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Tag: Federal Reserve

Inflation and Your Next Union Contract

Posted on by Samir Sonti
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Samir Sonti

What’s going on with inflation? It’s a question that everyone is asking, and one that is particularly important for anyone entering bargaining this year.

We can’t predict what is to come, but the evidence from the past year hasn’t been good for workers. The Consumer Price Index rose by more than 8 percent, its fastest pace in 40 years. Essential expenses like housing, food, and gas have climbed especially fast.

Despite all the talk of labor shortages and a tight job market, wages have not kept pace with the cost of living. Since April 2021, inflation-adjusted hourly earnings have fallen by more than 2 percent. Any stimulus savings that people had accrued have largely dried up by now, and there is currently no plan for federal relief for working people facing the affordability crisis posed by historic inflation rates.

ENORMOUS PROFITS

Profits, on the other hand, have boomed. According to the Bureau of Economic Analysis, pre-tax corporate profits rose 25 percent in 2021, the largest annual increase in 45 years. Another recent study of 22 corporations including Amazon, McDonald’s, and Disney showed that their shareholders reaped $1.5 trillion in wealth during the first two years of the pandemic—almost triple their earnings in the two years prior.

Oil and gas companies, for their part, have made a fortune since the war in Ukraine began. The largest producers collected nearly $100 billion in profits in the first quarter of 2022 alone, some 127 percent more than last year.

These enormous profits help explain much of the increase in prices since the beginning of the pandemic. This is not to say that price gouging by big business caused the inflation in the first place. Pandemic disruptions in supply chains, as well as energy and food markets shocked by the Russian invasion of Ukraine, are at the root of the problem.

But corporate pricing decisions have certainly taken advantage of the inflationary environment, and probably made it worse. In any case, the bottom line when it comes to bargaining is that employers can afford to pay.

RECESSION COMING?

What is less clear is how long this profit bonanza is going to last. Walmart, Target, and other retailers reported lower-than-expected profits for the first quarter of 2022. This is largely due to the ongoing inflation; the rising cost of food, fuel, and housing has forced households to cut back on expenditures like TVs and patio furniture.

Of course, we don’t need to feel bad for Walmart and Target. But given that consumer spending is a key driver of economic activity, this could be a warning sign of an impending downturn.

And there is an even bigger reason to be concerned about the health of the economy over the next year or so: the Federal Reserve. As the central bank of the United States, its official mandate is to help the economy achieve stable prices (that is, low inflation) and maximum employment. When push comes to shove, however, central bankers tend to be more concerned about inflation than unemployment—and those two goals often run at cross purposes.

A quick look at the mechanics makes this clear. The Federal Reserve tries to accomplish its objectives by using monetary policy, or adjustment of interest rates—lowering interest rates to give the economy a boost, raising interest rates to slow it down.

Why would they want to slow the economy down? Their reasoning is that inflation is the byproduct of economic overheating, or “too much demand chasing too few goods.” From this perspective, high inflation calls for high interest rates, which in theory will bring “demand” back to where it should be.

Beneath all the technical terms and concepts, what this means is quite simple: the Federal Reserve fights inflation by engineering recessions and intentionally raising unemployment. Monetary policy, when used this way, is a blunt weapon of class war.

GET IT WHILE YOU CAN

Early this year, Federal Reserve Chair Jerome Powell announced plans to begin doing just that—raising interest rates and ending other Covid emergency monetary measures. Since then, Powell and other central bankers have only become more hawkish, increasing the pace and size of scheduled interest rate hikes.

In addition to being an objectively anti-worker policy, this approach is also plain wrong-headed: current inflation is the result of pandemic shut-downs and war in Ukraine, not the result of an overheated economy. Monetary policy will not do anything about the supply chain problems, food and energy market volatility, or corporate pricing decisions that are driving prices upward.

What this new monetary policy may do is produce a recession. This is where inflation and the Federal Reserve’s response becomes most relevant to those entering bargaining in the coming months.

Corporate America has just had one of its best runs on record. And thanks to federal aid, state and city governments are in a better financial position than any time in recent memory. But because of the Federal Reserve, conditions may not remain favorable for long. So there is every reason to take advantage of this opportunity to lock in the most that you possibly can before things take a turn for the worse.

THE FED’S CLASS WARFARE

It is also worth taking a moment to step back and consider inflation for what it is: an issue of class politics. Why is the Federal Reserve’s monetary policy the only tool on offer for controlling inflation? Why does the burden of inflation control fall on workers, and not on corporate shareholders?

What if we limited corporate profits and controlled the prices of key goods rather than suppressing wages—would businesses stop investing? Let’s say they did. If so, couldn’t the government step in and provide more goods and services publicly?

There are no correct technical answers to these questions. They can only be resolved politically, through struggle over the kind of society we hope to call into being.

This blog originally appeared at LaborNotes on July 8, 2022. Reprinted with permission.

About the Author: Author’s name is Samir Sonti. Samir teaches at the City University of New York School of Labor and Urban Studies.


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Another awful week of Americans seeking state and federal job benefits: 2.25 million file new claims

Posted on by Timothy Lange
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We’ve had plenty more news this week indicating just how bad things are economically now and how long they are likely to remain bad. Federal Reserve Chairman Jerome Powell, who has warned that gross domestic product could drop 30% this quarter, on Wednesday reinforced what other analysts have said about the crunch affecting American workers: â€ťIt’s just going to be very hard to say. But my assumption is that there will be a significant chunk, well into the millions—I don’t want to give you a number because it’s going to be a guess—but well, well into the millions of people who don’t get to go back to their old job. In fact, there may not be a job in that industry for them for some time. There will eventually be, but it could be some years before we get back to those people finding jobs.” He noted that low-wage workers, women, African Americans and Latinos have been hit especially hard.  

Another big bunch of people who may be among those workers who find themselves in that same boat filed new claims for state or federal unemployment benefits in the week ending June 6, the Labor Department reported Thursday. Together, on a non-seasonally adjusted basis, 1.537 million filed new claims for state benefits and 705,676 filed for federal benefits under the Pandemic Unemployment Assistance that covers free-lancers and other workers not eligible under state programs. All told, those who have filed and are receiving or waiting to receive benefits now total 35.4 million, a decrease from last week’s non-seasonally adjusted 37 million tally.

Because of the volatility being experienced in the labor market right now, the seasonal adjustment distorts what is actually happening in the labor market week to week. Moreover, the PUA filings are not seasonally adjusted. Mashing together adjusted and unadjusted skews the outcome. 

That non-seasonally adjusted 35.4 million breaks down like this:

Regular State UI Initial Claims…………… 3.2 million
Regular State UI Continuing Claims…..18.9 million
PUA Initial Claims………………………………2.8 million
PUA Continuing Claims……………………..9.72 million
Assorted Other Categories………………..766,537

If those 35.4 million were the total number of unemployed, the unemployment rate would be about 22.5%. But counting unemployment benefit recipients isn’t how the Bureau of Labor Statistics tallies the unemployment rate. Last week, the bureau announced that the rate for May was 13.3%—with the last paragraph of an end-note pointing out that had workers who should have been marked as “unemployed on temporary layoff“ counted correctly, the rate would have been 16%. But this is nowhere near the 22.5% roughly indicated by the count of unemployment benefit recipients.

A few have asserted that the miscategorization of workers is due to some connivance at the Bureau of Labor Statistics to make Donald Trump look better. But former Obama-appointed BLS officials as well as other experts who are no pals of Trump have weighed in to say bureau procedures and the integrity of statisticians there prevent that from happening. 

But in addition to the mistake, there was a big error in judgment at the BLS. Public acknowledgement of the error in categorizing some workers should have been made not at the end but as preface to the bureau’s job report. If it had been, newspaper and online news outlets and Foxaganda wouldn’t still be touting the 13.3% number as if the more accurate 16% estimate didn’t exist. Perhaps after two misses on that score, the BLS will do better in the June report. 

No matter what the actual unemployment count is, it’s dreadful, far worse than the Great Recession at its worst when 10% were unemployed for a single month late in 2009. What that means massive stimulus on top of the trillions of dollars already paid out. More stimulus and a lot more oversight. Of course, the Senate Republicans stand firm against that, some of them citing the job report from last week as an indication that the economy will do just fine without it. This would be nonsense even if the perils of reopening the economy prematurely weren’t showing up in state after state as spikes in cases of COVID-19. 

At the Economic Policy Institute, Josh Bivens and David Cooper write:

  • If policymakers do nothing at the federal level to address these shortfalls, the United States could end 2021 with 5.3 million fewer jobs, with losses in every state.
  • Further, if Congress passes some level of aid that is insufficient—less than $1 trillion—they will needlessly guarantee a significant job gap by the end of 2021.
    • If they pass $500 billion of aid over that time, the jobs gap will likely be roughly 2.6 million. If they pass $300 billion of aid, the jobs gap will likely be roughly 3.7 million.
  • While empirical estimates of the shortfall should guide policymakers’ thinking, they can (and actually should) avoid putting a firm sticker price on state and local aid by tying this aid to economic conditions. If the economy recovers faster than the forecasts driving the $1 trillion estimated shortfall indicate will happen, then less aid would be needed. If instead recovery lagged, more would be needed.
  • Finally, filling in the estimated shortfalls would merely return state and local governments to their pre-crisis fiscal status quo. But the unique features of the current economic shock will put greater demands on public services than existed before the crisis. To go beyond macroeconomic stabilization and promote the general welfare, even more federal aid to these governments is likely needed.

This is wise and necessary. But repairing the economy to get back to the status quo isn’t enough. Not when the economy had plenty of chronic problems well before the Pandemic Recession got hold of us. Transformation is called for. Low interest rates plus people losing jobs they’ll never get back plus the need for building a sustainable economy to address climate crisis presents us with the opportunity for making that transformation if we are smart enough to grasp it.

For now, the Federal Reserve made clear on Wednesday that the current levels of interest are going to be with us for quite some time and the Fed continues with its relaxed approach. Stephen Stanley, chief economist at Amherst Pierpont Securities, told Bloomberg, “The Fed is clearly very sensitive to the fact that the Great Depression was made worse by not taking action, and they don’t want to make that mistake again. The Fed, at least right now, wants everyone to believe that it will be easy for as far as the eye can see.”

This blog originally appeared at Daily Kos on June 11, 2020. Reprinted with permission.

About the Author: Timothy Lange is a member of the Daily Kos staff.


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Fed’s Powell warns unemployment could reach Depression-level 25 percent

Posted on by Victoria Guida
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Federal Reserve Chair Jerome Powell on Sunday warned that the nation’s unemployment rate could soar to 25 percent during the worst of the coronavirus crisis, though he said the economy should recover more quickly than during the Great Depression, when joblessness last reached those levels.

“Those numbers sound about right for what the peak may be,” Powell said on CBS’ “60 Minutes” after reporter Scott Pelley asked whether unemployment could reach 20 percent or even 25 percent.

His remarks came just days after the central bank released a survey showing that one in five American workers lost their jobs in March — including almost 40 percent of those in lower-income households.

The Fed chief expressed hope that the economy would come out of recession in the second half of the year, but cautioned that a second outbreak of the coronavirus could derail that path.

“This economy will recover,” he said. “We’ll get through this. It may take a while. … It could stretch through the end of next year. We really don’t know.”

The central bank has taken extraordinary measures to rescue the economy since the pandemic began sweeping through the country — slashing interest rates to zero, rolling out trillions of dollars in lending programs for financial markets, and taking the unprecedented step of bailing out state and city governments.

“There’s really no limit to what we can do with these lending programs,” Powell said. “There’s a lot more we can do to support the economy, and we’re committed to doing everything we can as long as we need to.”

He said the economy stands a good chance of bouncing back more quickly than in the 1930s.

“When the Depression, well, when the crash happened and all that, the financial system really failed,” Powell said. “Here, our financial system is strong.”

But he took the opportunity to again warn that Congress will need to spend more to prevent long-lasting damage, even after U.S. lawmakers have shelled out trillions of dollars for American businesses and consumers.

The most important policy objectives should be to “keep workers in their homes, keep them paying their bills,” he said. “Keep families solvent so that when this comes, we come out the other end of this, we’re in a position to have a strong recovery.”

This blog originally appeared at Politico on May 17, 2020. Reprinted with permission.

About the Author: Victoria Guida is a financial services reporter covering banking regulations and monetary policy for POLITICO Pro. She covers the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency, as well as Treasury, after four years on the international trade beat, most recently for Pro and previously for Inside U.S. Trade.


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Trump’s Federal Reserve pick says there’s no need for any equal pay laws

Posted on by ThinkProgress Staff
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Since President Donald Trump announced last month that he would nominate conservative activist Stephen Moore for a seat of the Federal Reserve Board, Moore’s past record of tax liens, sexist columns, and contempt of court have been front and center. On Sunday, Moore stood by one of his most controversial views: his belief that there should be no laws to protect equal pay for women.

Moore has previously argued that girls should not be permitted to play sports with boys, that women should not be permitted to serve as referees, announcers, or even beer vendors at sporting events, and that pay equity for women athletes is nothing more than wanting “equal pay for inferior work.” In a 2014 National Review column, he wrote that, “The crisis in America today isn’t about women’s wages; it’s about men’s wages,” because if women earn more than men it might disrupt “family stability” and lead to more divorce. He has since characterized some of his writings as satire.

But asked about his criticism of equal pay on ABC News on Sunday, he stood by his view that government should do nothing to ensure that women are paid fairly. “This is is a sizzling economy,” he claimed. “The way to close the wage gap is by creating a healthy economy.”

“When it comes to wages and gender equity,” he reaffirmed, “I want that to be decided by the market. I don’t want government to intervene in those kinds of things.”

Shortly after taking office, Trump’s administration froze a key equal pay rule that had been established by the Obama administration. (On Thursday, a federal judge finally struck down this effort and ruled that the Equal Employment Opportunity Commission has until September to collect salary data by race, gender, and job title.)

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According to the National Committee on Pay Equity, the wage gap actually increasedslightly over the first year of Trump’s administration, going from an average disadvantage of $10,086 in 2016 to $10,169. Women earned just 80.5 percent in 2017, on average, of what men were paid. The coalition has not yet published data for 2018.

The Democratic majority in the House of Representatives passed a bill last month to reduce the gender wage gap, with 187 Republicans voting no and just 7 voting yes. The bill is unlikely to advance in the Republican-controlled Senate where Majority Leader Mitch McConnell (R-KY) has dismissed it as “just another Democratic idea that threatens to hurt the very people that it claims to help.”

In 2010, Moore proposed increasing the tax rate on poor Americans from 10 to 15 percent to help pay for a tax cut for the rich  In recent years, Moore repeatedly admitted that he was “not an expert on monetary policy.”  The Federal Reserve Board’s chief role is to set the nation’s monetary policy.

This article was originally published at ThinkProgress on April 28, 2019. Reprinted with permission. 

About the Author: Josh Israel has been senior investigative reporter for ThinkProgress since 2012.


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Here Are the 10 Worst Attacks on Workers From Trump’s First Year

Posted on by Economic Policy Institute
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January 20th marks the one-year anniversary of President Donald Trump’s inauguration. Since taking office, President Trump has overseen a string of policies that will harm working people and benefit corporations and the rich. Here we present a list of the 10 worst things Congress and Trump have done to undermine pay growth and erode working conditions for the nation’s workers.

1) Enacting tax cuts that overwhelmingly favor the wealthy over the average worker

The Tax Cuts and Jobs Act (TCJA) signed into law at the end of 2017 provides a permanent cut in the corporate income tax rate that will overwhelmingly benefit capital owners and the top 1%. President Trump’s boast to wealthy diners at his $200,000-initiation-fee Mar-a-Lago Club on Dec. 22, 2017, says it best: “You all just got a lot richer.”

2) Taking billions out of workers’ pockets by weakening or abandoning regulations that protect their pay

In 2017, the Trump administration hurt workers’ pay in a number of ways, including acts to dismantle two key regulations that protect the pay of low- to middle-income workers. The Trump administration failed to defend a 2016 rule strengthening overtime protections for these workers, and took steps to gut regulations that protect servers from having their tips taken by their employers.

3) Blocking workers from access to the courts by allowing mandatory arbitration clauses in employment contracts

The Trump administration is fighting on the side of corporate interests who want to continue to require employees to sign arbitration agreements with class action waivers. This forces workers to give up their right to file class action lawsuits, and takes them out of the courtrooms and into individual private arbitration when their rights on the job are violated.

4) Pushing immigration policies that hurt all workers

The Trump administration has taken a number of extreme actions that will hurt all workers, including detaining unauthorized immigrants who were victims of employer abuse and human trafficking, and ending Temporary Protected Status for hundreds of thousands of immigrant workers, many of whom have resided in the United States for decades. But perhaps the most striking example has been the administration’s termination of the Deferred Action of Childhood Arrivals program.

5) Rolling back regulations that protect worker pay and safety

President Trump and congressional Republicans have blocked regulations that protect workers’ pay and safety. By blocking these rules, the president and Congress are raising the risks for workers while rewarding companies that put their employees at risk.

6) Stacking the Federal Reserve Board with candidates friendlier to Wall Street than to working families

President Trump’s actions so far—including his choice not to reappoint Janet Yellen as chair of the Federal Reserve Board of Governors, and his nomination of Randal Quarles to fill one of the vacancies—suggest that he plans to tilt the board toward the interests of Wall Street rather than those of working families.

7) Ensuring Wall Street can pocket more of workers’ retirement savings

Since Trump took office, the Department of Labor has actively worked to weaken or rescind the “fiduciary” rule, which requires financial advisers to act in the best interests of their clients when giving retirement investment advice. The Trump administration’s repeated delays in enforcing this rule will cost retirement savers an estimated $18.5 billion over the next 30 years in hidden fees and lost earning potential.

8) Stacking the Supreme Court against workers by appointing Neil Gorsuch

Trump’s nominee to the Supreme Court, Neil Gorsuch, has a record of ruling against workers and siding with corporate interests. Cases involving collective bargaining, forced arbitration and class action waivers in employment disputes are already on the court’s docket this term or are likely to be considered by the court in coming years. Gorsuch may cast the deciding vote in significant cases challenging workers’ rights.

9) Trying to take affordable health care away from millions of working people

The Trump administration and congressional Republicans spent much of 2017 attempting to repeal the Affordable Care Act. They finally succeeded in repealing a well-known provision of the ACA—the penalty for not buying health insurance—in the tax bill signed into law at the end of 2017. According to the Congressional Budget Office, by 2027, the repeal of this provision will raise the number of uninsured Americans by 13 million.

10) Undercutting key worker protection agencies by nominating anti-worker leaders

Trump has appointed—or tried to appoint—individuals with records of exploiting workers to key posts in the U.S. Department of Labor (DOL) and the National Labor Relations Board (NLRB). Nominees to critical roles at DOL and the NLRB have—in word and deed—expressed hostility to the worker rights laws they are in charge of upholding.

This list is based on a new report out from the Economic Policy Institute.

This article was originally published at In These Times on January 19, 2018. Reprinted with permission.

About the Author: The Economic Policy Institute (EPI) is a nonprofit, nonpartisan think tank created in 1986 to include the needs of low- and middle-income workers in economic policy discussions.


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We Must Create Good Jobs: Sherrod Brown Shows the Way Forward

Posted on by Robert Borosage
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February, the first full month of the Trump presidency, witnessed solid jobs growth of 235,000 with the headline unemployment rate little changed, at 4.7 percent, according to the Bureau of Labor Services monthly report.

Trump has already tweeted to claim credit for the results, but neither his plan nor his administration were in place. In fact, the February figures, a record 77th straight month of jobs growth, result from the momentum of the Obama recovery, plus whatever benefit or harm came from Trump’s bombast.

The jobs growth will harden the Federal Reserve’s resolve to raise interest rates again when its Open Market Committee meets next week. The Fed is acting in anticipation of an expected rise in inflation, that is to date not much in evidence.

By raising rates, The Fed is choosing to put a drag on the economy, even though full recovery is a long way off. Nearly 15 million people are still in need of full-time work. The share of the population in the workforce – 60 percent – is still down from 2000. If our work rate were back to where it was, about 10 million more Americans would have jobs.

Over the course of the recovery, most of the jobs created are contingent – part-time, short-term, contract work – with few benefits and often low wages. Lawrence Katz and former Obama economic advisor Alan Kreuger found that a staggering 94 percent of new jobs created from 2005 to 2015 were “alternative work,” contract or short-term or contingent.

Trump’s trickle-down agenda – to cut taxes on rich and corporations so they will create jobs – doesn’t address this reality. In fact, corporations are swimming in money, and using it increasingly to buy back shares or for mergers that do little to create jobs. Companies, contrary to Trump’s rhetoric, don’t lack capital or access to it, they lack demand for their products.

Democrats are sensibly critical of the Trump agenda, but too many fall back to a defense of Obama’s policies as the alternative. Obama helped save the economy that was in free fall when he took office, and presided over record months of jobs growth, but his policies, frustrated by Republican obstruction, did little to counter the stagnant wages, growing inequality and increasing insecurity of the modern economy.

The challenge is not simply to expose Trump’s bait and switch on the working people who voted for him, but to lay out elements of a bold alternative agenda. Bernie Sanders modeled that effort in his surging primary challenge.

Now, Senator Sherrod Brown of Ohio, who is up for re-election in 2018, has stepped  boldly into the breach. Brown has released a 77 page, meticulously documented report –Working Too Hard for Too Little – that delves into how policies and power have undermined workers, and offers the elements of an agenda to rebuild the middle class.

Brown’s central insight is a direct counter to Trump’s recycled voodoo. Trump believes that cajoling and bribing companies is the way to generate good jobs. Brown argues “It’s not businesses who drive the economy – it is workers.”   Workers with decent wages and secure jobs generate the demand that allow companies to grow and the economy to thrive. As it is, “Between 2000 and 2013, the middle class shrank in all 50 states. And that’s hurting our country. When hard work doesn’t pay off – when workers have no economic security and their paychecks don’t reflect the work they do – our economy cannot grow.”

The unemployment rate, Brown argues, isn’t the measure of a good economy. “The unemployment rate is one thing, but whether workers have jobs that pay a decent wage and provide security is another. And the unemployment rate certainly doesn’t reflect the frustration, the worry, the anger, the pain that workers feel.”

Senator Brown details how the policies that have structured globalization, technology, corporate management have undermined workers, savaged unions, and pushed companies to offshore, contract out, and cut back on jobs, wages and benefits.  He then offers a worker based alternative agenda, some old and some new.

He’d act directly to lift the floor under workers – requiring a $15.00 minimum wage, setting up a national fund to finance 12 weeks family and medical leave, mandating minimum paid vacation days and enforcing overtime pay.

He calls for empowering workers at the workplace– cracking down on labor violations, curbing wage theft, policing misuse of contract labor, and reviving the right to organize and bargain collectively. While Republicans are intent on destroying unions, Brown argues that clearly we all have a large stake in challenging the current imbalance of power in the workplace.

He details measures to help workers save for retirement – including matching grants and expansion of opportunities for part-time and short-term workers.

Then Brown offers a far more coherent plan than Trump to change corporate incentives. He’d create a “Corporate Freeloader Fee,” levied against all corporations “whose pay is so low that taxpayers are forced to subsidize their workers.” The fee would force companies to reimburse American taxpayers for the insult. He’d accompany this with offering companies that do right by the workers a tax break – if they “commit to staying in the US, to hiring in the US and to providing good wages and fair benefits for workers.”

The academic rigor – complete with footnotes – of Brown’s report is a rarity among politicians. It exposes House Speaker Paul Ryan’s much celebrated power points for the thin gruel that they are. Brown doesn’t see creating jobs as a standalone – affordable health care, better schools, access to colleges and good training, aggressive anti-trust and more are also vital.

Work unites all of us, Brown writes, citing Pope Francis: “We don’t get dignity from power nor money or culture. We get dignity from work.” With Working too Hard for Too Little, Brown has shown Americans that there is an alternative. The choice is not between Trump’s antics and more of the same. Good analysis leads to bold alternatives that offer a way out. His courage and his leadership should be applauded.

This blog originally appeared in ourfuture.org on March 10, 2017. Reprinted with permission.

Robert Borosage is a board member of both the Blue Green Alliance and Working America.  He earned a BA in political science from Michigan State University in 1966, a master’s degree in international affairs from George Washington University in 1968, and a JD from Yale Law School in 1971. Borosage then practiced law until 1974, at which time he founded the Center for National Security Studies.


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Still Getting ‘It’ Wrong

Posted on by William Spriggs
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On Friday, the U.S. Bureau of Labor Statistics reported the economy gained 235,000 payroll slots in February and upped its estimates for December and January by another 9,000 jobs. Over the three-month period, that means an average job growth of 209,000 jobs a month. Including the ups and downs, over the past 30 years, the U.S. economy has averaged job growth of about 126,000 jobs a month. So this current rate of growth would suggest a strong labor market. Further, workers who transitioned from being out of the labor force into active job search were 2.3 times more likely to land a job than to be stuck unemployed and looking.  And unemployed workers were 1.3 times more likely to find a job than if they were to quit and drop out of the labor force discouraged. Over the year, average wages (not adjusting for inflation) rose 2.8%.

Watchers of the Federal Open Market Committee, the policymaking body of the Federal Reserve Board, are sure the FOMC will stick to its forward guidance and act to raise the fed funds rate; which is their tool for setting the tightness of monetary policy. Raising the rate signals faith in the strength of the recovery by the Fed; a strong sense the economy is nearing both its target for inflation and employment. And, it is likely, given recent statements from several Fed officials that these numbers may convince them that “normal” is just around the corner. But they are wrong.

Raising interest rates is a way to slow the growth of the economy. It is useful to prevent an economy from over-heating and setting price increases on a pace that would be difficult to reign in. If done properly, the Fed can guide the economy to a soft-landing, where it will sit growing at a rate just fast enough to stay at full employment.

Well, the problem is that is where the economy is now. Despite solid job growth over the past year, the unemployment rate has remained flat and annual nominal wage growth has remained steady at around 2.6%. As a simple arithmetic, if the number of jobs created slows, then the unemployment rate will have to rise, and wage growth will slow.

If the near term had great economic certainty, then it might be possible to agree that labor market might show more signs of tightening; rather than its present “goldilocks” state of flat unemployment and wages. But the near term has great economic uncertainty.

First, while wages are beginning to show growth, the share of people employed is still a significant distance from the share employed at the peak of 2007, which was below the peak of 1999. This means that household incomes have not caught up. A large share of the workforce is employed part-time, and while the recovery has seen mostly growth of full-time jobs, household incomes have not gotten back to full employment levels.

Second, a major driver of the real economy is the automobile industry sector. After over-correcting during the depths of the Great Recession and the historic collapse in demand, it has used the financial helping hand then-President Barack Obama lent, to recover and now reach record sales and a growth in employment and investment. But a substantial and rising share of auto loans have been made to African American and Latino communities using subprime lending tools.  During the initial stages of the recovery, delinquencies on auto loans declined. But, beginning in 2016, they started to rise. And they continue to rise.

The purchase of new cars has increased the supply of used cars, so the gap between new car prices and used car prices has been rising as the price of used cars is falling. Delinquencies on auto loans began when the Fed began moving from zero interest rates, since the loan rate on automobiles is tied to short-term interest rates. Higher short-term rates will further increase consumers’ costs of buying a new car, increasing the wedge between new and used car prices.

The threat is that if job growth slows, it will first affect the African American and Latino communities, already showing struggles with the onerous terms of the subprime loans. Those communities need more time for the labor market to recover. The best solution for the economy is for their income to pick up pace and out run the debt. Income-led buying leads to healthy sustainable recoveries. Raising interest rates when incomes lead the recovery simply slow the pace of buying and encourage savings rather than spending. The worse solution is to have the debt out run their income. If delinquencies increase more, the auto market will get a greater flood of used cars, driving the price of used cars down further and increasing the gap in price between used and new cars.

Over the past six months, in fact, lending activity has become more stringent for new borrowers in the auto sector and for small business. Such a credit tightening is normally associated with an economic downturn; not a healthy growing recovery about to overheat. Higher short-term rates will only exacerbate that problem.

The problem is clear, at some point the new car market will go into recession; which means the auto industry will be in recession; which means the economy will be in recession.

Third, compounding the near term uncertainty, is the war that President Donald Trump has declared on the immigrant community. Fear and uncertainty are high in communities where many workers and family members are undocumented. These workers are fully integrated into our communities. They are wives, husbands and parents of legal residents and American citizens. These households live under a cloud. Fearing deportation, or legal fees to protect loved ones, millions of households are unlikely to buy new cars, or may be deciding to horde cash and stop making payments on cars that have been purchased. This is an uncertainty with a magnitude we have never faced, and therefore is too great a threat to ignore.

Fourth, the increase in people with health insurance because of the Affordable Care Act has meant job growth in the health sector at a faster rate than the rest of the economy. The current proposals of the Republican Congress to repeal the Affordable Care Act all will lead to a decrease in the number of Americans with health insurance. For this reason, the major hospital associations and the American Medical Association oppose the Republican plan. The threat to this market will have real repercussions on job growth in the one high-wage sector with fast job growth. And the wind down of federal Medicaid support to those states that extended health coverage using Medicaid will cause huge ripple effects on state budgets, which have not fully recovered from the drastic loss of revenues during the Great Recession. This will mean further pressures on recovering state investment in public colleges and universities.

Finally, the proposed budget cuts put forth by the Trump administration would gut public investment in education, housing and the environment. The austerity that has been proposed will cut federal jobs. And, just when the Medicaid cuts are going to hurt state budgets and so put more pressure to raise tuition at public two- and four-year colleges, the Trump administration is proposing cuts to Pell Grants and returning the student loan market to the more expansive private sector.

Thoughts that huge tax cuts to high-income households will offset a downturn in automobile sales, further disruption in the rising costs of college tuition or a dismantling of the health sector are irrational. We have lived through big tax cuts to the wealthy under former President George W. Bush. They were insufficient to pull the economy out of the 2001 downturn in any timely fashion; and, he had the help of low interest rates, a federal deficit swelled by tax cuts and war time expansion of military budgets, as well as a relatively healthy state unemployed insurance system. The current unemployment insurance system is greatly weakened and cannot provide the automatic stabilizer so vital to dampening a recession.

These all point to a real danger that the Fed may be a great threat to what is a more fragile economy than appears at the moment. The drive to be “normal” in a world that is clearly not normal, may put us in danger of a downturn that will be difficult to recover from given the instability shown in the White House.

This blog originally appeared in aflcio.org on March 13, 2017.  Reprinted with permission.

William E. Spriggs serves as Chief Economist to the AFL-CIO, and is a professor in, and former Chair of, the Department of Economics at Howard University. Follow Spriggs on Twitter: @WSpriggs.


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Trying to Teach Old Dogs New Tricks

Posted on by William Spriggs
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 William SpriggsOn Wednesday, the Federal Reserve’s open market committee concluded its two-day meeting to set U.S. monetary policy. In a vote that divided the Board of Governors, appointed by the president and confirmed by the U.S. Senate in an open public process, and the presidents of the regional bank board presidents, chosen by boards dominated by banks within their region, Janet Yellen, chair of the Federal Reserve Board of Governors and the FOMC, announced the FOMC decided to hold steady to its current Fed funds rate. The Fed funds rate is an overnight interest charge made between banks loaning reserves to each other. If it is higher, the cost of making loans goes up, and that reduces liquidity for the business and consumer sectors. Lower liquidity means less borrowing for business investment or consumer purchases like homes and cars. In turn, that means slower demand, and translates into slower growth for jobs.

Last December, after a long period of keeping the Fed funds rate near zero, the FOMC voted unanimouslyto raise the Fed funds rate by one-quarter to one-half points. It was anticipated that would be the first in a series of increases of similar small amounts. But, over the course of this year, the economy has run rather flat. Employment in the areas sensitive to interest rates like construction and manufacturing, after employment gains during 2015, ran flat. Durable goods manufacturing, which had been declining during 2015, continued to fall. In 2015, the unemployment rate fell from 5.7% in January to 5.0% in October. It has since remained stuck at about that level.

Ideally, when the Federal Reserve gets things right, the economy runs neither too hot or too cold. Eight months of flat unemployment rates and tepid GDP growth would suggest the Fed has clearly succeeded in finding a landing that, so far hasn’t meant crashing the economy. At least, on Wednesday, the evidence from modest GDP growth, flat unemployment and very low inflation convinced the six Board of Governors and the president of the New York Federal Reserve Regional Bank to hold steady; a tribute to Janet Yellen’s leadership to stay focused on the data and the real economy.

But, the other three regional bank presidents, Esther George of Kansas City, Loretta Mester of Cleveland and Eric Rosengren of Boston, all voted to raise the rate now. Another point of context is understanding the global economy is growing slower. The other major world economies, Europe, Japan and China, are struggling with slow growth. Their central banks are operating with either zero or negative interest rates. America’s modest growth looks very good next to their anemic performance. So this is making the dollar very strong. And that helps to explain the weakness of U.S. manufacturing because a strong dollar hurts U.S. exports. So even modest increases in U.S. interest rates are big by global standards and could further disadvantage U.S. manufacturing.

A second context is that the excess level of savings, globally, is chasing down projections of interest rate levels. Currently, the consensus at the Fed is that in the midterm, the Fed funds rate is likely to be around 1.9% at the end of 2018, and in the long run the normal rate is expected to be about 2.9%. On the eve of the Great Recession, the Fed funds rate was 5.25%. Compared to 2.9%, a raise to between one-half and three-quarters is not small. It isn’t like when the “normal” rate was above 5%.

The current tension in the FOMC between the Board of Governors and the regional bank presidents continues the controversy whether banks have too much say. Independence of the Fed from the political process is important. But, so too is Fed independence from the banks they need to regulate and oversee to make sure we have economic stability. The vote from Wall Street was positive. The stock market gains show a consensus the Fed is doing it right.

This blog originally appeared in aflcio.org on September 23, 2016.  Reprinted with permission.

William E. Spriggs serves as Chief Economist to the AFL-CIO, and is a professor in, and former Chair of, the Department of Economics at Howard University. Follow Spriggs on Twitter: @WSpriggs.


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The Federal Reserve and Black Unemployment

Posted on by William Spriggs
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The Federal Reserve Open Market Committee (FOMC) that determines U.S. monetary policy met in July.  Its job is to weigh the state of the American economy, both the labor market and inflationary pressures to set policy.  In an interesting note, its discussion of the labor market explicitly noted the condition of the African American and Hispanic unemployment rates.  More than just an aside, reflecting on the status of June’s labor market the minutes of the meeting show the following note:

“The unemployment rates for African Americans and for Hispanics stayed above the rate for whites, al­though the differentials in jobless rates across the different groups were similar to those before the most recent recession.”

While it is good the FOMC notes the damage its policies may be doing to the African American community, it unfortunately appears too simplistic in understanding the dynamics of the market and how the growth in labor demand affects the African American community.  It is simplistic because it appears to say that nothing has changed; that while the African American unemployment rate of 8.6% was on par with its pre-recession level of 8.4% in March 2007, when the white unemployment rate was 3.8%, little different than June’s 4.3%.  This suggests, the relative position of African Americans is fixed, immutable by macro-economic dynamics, so this lamentable gap corresponds to the best level of African American unemployment that can be reached.  In short, we must be near full employment.

Here is what the June report showed in detail.  The unemployment rate for adult African Americans (older than 25) with Associates Degrees was 3.0%, well below the unemployment rate for white high school graduates 4.2% rate.  This was a first since the recession began, for better educated African Americans to have unemployment rates lower than less educated whites.  In July 2015, African Americans with Associate Degrees had a 4.8% unemployment rate compared to white high school graduates lower 4.4% rate.

Further unnoticed, is that at the depths of the labor market downturn, the employment-to-population ratio for African Americans (the share of people with jobs) fell to 51.0% in July 2011, but had grown by June to 56.1%, a five percentage point gain, but a 10% increase.  For whites, on the other hand, the EPOP had grown only from 59.3% to 60.2%, less than one percentage point.

So, the change in unemployment rates is deceptive.  The African American unemployment rate is improving on a strong growth in employment and in the relative improvement resulting from less discrimination in hiring.  That success has further encouraged the rise in labor force participation for African Americans; which has the perverse effect of fighting against a lower unemployment rate, because it increases the number looking unsuccessfully.

The problem for African Americans is that they face much higher probabilities of enduring long spells of unemployment.  African Americans, of the same educational attainment and with the same cognitive skill levels (the so-called test score gap often mistakenly attributed as a measure of inferior schooling) as whites, face a fifty percent greater chance of being thrown into a long spell of unemployment.  And, once having fallen into that labor market quicksand, face about a third less chance of escaping.  The result is that massive levels of unemployment, like the Great Recession spawned, result in a very long queue of unemployed African Americans.  That long line can only clear by a similarly long and sustained recovery to pluck the unemployed back among the employed.

Put it simply, the unemployment rate is a snapshot composed of the probability of becoming unemployed plus the inability to escape unemployment; so it is a much more complex picture when large numbers of people are unemployed for long periods, as they are more likely to be captured by the snapshot.  When unemployment spells are very short, people move out of the frame before the snapshot can be taken.

The unemployment gap is not one of skill, it is the very real and present discrimination prevalent in a labor market where demand for workers is low and the power and caprice of employers is high.  The relative size of the gap can change, if policies push beyond conventional measures of unemployment and underutilization of workers; it is possible to see another answer is possible.

So, it is good that the FOMC at least is aware that macro-economic policies can have a good or bad effect on African Americans.  The next step is for the FOMC to further understand how much a difference it can make.

This is not just important for African Americans.  It is important for the health of the national economy.  First, everyone benefits if we push the labor market to its true and full level of maximum employment; it means more jobs and opportunities for everyone.

Second, because the African American community has such little wealth, when the economy expands, it is a community very sensitive to the interest rate movements and credit availability to catch-up on purchases like cars and making home improvements.  These purchases are fueled by rising employment opportunities and the easing of credit when the FOMC acts to lower interest rates and stimulate economic growth.  But, in such a leveraged position, it means that a slowing economy and the loss of jobs quickly turns auto loans and home borrowing into severe household balance sheet nightmares.  Those bad effects spill over to the broader the economy.

Since African American employment is more sensitive to a slowing economy, it means the FOMC has to get it right about understanding when African Americans have reached full employment.  So far, they have consistently guessed at a number that is too high, ending labor market recoveries too soon—and economic expansions too soon for everyone.

This blog originally appeared in aflcio.org on August 22, 2016.  Reprinted with permission.

William E. Spriggs serves as Chief Economist to the AFL-CIO, and is a professor in, and former Chair of, the Department of Economics at Howard University. Follow Spriggs on Twitter: @WSpriggs.


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Why the Fed Isn’t Close to Achieving Full Employment and Shouldn’t Be Discussing Raising Interest Rates—the Case of Black Workers

Posted on by William Spriggs
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William SpriggsThe recently released minutes of the last meeting of the Federal Reserve Board’s Open Market Committee revealed there was serious discussion of the fact the labor market still showed signs of weakness. A primary issue was the lack of evidence of strong wage growth, which would be a clear signal the labor market was tightening. This has unleashed the Wall Street bettors, who want a jump on the Fed’s changing monetary policy, giving them more active play on the bond market, where interest rate movements can fuel their gambling addiction. The voices being raised to have the Fed raise interest rates march out lots of theory to predict uncontrolled inflation, despite a global slowdown, falling oil and natural resource prices, and flat real wages. We must hope that the Fed makes policy based on what is good for the economy, not what is good for the reckless gamblers on Wall Street.

The current directive to the Fed comes from the Humphrey-Hawkins Act, which in 1978 established that the nation’s primary economic policy is to achieve full employment, within reason—not by creating unsustainable budget deficits or igniting uncontrollable inflation. Unfortunately, many have twisted the legislation’s purpose to their own ends, changing the act’s intent to balance budgets and maintain low inflation in hopes those policies don’t increase unemployment. The act does not place full employment on equal footing with fighting inflation; it merely constrains full-employment policy to a measure of prudence.

With that in mind, the Fed should understand it is not at full employment. In addition to wages rising with productivity, a main tenant of evidence of full employment, the Fed needs to embrace some additional senses of full employment. One is that discrimination would disappear, since it would become prohibitively costly in a full-employment economy.

A problem for the Fed is that there is little diversity in its staffing, which reflects the low level of diversity among economists. Economists have convinced themselves there is little to explain about the persistence of the disparity in black and white unemployment rates, the ratio of which remains stubbornly at 2-to-1. It is enough to assume there are lower skill levels among African Americans and societal structural issues that permanently disadvantage African Americans, and that these circumstances will persist no matter what the level of unemployment.

Of course, many economists do appreciate that this pat answer is hard to reconcile with the great sensitivity that the black unemployment rate has to the economy—a tightening labor market brings down the black unemployment rate at twice the rate for whites. That makes the structural argument difficult to maintain.

There is another key element. The unemployment rate gaps between blacks and whites are stubborn at every education level, and the gaps are glaring. In fact, what the unemployment rate gaps for blacks suggest is the old adage that blacks must be twice as good to compete in the labor market with whites. The unemployment rate for blacks with more education is similar to that of whites with less education. This is true for blacks at all education levels, from college graduates to associate degree holders to high school graduates. And it is very difficult to argue that those huge gaps do not reflect discrimination.

When the labor market tanks, and the number of unemployed workers per job opening goes up, the gaps faced by better educated blacks to less educated whites get wider. Black college graduates find themselves with unemployment rates closer to white high school graduates, and blacks with associate degrees find themselves with unemployment rates worse than white high school dropouts.

When the labor market tightens, unemployment rates for blacks with more education improve such that they are better than those of less educated whites, though still off the mark compared with equally educated whites. When employers are faced with two unemployed working people for each job opening, many stop seeing color and start seeing qualifications. Employers faced with a growing economy and smaller applicant pools find it would now cost to discriminate by passing over the qualified African American applicant. We don’t know what would happen if the nation maintained its commitment to full employment, because just as the black unemployment rates near parity with whites, our economic policy switches all reverse to slow the economy, increase unemployment and push blacks off the path to equality.

The Fed needs to see that its policies are part of that problem. Slowing the economy before we reach full employment means employers never have to raise wages nor understand the costs of their discriminatory practices.

This blog originally appeared in AFL-CIO on August 21 ,2015. Reprinted with permission.

About the Author: William E. Spriggs is the Chief Economist for AFL-CIO. His is also a Professor at Howard University. Follow Spriggs on Twitter: @WSpriggs.


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