It was September of 2016, and the Obama Administration was having none of the bad economic news. The economy was doing great, we were told, unemployment was way down as the economy recovered from the 2008-9 recession, and everything was peaches but the cream. Trouble is, the American people just didn’t quite believe it:

Problem: Most Americans don’t believe the unemployment rate is 5%

by Heather Long | September 6, 2016 | 3:18 PM EDT

Americans think the economy is in far worse shape than it is. The U.S. unemployment rate is only 4.9%, but 57% of Americans believe it’s a lot higher than that, according to a new survey by the John J. Heldrich Center for Workforce Development at Rutgers University.

The general public has “extremely little factual knowledge” about the job market and labor force, Rutgers found.

It’s another example of how experts on Wall Street and in Washington see the economy differently than the regular Joe. Many of the nation’s top economic experts say that America is “near full employment.” The unemployment rate has actually been at or below 5% for almost a year — millions of people have found jobs in what is the best period of hiring since the late 1990s.

But regular people appear to have their doubts about how healthy America’s employment picture is. Nearly a third of those survey by Rutgers believe unemployment is actually at 9%, or higher.

Republican candidate Donald Trump has tapped into this confusion. He has repeatedly called the official unemployment rate a “joke” and a even “hoax.”

As it happened, the U-6 unemployment rate — “Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.” — was in the nine percent range, 9.6% to be more precise, and if few people actually look at the various unemployment categories, the public can sort of feel them in their bones.

Well, the supposed good news is that the current ‘official’ unemployment rate has dropped to a multi-year low of 3.5% as the non-farm economy added 223,000 jobs in December. But, with the labor force participation rate still lower than before the disruptions caused by government reaction to the panicdemic — no, that’s not a typographical error, but exactly the spelling I believe it should have — the unemployment number is being held artificially low. The civilian labor force stood at 164,966,000 in December, just 262,000 higher than it was in December of 2019, the last pre-virus year, but the workforce-eligible population, those aged 16 and over, not in the military nor incarcerated, is 4,633,000 higher than in December of 2019, 264,814,000 vs 260,181,000.

When I say that the public feel it in their bones, I look at other indicators, and this story stood out for me:

Macy’s warns holiday-quarter sales will come in light, citing squeeze on shoppers’ wallets

by Melissa Repko | Friday, January 6 2023 | 4:33 PM EST | Updated Friday, January 6 2023 | 7:43 PM EST

Macy’s on Friday warned its holiday-quarter sales will come in on the lighter side, saying consumers’ budgets are under pressure and that it anticipates that squeeze to continue into this year.

The department store operator said net sales are now expected to be at the low- to midpoint of its previously expected range of $8.16 billion to $8.4 billion. It expects adjusted diluted earnings per share to be in the previously issued range of $1.47 to $1.67.

For the year-ago period, Macy’s reported revenue of $8.67 billion and adjusted earnings per share of $2.45.

Shares of the company fell about 4% in aftermarket trading Friday.

Macy’s is the latest retailer to provide clues about the consumer, as investors await holiday results and look for signs of whether demand is holding up as inflation remains high

There’s more at the original, and no, it isn’t behind a paywall.

So, Macy’s, a very-sensitive-to-Christmas retailer, is going to see an absolute drop in holiday revenue, yet the inflation rate in November — the December inflation figures are not out yet — was 7.1%. Macy’s has seen a total holiday revenue decline of roughly 5%, at a time when prices have increased 7.1%. And this was during the first real Christmas season in which people weren’t under mask mandates and the general malaise of the panicdemic.

There are real, solid reasons for this. The Bureau of Labor Statistics reported that average hourly earnings were 4.6% higher in December over December of 2021. That would be great . . . if the inflation rate hadn’t been much higher. The average American was poorer, in real terms, this Christmas than he was last Christmas. The Biden Administration doesn’t want people to know that, but the public can see it, can feel it, in their wallets and in their bones. And that’s why Macy’s saw a drop of revenue.

There’s more: we might not be in a recession now, but economists believe there will be one before 2023 is over:

Big banks are predicting that an economic downturn is fast approaching.

More than two-thirds of the economists at 23 large financial institutions that do business directly with the Federal Reserve are betting the U.S. will have a recession in 2023. Two others are predicting a recession in 2024.

The firms, known as primary dealers, are a collection of trading firms and investment banks that include companies such as Barclays PLC, Bank of America Corp., TD Securities and UBS Group AG. They cite a number of red flags: Americans are spending down their pandemic savings. The housing market is in decline, and banks are tightening their lending standards.

“We expect a downturn in global GDP growth in 2023, led by recessions in both the U.S. and the eurozone,” economists at BNP Paribas SA wrote in the bank’s 2023 outlook, titled “Steering Into Recession.”

The main culprit is the Federal Reserve, economists said, which has been raising rates for months to try to slow the economy and curb inflation. Though inflation has eased recently, it is still much higher than the Fed’s desired target.

The Fed raised rates seven times in 2022, pushing its benchmark from a range of 0% to 0.25% to the current 4.25% to 4.50%, a 15-year high. Officials signaled in December that they plan to keep raising rates to between 5% and 5.5% in 2023.

There’s more at the original, but it all boils down to one thing: if you’re wealthy, you’ll see some economic losses, but you’ll still be able to live. If you are living paycheck-to-paycheck, you’re in for some real pain.
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We need Gerald Ford’s “Whip Inflation Now” buttons!

Inflation May Fall Slower Than Expected

by Chuck Jones | Monday, May 9, 2022 | 8:45 AM EDT

The rapid rise in inflation is causing the Federal Reserve to aggressively raise interest rates along with deleveraging its $8.9 trillion balance sheet. This has thrown stocks into correction territory or bear markets. Two of the major reasons for the increase in inflation have been the upsurge in demand coming out of the pandemic and supply chain issues.

April’s CPI estimate will be announced Wednesday before the stock markets open. Expectations are for the all items rate to drop from 8.5% to 8.1%. To hit 8.1% the month-to-month inflation rate will have to fall from 2.3% in January, 2.6% in February and 3.8% in March to no more than 1.25% to hit the expected number.

“Expectations,” were not met. Not only did the May inflation rate not drop to 8.1%, not only did it not even remain steady, but the rate rose slightly, to 8.6%.

Energy prices rose 32% on an annualized basis in March. In April Gasoline and Diesel prices were fairly flat, which will help lead to a lower inflation increase since they comprise about 4% of the inflation CPI Index and were up 48.2% year-over-year in March. However, natural gas prices increased in April, which will somewhat offset gasoline’s impact.

Well, guess what actually happened. From The Wall Street Journal:

U.S. Inflation Hits New Four-Decade High of 9.1%

Prices up broadly across the economy, with gasoline far outpacing other categories

by Gabriel T Rubin | Wednesday, July 13, 2022 | 12:08 PM EDT

U.S. consumer inflation rose last month from the year before at the highest rate in more than four decades, as prices climbed throughout the economy.

The consumer-price index rose 9.1% in the 12 months ended in June, the fastest pace since November 1981, the Labor Department said on Wednesday. The June increase also eclipsed May’s 8.6% rate, which led Federal Reserve officials to shift to a faster pace of benchmark interest-rate increases in its campaign to bring down inflation.

The report likely keeps the Fed on track to raise its benchmark interest rate by 0.75 percentage point at its meeting later this month. Stocks dropped and bond yields jumped following the inflation report.

Core prices, which exclude volatile food and energy components, increased by 5.9% in June from a year earlier, slightly less than May’s 6.0% gain, the Labor Department said.

There’s more at the original, but as I’ve asked before: why are “volatile food and energy components” excluded from the core inflation rate. Food and energy, in the form of gasoline and utility bills, have to be purchased every month, often several times a month. You see it when you fill your gasoline tank, and you see it when you go to the grocery store, and you see it when you get your electric and natural gas bills. Economics reporter for The New York Times noted that:

Gas prices rose 11.2% in June alone, and are up nearly 60% from a year earlier. Grocery prices were up 1% in June (a bit slower than in May) and were up 12.2% from a year earlier.

And:

One big reason “core” inflation accelerated in June: Rents rose 0.8% in June, the fastest one-month gain since 1986. “Owner’s equivalent rent,” the BLS’s (confusing) way of accounting for owner-occupied housing, is also picking up. Over the past three months, rents have risen at an annual rate of 8.2%. (Owner’s equivalent rent rising at 7.3% rate.) That’s especially worrying because rents don’t tend to turn around quickly.

You know what has happened? Virtually every single projection of the economic “experts,” or at least the great majority of them, has been wrong.

Back to the Journal:

Despite June’s inflation reading, economists point to recent developments that could subdue price pressures in the coming months.

Investor expectations of slowing economic growth world-wide have led to a decline in commodity prices in recent weeks, including for oil, copper, wheat and corn, after those prices rose sharply following the Russian invasion of Ukraine. Retailers have warned of the need to discount goods, especially apparel and home goods, that are out of sync with customer preferences as spending shifts to services and away from goods, and consumers spend down elevated savings.

“There’s a pretty serious recession fear affecting a broad range of asset prices,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives.

Retailers’ ability to shed unwanted inventory could test whether pricing is returning to prepandemic patterns, Ms. Rosner-Warburton said. Some retailers, such as Target, have already said they are planning big discounts. Others with robust warehouse capacity, such as Walmart Inc., could be more likely to hold on to their excess inventory, analysts say.

The first guesstimate of second quarter Gross Domestic Product figures is scheduled to be released on Thursday, July 28^th, with a second, supposedly more refined guesstimate on THursday, August 25^th. GDP decreased by 1.6% in the first quarter — the initial guesstimate was -1.4% — so if the figures show any negative reading at all, we will officially be in a recession. The second quarter already being over, there’s no time to change things.

I’m old enough to remember the last heavy inflation cycle, 1974-1982, and, after years of President Ford’s Whip Inflation Now buttons, and President Carter’s “malaise,” inflation was tamed the old-fashioned way: with a deep recession.

This isn’t 1982: inflation is not (yet) being accompanied by serious unemployment, but that’s in part due to people who should be working or looking for jobs still being paid, with phony money, not to work.

I’m not some fancy economics professional, and don’t have a PhD to my name. BUt it seems to me that things are going to get worse before they get better. The fer-mongers are attempting to scare us with dire warnings about the BA.5 Omicron sub-variant, and while those warnings are not being taken too seriously by the public in general, there’s at least the possibility that the warnings will be reasonably accurate. The Fed has been raising interest rates in an attempt to depress consumer demand, to fight inflation, but if they foul that up, such interest rate hikes could hasten a recession. Ukraine, the breadbasket of Europe, has seen its wheat crop and exports devastated by the war, and the economic restrictions put on Russian gas and oil, though they haven’t hurt Russia yet, could really mess things up in Europe, especially when winter arrives.

My wife is more worried about the economy than I am, and she’s pretty smart — smart enough to have married me, anyway! — but I am concerned enough. Perhaps it’s unfair to place all of the blame on President Biden, but hey, you know that he’ll take the credit for any good news; we might as well lay the responsibility for bad news at his stinky feet.

“I was wrong” is not something you expect to hear from an economist. When they are wrong, economists are far more likely to push the reason for them being wrong onto things totally unforeseeable, or Donald Trump, or bad data coming from outside sources. Well, last Thursday, an economist admitted that he, and others, got things way, way wrong!

What economists like me got wrong about inflation

Predicting an end to inflation now comes down to three factors: the pandemic, Russia’s war in Ukraine, and decisions by the Federal Reserve.

by Mark Zandi | Thursday, June 23, 2022

If you are like most Americans, your number-one financial problem these days is runaway inflation. You’re desperate to know when inflation will peak, and when it will be back down to a level you can live with.

The economic pain and suffering caused by more than a year of spiking in inflation — which has dramatically raised prices on everyday goods and services — has been tough to bear. The typical family must shell out $460 more a month to buy the same items and services they bought a year ago — a huge bite out of that family’s $70,000 in annual income. For lower-income households living paycheck to paycheck, this is unmanageable.

Prices are up a lot for almost everything, but most disconcerting are the big price increases for basic staples. The nationwide cost of gasoline has soared to a record near $5 per gallon, nearly all items on grocery store shelves have suddenly become much more expensive, and rents are increasing at a double-digit pace.

I’ll admit it: it was so gratifying to see the “We were wrong” subtitle that I just had to screen capture it!

Many of us have never seen this kind of inflation before, making it especially difficult to fathom. The last time inflation was so high was two generations ago when Ronald Reagan was president. And it comes on the heels of more than a decade of inflation so low that the Federal Reserve, whose job it is to manage inflation, worried it was too low for the economy’s own good.

Also irksome is how wrong the Fed, the Biden administration, and economists, including me, were in thinking that the high inflation would quickly recede. It hasn’t.

I’m old enough that I have seen inflation this high, and much higher, from the last year under Gerald Ford, — and yes, I remember President Ford’s “Whip Inflation Now” buttons — all through Jimmy Carter’s abysmal presidency, and into the first year of the Reagan Administration. I also remember what finally did ‘whip’ inflation: a deep recession in 1981 and 1982.

Mr Zandi continued to blame the COVID-19 panicdemic, and he’s right, but he’s also wrong. It was the response by governments, in the United States and around the world, to the virus that fried the economy. He blames workers continuing to stay home, having dropped out of the economy because they are afraid of the virus, but that fear was driven by governments’ messages of panic. Even now the message is being spread, at least by the media, that there are new sub-variants of the Xi Omicron variant, which “appear to escape antibody responses among both people who had previous Covid-19 infection and those who have been fully vaccinated and boosted.” That, coupled with the unprecedented government largess with borrowed money, have worked to keep people who should be working out of the job market. It isn’t as though serious inflation wasn’t predicted due to the government borrowing so much money! Production and supply chain disruptions caused by people not being on the job, and they are not on the job because the government has enabled them to survive without working, has to lead to inflation: they have money to spend, but fewer things on which to spend it, which drives up prices; the laws of supply and demand are not subject to government revision!

Naturally, Vladimir Putin has to be blamed, for invading Ukraine. The European Union decided to stop buying oil from Russia, which meant that they had to buy it elsewhere, putting a large increase in demand on the remaining supply. Despite the pleas of the global warming climate change emergency activists, people need fossil fuels now, to the point where very, very green Germany is going to reopen coal fired power plants to meet electricity demands.

Of course, Europe also needs natural gas, so the energy companies have found a fig leaf of cover to keep buying gas from Vladimir Vladimirovich! Soviet Russian troops in Ukraine is far less important than keeping the lights on in Europe! Remember: we told you that even before the invasion.

In 1980, the average price of 87 octane regular gasoline in the United States was $1.19 per gallon. Using this inflation calculator, gasoline should have cost $3.74 per gallon in 2020, but it was $2.17 per gallon, and had, on April 27, 2020, dipped to $1.77.

The same inflation calculator puts that 1980 price at $4.22 per gallon now, but that includes the inflation caused by oil price increases itself, so is of somewhat limited value. Nevertheless, regular gasoline prices, while somewhat higher than $4.22 per gallon right now, are not extraordinarily higher; they’re still in the $4.00 to $5.00 range, albeit higher in that range. At the station closest to me, regular gasoline id $4.56 per gallon, having come down from $4.80 a couple of weeks ago.

Mr Zandi, having admitted that he, and many others, were wrong, now gives us a new projection:

1. if the panicdemic pandemic continues to “wind down”; and
2. if “the worst of its economic fallout” from the invasion of Ukraine is already at hand; and
3. if the Federal Reserve “successfully calibrate(s) monetary policy”;
4. then “the odds are good that inflation is peaking and soon will moderate to a level we can be comfortable with.”

So, what does all of that mean? It means that governments have to abandon their idiotic responses to COVID-19, and let us just live with it, which is what most of us in the United States have already done. I did notice that, in the Tour de Suisse bike race, the Swiss had abandoned the face masks that I had seen in the Giro d’Italia. The riders don’t wear masks while competing, of course, but previously everyone was masking up at the celebrations at the ends of each stage.^[1]These European bike races are our vicarious vacations, enjoying the scenery even if we can’t be there. The Tour of Norway was particularly spectacular.

It means that, sorry to say it, Russia must carry on and win its war against Ukraine in some acceptable fashion, without the United States and NATO doing something to intervene more thoroughly and prolong, and perhaps intensify, the war. Russian oil and natural gas must come to back to the market and the ‘normal’ order of things be restored.

And it means that the Federal Reserve has to get everything right. Anyone here want to bet €10 on that?

Inflation will be whipped the same way it was in 1982, by a significant recession. The economy already contracted 1.4% in the first quarter of this year; if it contracts again in the second quarter, which ends this month, we will officially be in a recession . . . again.