By Blu Putnam
- A return to pre-pandemic patterns is slowly occurring, with goods inflation still outpacing services inflation
- Whether or not the jobless rate stays below 4% is a key metric to watch
The pandemic has disrupted typical economic patterns, so interpreting the data at this point is exceptionally confusing. Here are some observations to help you sort out the mixed signals.
Headline year-over-year inflation is in the headlines, but the month-over-month data needs to be watched carefully, because the year-over-year data is influenced as much by this that happened a year ago than what is happening today. For inflation to fall to 3%, this means that the monthly change in the CPI must slow to an average of 0.25% per month.
At the height of the pandemic, consumers bought more goods than before as access to certain services was limited, which exacerbated the problem of supply chains. A return to pre-pandemic patterns is happening quite slowly, and goods inflation is still outpacing services inflation.
But not all challenges are due to the pandemic. As the service industry recruits, particularly in the hospitality and travel sectors, a considerable number of entry-level jobs are becoming vacant. Since it is typically younger workers who fill these entry-level jobs, it is important to note that the younger cohort of the labor force is actually shrinking, adding to hourly wage pressures at the entry level.
Finally, note that the Federal Reserve’s dual mandate is to encourage full employment and price stability. This means that jobs matter more than GDP. Real GDP reached its pre-pandemic peak in the second quarter of 2021 and has since slowed sharply in 2022.
Jobs are barely approaching their pre-pandemic peak. And even if month-over-month job growth slows in the second half of 2022 to return to trend, what will matter to many analysts is whether the jobless rate remains or not less than 4%.
Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.