"post","link":"https:\/\/naroffeconomics.com\/?p=1698","title":{"rendered":"March Consumer Prices and Real Earnings"},"content":{"rendered":"\n

KEY DATA:<\/strong>  CPI: -0.4%; Over-Year: 1.5%; Ex-Energy: 0.0%;\nOver-Year: 2.1%\/ Real Earnings: +0.8%; Over-Year: +1.6%<\/p>\n\n\n\n

IN A\nNUTSHELL:<\/strong>  \u201cInflation is really not doing much, which is\na surprise given the craziness in the economy.\u201d<\/em><\/strong><\/p>\n\n\n\n

WHAT IT\nMEANS:<\/strong>  Consumer prices fell in March, which\nsurprised no one.<\/em><\/strong>  Given the\ncollapse in the economy, that was expected. \nBut much of that decline was due to a double digit declines in gasoline\nand fuel oil.  <\/em><\/strong>The price war\nbetween Russia and Saudi Arabia made that happen and was expected.  Excluding energy, costs were flat, which was\na surprise.  Food prices, both at home\nand away, were up solidly, while services prices were flat.<\/em><\/strong>  In the services component, shelter expenses,\nwhich had been surging, flattened out. \nBut medical costs, which also had been rising sharply, increased even\nmore.  Transportation was down\nsharply.  <\/p>\n\n\n\n

The earnings numbers in March implied that workers\ndid really well, as wages rose sharply.<\/em><\/strong> \nAdjusted for the decline in prices, that meant real earnings\nsoared.  But these data are\nmisleading.  The large rise in average\nhourly wages was due to the way the number is calculated.<\/em><\/strong>  It is a weighted average.  In March, the huge drop in employment came\nfrom major layoffs in lower paying industries. \nHigher paying sectors lost relatively less.  So, when you do a weighted average and you take\nout more from the bottom than the top, the average rises.  I don\u2019t think workers did particularly well\nin March.    <\/em><\/strong><\/p>\n\n\n\n

MARKETS AND\nFED POLICY IMPLICATIONS:<\/strong>  In\nsome respects the relatively mild decline in consumer prices and the flat\nchange excluding energy is good news.  Core\ninflation, which excludes volatile food and energy, had been slowly climbing\nback to target levels.  A massive\ncollapse in the economy was expected to lead to a major deceleration in\ninflation, which could be worrisome. \nThat did not happen. <\/em><\/strong> With\nenergy prices bouncing off the bottom, we could see the headline number up in\nApril.  Thus, the shut down of the\neconomy has not yet lead to a deflationary environment. It is hard enough to fight a virus-induced\ndecline in economic activity, having to deal with falling prices as well is not\nsomething the Fed wants to face.<\/em><\/strong> \nOf course, getting the economy going again will be the best way to fight\nany decline in inflation.  I\nthink the economy will have a \u2018Vu\u2019 recovery. \nWe may get a major rebound, if only because opening closed sectors means\nthat activity will surge. <\/em><\/strong> But\nit is the following few quarters that really matter and it will be hard to\nsustain demand when we start with and unemployment rate that could hit 20%. <\/em><\/strong> The unemployment rate in February was\n3.5%.  Getting back to an unemployment\nrate close to that level, and I define close as one percentage point above the\nbottom, could take five years.<\/em><\/strong>  That\nwas the pattern in the past and it could easily take that long after this\ncrisis.  <\/em><\/strong>That means after the\nrebound, there could be a slowdown as the government\u2019s welfare program fades\nand businesses have to actually earn money to pay for their workers.  That would then lead to a slow recovery,\nsimilar to what we saw after the Great Recession.  Investors may think that the problems are\nbehind us, but reopening and repairing the economy is not going to be easy and\nit will take a long time.       <\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

KEY DATA:  CPI: -0.4%; Over-Year: 1.5%; Ex-Energy: 0.0%; Over-Year: 2.1%\/ Real Earnings: +0.8%; Over-Year: +1.6% IN A NUTSHELL:  \u201cInflation is really not doing much, which is a surprise given the craziness in the economy.\u201d WHAT IT MEANS:  Consumer prices fell in March, which surprised no one.  Given the collapse in the economy, that was expected.  … Continue reading March Consumer Prices and Real Earnings<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1698","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1698","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1698"}],"version-history":[{"count":1,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1698\/revisions"}],"predecessor-version":[{"id":1699,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1698\/revisions\/1699"}],"wp:attachment":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1698"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1698"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1698"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}