May CPI set a new recent record for inflation

May CPI set a new recent record for inflation

calculator and graphs

May CPI set a new recent record for inflation

Key Points

  • May the Consumer Price Index (CPI) set new record for inflation
  • Lack of discussion over the price level, which is the new ‘floor’ for prices in the economy
  • Leaving the price level elevated means we are leaving the economically disadvantaged further behind, exacerbating the economic divide in our nation

New record for inflation

Today, the U.S. Bureau of Labor Statistics announced that in May the Consumer Price Index (CPI) rose by 1%, not seasonally adjusted. Year over year, the CPI has gone up 8.6% in the last 12 months. The May CPI exceeded expectations and set a new recent record for inflation.

The Georgia Center for Opportunity’s (GCO) take: “We now know that the early statements from the Biden Administration and the Federal Reserve that this inflation is transitory was an incorrect assessment. It looks a lot more like it’s becoming embedded into the economy,” said Erik Randolph, GCO’s director of research. “What’s both remarkable and troubling is the lack of discussion over the price level, which is the new ‘floor’ for prices in the economy. The only discussion is about bringing the inflation rate back down. This means that the federal policymakers are willing to leave the price level elevated. Leaving the price level elevated means we are leaving the economically disadvantaged further behind, exacerbating the economic divide in our nation.”

 

America’s Labor Force Problem Goes Beyond Economics

America’s Labor Force Problem Goes Beyond Economics

woman on steps frustrated about work

America’s Labor Force Problem Goes Beyond Economics

Key Points

  • Separation from the workforce is impacting mental, physical and social health of our communities.
  • Some employees are choosing to leave or refuse work to stay ahead on bills.
  • Government safety-net programs must be reconfigured to move people into work for both economic & social well-being.

Originally Posted on Real Clear Politics

 

One legacy of the COVID-19 pandemic could be the devastation it brought to the American worker by disconnecting millions from the workforce.

New research estimates that 3 million workers plan to remain permanently sidelined over concerns of physical illness or physical impairment due to COVID-19.

The research team named this phenomenon “Long Social Distancing” and found that more than 13% of Americans who worked in 2019 plan to continue social distancing after the pandemic ends. An additional 46% will engage in limited forms of social distancing.

The study estimates the depressed labor force participation from Long Social Distancing will dampen Gross Domestic Product by 1.4%. But the impact on individuals and their families will be far worse.

Separation from the labor force obviously means less income and financial security for the individual’s future. But there are other costs from nonwork that extend beyond the financial disadvantages, including long-term mental, physical, and social health impacts for workers, their children, their families, and their communities.

Simply put, our labor force situation today is a social, mental, and community crisis in the making. That’s particularly true for the poor and working class.

Kevin discovered that work is more than a paycheck.

Kevin discovered that work is more than a paycheck.

During the pandemic, the so-called “laptop class” of professional workers fared fairly well. They were able to maintain social distance from others while still working to earn income. Many of these workers found that remote jobs allowed them to create a healthier work-life balance, so they abandoned their former desk jobs in favor of a more flexible lifestyle.

In stark contrast, working-class adults who couldn’t perform their jobs from home have been hit hard. Those who continued to work were often placed at a higher risk of COVID-19 exposure. Others suffered more because their employers shut down, resulting in a devastating loss of income. Many small business owners suffered income loss and in some cases were forced to close their businesses permanently.

According to the Long Social Distancing study, the majority of Americans who don’t plan to return to work have a high school education or less (17.6%). Unemployment tended to decrease based on both education level and income, with the highest number of labor non-participation among those who previously earned $10,000 to $20,000 per year. Nonwork was highest among females aged 50-64 (17.5%), followed by male respondents of the same age group (12.9%).

It follows, then, that the most significant impact labor non-participation will have on America lies among lower-income communities — many of whom were likely already struggling to make ends meet.

Federal stimulus programs have been important to these individuals, helping them weather the combined storm of the virus and government-imposed lockdowns and shutdowns. Although these government programs sustained many people throughout the crisis, they also created major problems as we emerge from the worst of the pandemic.

Some unemployed people found that they were better off leaving their jobs and receiving government assistance instead. In many cases, unemployment benefits paid better than the jobs they’d previously occupied. This aggravated pre-existing issues with labor force non-participation, helping to fuel inflation as work stoppages led to disruptions in the supply-chain flow of goods and services.

Worsening the problem even more, many Americans experienced so-called “benefit cliffs” where their government support, such as food stamps, fell off in response to an increase in income. In some cases, families lost government benefits after a comparatively small pay raise. This creates additional disincentives for work.

So, what’s the path forward? In order to get unemployed adults back to work, we’ll need a change in perspective. Work must be regarded as something worthwhile in itself beyond a weekly or biweekly paycheck, because it is. A steady job gives each worker a sense of purpose, provides a stable life to their families, and helps maintain mental health.

Nonwork has a direct impact on children not only in the present, but as research shows it can impact their future, too. It creates perpetuating cycles of dependency that lead to instability for the children in these homes. This creates a systemic crisis in marginalized communities. If our goal is truly to overcome generational poverty, creating a culture that uplifts and prizes work is essential.

It’s essential to address safety-net programs as part of the solution. Programs that help in the immediate aftermath of job loss are not enough. In addition to meeting immediate needs — such as unemployment assistance and food — unemployed individuals need support and encouragement to know that work is beneficial to our mental and social health. 

And importantly, safety net programs cannot create disincentives from earning more money and getting ahead in society. Government programs need to be reconfigured so they no longer interfere with the upward economic mobility of individuals and their families. They need to consider the overall well-being of the recipients and their families over the long-term, not just the short-term.

Our ultimate goal should be to help those sidelined by the pandemic reconnect to work — not only for their economic health, but for their mental and emotional wellbeing.

 

Reality is Likely to be Far Less Rosy

Reality is Likely to be Far Less Rosy

Reality is Likely to be Far Less Rosy

Reality is likely to be less rosy…

Some economists are hoping that inflation has peaked and will tick down in the coming months, after the pace of inflation slowed slightly in April. But Erik Randolph, director of research for the Georgia Center For Opportunity (GCO), warns that the reality is likely to be far less rosy.

“What we saw with the April Consumer Price Index was disinflation. That means the rate of inflation decreased but inflation is still occurring and our purchasing power is declining,” Randolph said. “Meanwhile, wage increases are lagging behind price increases. The vast majority of workers will have lower standardsof living because their budgets will not buy as much as in the recent past. Some workers will get handsome pay raises, but they will be the exception rather than the rule.

Erik - Inflation swells quote

What’s needed?

“The core problem here is that the price level has risen, setting a new floor for costs. The only way to lower the price level, by definition, is to allow for deflation. But our policymakers are afraid of deflation because of the economic schools of thought that they adhere to. What is needed is new economic thinking in Washington, D.C. from economists who are not afraid of deflation but recognize it’s the only way to bring the price level down that benefits the most people. The mess we’re in now are the signs of stagflation, meaning the rising price level may be soon accompanied with slower economic growth and loss of employment. The only way to mitigate that scenario would be to adopt policies to allow for supply-side growth.”

U.S. Gross Domestic Product Update

U.S. Gross Domestic Product Update

U.S. Gross Domestic Product Update

stimulus

U.S. Gross Domestic Product update

U.S. Gross Domestic Product declined at a 1.4% rate in the first quarter of 2022. The numbers surprised economists, who had predicted a 1% gain.The Georgia Center for Opportunity’s (GCO) take: “The tab is coming due for all the reckless stimulus spending during the COVID-19 pandemic,” said Erik Randolph, GCO’s director of research. “The declining GDP in the first quarter is the strongest indicator yet that our nation is headed into a recession. Even worse, our trajectory is straight toward stagflation, an environment marked by rampant inflation combined with high unemployment. This will hurt poor and middle-class Americans the most.”

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New Research Predicts Long-Term Pain for Labor Market

New Research Predicts Long-Term Pain for Labor Market

New Research Predicts Long-Term Pain for Labor Market

social distancing

Long-term pain for labor market due to the COVID-19 pandemic

New research predicts long-term pain for the labor market due to around 3 million workers who plan to remain permanently sidelined over concerns of physical illness or physical impairment due to the COVID-19 pandemic.

The Georgia Center for Opportunity’s (GCO) take: “The authors of the long social distancing study have produced very helpful data on those no coming back into the labor force, estimating a 3.5 million shortfall in March by comparing the current observed level with a linear trend using the time period of January 2015 to December 2019 as the basis for the forecast,” said Erik Randolph, GCO’s director of research. “Using the current employment statistics survey instead of the current population survey, our own research shows a shortage of 6.6 million employed persons that would include persons holding multiple jobs. We use the same method of comparison by subtracting the forecasted data from the observed data, but instead of using a linear trend as the basis for comparison that can often overestimate the forecasts, or the reverse, we use an ARIMA forecast model, not for five years but starting at the low point after the Great Recession. In addition, our research provides forecasts and analyses for each of the 50 states where there is a wide disparity when it comes to job recovery.”

For more, read Randolph’s research report on the economic impact of the pandemic shutdowns.

 

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