News and Analysis

Inflation And The Two Sides Of The American Economy

Dow futures immediately dropped over 500 points upon the release of March's inflation numbers.
Jonathan Kitchen. Getty Images. a red bar line chart inside a shopping trolley.
Jonathan Kitchen. Getty Images.

Last week’s jobs report, combined with Wednesday’s inflation number, shows that we are living in two economies. One, in which the macroeconomic, top line numbers, combined with the stock market points to a robust economy. The second, in which the microeconomic numbers point to Americans struggling to make ends meet.

The United States labor market added more than 300,000 jobs in March, which on the surface is excellent news. Unfortunately, the top sectors for gains — health care, social assistance, government jobs, and leisure and hospitality — drove the growth, accounting for more than 60% of the gains for the month. 

Conservatives, of course, want the government to be shrinking in size, not growing.

Beneath the surface, the numbers spell bad news for working Americans.

The growth in employment came from part-time, not full-time jobs.

An additional 525,000 part-time jobs were added in March and full-time jobs decreased by 222,000, according to The Street.

The growth in employment is primarily being driven by foreign-born workers, who have filled more than 1.25 million jobs over the last two months while the number of newly employed native-born Americans only increased by 435,000 over the same time period. As The New York Post noted, this helps to explain why wages increased at a modest 4.1% from a year ago, the smallest increase since June of 2021.

It is getting harder to make ends meet.

At the start of 2024, 8.7 million people were working multiple jobs in the United States, in order to fill their cars with gas and put food on the table. A report in USA Today found that at the start of 2024 there were 4.2 million people working part-time, not by choice, but because their employers reduced hours or they could not find full-time work.

This combination of the growth in part-time work and depressed wages point to a weak job market, not a strong job market. The number of people working multiple jobs also artificially inflates the job numbers, as each job counts, not each person.

The rising tide of a “hot” jobs market and a soaring stock market is not lifting all boats. The stock market rose nearly 8% in the first quarter of 2024 and is up more than 25% since its October 2023 lows, according to Morningstar.

However, there’s a marked increase in emergency 401(k) withdrawals, auto repossessions, and record numbers of people backing out of agreements to purchase a home.

Nearly 3.6% of workers who have a 401(k) retirement plan made a hardship withdrawal in 2023, a major increase from the 2.8% in 2022. The pre-pandemic average was 2%. The Federal Reserve Bank of New York reported that “the annual rate for car owners behind a month or more on their payments was 7.7%, the highest rate since 2010.” And in November 2023, nearly 17% of potential home buyers backed out of their agreement to purchase a home for which they had signed a contract.

Perhaps this explains why Americans are skipping meals to afford housing. A study from Redfin, as reported by CBS News shows that half of homeowners and renters have had to make sacrifices to afford their mortgage or rent payment. Homeowners report selling belongings, working overtime, canceling vacations, taking on a second job, and skipping meals in order to make a mortgage payment.

The March 2024 Consumer Price Index, the common measure of inflation, was at 3.5%, above expectations, driven by energy, food, and shelter; the basket of needs for all Americans. Core CPI, which excludes volatile variables such as fuel and food was at 3.8%. Both numbers were hotter than expected. 

Dow futures immediately dropped over 500 points upon the release of March’s inflation numbers.

Cumulative inflation since January 2021, when Joe Biden took office, is 18%, 6% per year — three times the Federal Reserve’s target of 2%.

Working Americans do not care about The Fed’s inflation target, they care that, since Biden took office, it now takes nearly $120 to buy what $100 would buy you at the end of the Trump presidency.

Americans are also seeing inflation at the pump, according to NerdWallet. Oil is at $85 per barrel, and the average regular gas price in the United States, as of April 5, was $3.582 per gallon, 22 cents higher than March’s average. The price of a gallon of gas has increased 49 cents since the start of 2024.

Commodity prices are rising, with gold at record highs, signaling that people are bearish on the U.S. economy and the U.S. Dollar.

It is no wonder credit card debt is at record highs, topping $1.13 trillion. Working Americans are not maxing out their credit cards in order to fly to Paris, pay for massages, or by that 75-inch TV. No, they are buying groceries, gas, and paying their utility bills, and paying nearly 25% interest for the privilege of doing so.

More than 33% of Americans have more credit card debt than emergency savings and 56 million Americans have been in credit card debt for at least a year.

Nearly one-third of residents in the country’s largest 100 metropolitan cities were behind on at least one debt payment in Q3 2023, and more than 25% had delinquencies of 90-days or more. 

Americans are working more part-time jobs, making less money, losing their cars, and unable to purchase a home. If they can afford a home, lunch becomes a forgotten meal.

Commodity prices are rising, gas is more expensive, and inflation is certainly not transitory. None of the indicators point towards an interest rate cut by the Federal Reserve in 2024. In fact, one could argue that we need another quarter-point increase in rates.

Will the Fed play a political role and give Joe Biden the gift of interest rate cuts, or will the Fed fulfill its apolitical charter and guide the economy?

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