Inflation:
From the Associated Press: Inflation roars back to its fastest pace since June. Consumer prices rise 0.6% from December to January. Year over year, they’re up 5.4%.
associated press
The Federal Reserve’s preferred inflation gauge rose last month at its fastest pace since June, an alarming sign that price pressures remain entrenched in the U.S. economy and could lead the Fed to keep raising interest rates well into this year.
Friday’s report from the Commerce Department showed that consumer prices rose 0.6% from December to January, up sharply from a 0.2% increase from November to December.
On a year-over-year basis, prices rose 5.4%, up from a 5.3% annual increase in December.
Excluding volatile food and energy costs, so-called core prices rose 0.6% from December, up from a 0.4% rise the previous month. And compared with a year earlier, core inflation was 4.7% in January, versus 4.6% in December.
The report also showed that consumer spending rose 1.8% last month from December after falling the previous month.
January’s price data exceeded forecasters’ expectations, confounding hopes that inflation was steadily decelerating and that the Fed could relent on its campaign of rate hikes. It follows other recent data that also suggested that the economy remains gripped by inflation despite the Fed’s strenuous efforts to tame it.
Last week, the government issued a separate inflation measure — the consumer price index — which showed that prices surged 0.5% from December to January , much more than the previous month’s 0.1% rise.
Measured year over year, consumer prices climbed 6.4% in January. That was well below a recent peak of 9.1% in June but still far above the Fed’s 2% inflation target.
Since March of last year, the Fed has attacked inflation by raising its key interest rate eight times.
Yet despite the resulting higher borrowing costs for individuals and businesses, the job market remains surprisingly robust. That is actually a worrisome sign for the Fed because strong demand for workers tends to fuel wage growth and overall inflation.
Employers added a sizzling 517,000 jobs in January , and the unemployment rate fell to 3.4%, its lowest point since 1969.
The Fed is thought to monitor the inflation gauge that was issued Friday — the personal consumption expenditures price index — even more closely than it does the government’s better-known consumer price index.
Typically, the personal consumption expenditures index shows a lower inflation level than the consumer price index. In part, that’s because rents, which have soared, carry twice the weight in the consumer price index that they do in the personal consumption expenditures index.
The personal consumption expenditures index also seeks to account for changes in how people shop when inflation jumps. As a result, it can capture emerging trends — when, for example, consumers shift away from pricey national brands in favor of less expensive store brands.
The consumer price index showed a worrisome rise from December to January: It jumped 0.5% — five times the November-to-December increase.
Likewise, the government’s measure of wholesale prices, which shows price increases before they hit consumers, rose 0.7% from December to January after having dropped 0.2% from November to December.
Workforce:
Millions are still missing from the workforce. Where did they go? Numbers are down even as pandemic recedes. It’s ‘a puzzle that has many pieces. By Michael Sasso for Bloomberg. Bloomberg writer Ben Steverman contributed to this report.
Millions of workers are still missing from the U.S. labor force three years after COVID-19 surfaced, and economists are scratching their heads as to how big the gap actually is and where all these people went.
One estimate found at least 2.1 million retired earlier than expected. Another calculated a shortfall of 2 million immigrants at the height of the pandemic. Other research pointed to a million or more out of work because of long COVID.
There’s not even an agreement on the overall size of the hole — how many more Americans would be working in 2023 had it not been for the pandemic.
That’s a problem because officials at the Federal Reserve need to know whether Americans are temporarily or permanently out of the labor force so they can set monetary policy, said Anna Wong, chief U.S. economist at Bloomberg Economics.
With the jobless rate at a 53-year low and more employees on payrolls now than there were before the pandemic, how can workers truly be missing?
The labor force is the sum of employed and unemployed people, and some researchers point to an estimate made by Fed economists of how big it should be based on population trends.
Assuming people kept working at pre-pandemic rates, they projected a labor force of 168 million by the end of 2022. In reality, the figure was around 165 million, arriving at a shortfall of roughly 3 million.
Things got even muddier this month, when the Labor Department revised its December tally of nonfarm payrolls by more than 800,000 additional workers. So that 3-million-person hole in the labor force actually may be a third smaller, Wong said.
What gives? Economists acknowledge that data about what motivates workers to drop out are hard to come by, and that trends underpinning their research, such as a drop in immigration, have changed over the pandemic’s course. Finally, some workers may be counted more than once, such as baby boomers who retired because of long COVID.
The labor force participation rate — the share of the population that is working or looking for work — stands at 62.4%, stubbornly below its pre-COVID level of 63.3%.
Had the average rate preceding the pandemic held, the labor force would have had 1.1 million more people in 2022, according to an outlook published by the Congressional Budget Office this month.
Several economists, though, have competing theories about how many missing workers there are and where they went.
Didem Tuzemen, a senior economist at the Kansas City Fed, calculated in a report last October that there would be 2.4 million more people in the labor force had participation rates not slipped during the pandemic. Most of the missing workers are older Americans, she noted.
While many older workers initially left the pandemic workforce out of health concerns, others chose to hang up their hats for good.
Fed Chair Jerome H. Powell has cited research by the central bank’s economists showing that “excess retirements” account for more than 2 million of the missing workers, but that hasn’t been updated per the Labor Department’s revision.
A higher-than-average number of deaths in recent years, mainly from COVID-19, accounts for about 400,000 of the labor-force shortfall, according to the Fed. The pandemic killed many more people — about 1.1 million — but the majority were older and more likely to be out of the workforce.
Harvard University economist Raj Chetty and his colleagues tracked another category of missing workers in a recent paper : low-wage service workers who were displaced from their jobs early in the pandemic and never came back. That’s illustrated best by payrolls in sectors such as leisure and hospitality and restaurants that still lag behind their pre-COVID levels.
The researchers zeroed in on affluent areas in big cities such as New York where office staff stopped getting haircuts and eating out because they were working from home. Those neighborhoods are the most likely to still be missing low-income workers today.
Elsewhere, UC Davis economists found that immigration slowed to a trickle during lockdowns. This led to 2 million fewer working-age immigrants in the U.S. by 2021 than if previous trends had continued.
Although that could have made up a big chunk of missing workers at the height of the pandemic, immigration has since picked up and probably plays a smaller role in America’s worker shortage today, UC Davis professor Giovanni Peri said.
Finally, long COVID is an underappreciated culprit in the missing worker mystery, according to Katie Bach, a nonresident fellow at the Brookings Institution.
Last August, she estimated long COVID reduced the U.S. labor force by the equivalent of 1.6 million people when accounting for those who either worked fewer hours or left entirely. That’s probably now down to somewhere in the range of 500,000 to 1 million, Bach said.