A cursory glance at changes in price levels — which matters more to households than the prevailing inflation rate — shows that many states that are dissatisfied with Joe Biden have indeed had a pretty miserable few years with the cost of living.
As FTAV wrote yesterday , that may help explain why the president’s approval ratings (and consumer sentiment) isn’t higher, despite progress on cutting inflation. But what about the labour market?
After all, that has been pretty dang strong, and unemployment remains near record lows. Last Friday’s non-farm payrolls for March came in at 303,000 — almost 100k stronger than expected. Even if households often put the cost of living above jobs in their hierarchy of economic concerns, why is Biden not getting much credit for it either?
Here are a few possible explanations from some neglected data points:
1) Some workers have had more luck in the post-pandemic labour market than others. Foreign-born workers have surged , while native-born employment is still slightly below pre-pandemic levels. (The visible relative performance can impact how individuals feel about whether the economy is working for them).
2) Labour market data are mostly backward-looking, and lagging. The NFIB’s forward-looking indicator of hiring expectations by small businesses — which employ close to a half of America’s private sector — has been dropping fast (it is also a decent predictor for wage growth trends). Some jobseekers are likely to be picking up on tougher conditions.
3) Not all new jobs have been full-time ones. In fact, full-time employment is just above its pre-pandemic levels, while part-time and multiple jobholders have seen more solid relative increases. Sure, more workers not doing the traditional 9 to 5 can be a sign of dynamism, but in some places it can also be an indicator of limited opportunities and the need to take on more hours just to make ends meet. (In December, close to 40 per cent of those surveyed by Harris Poll said their households had relied on additional incomes — such as from multiple jobs — to make ends meet)
4) Unemployment is higher in some areas. Former Fed economist Claudia Sahm’s eponymous “ Sahm Rule ” has been a trustworthy indicator of coming downturns. It uses the three-month moving average of the unemployment rate, and judges that if it rises by 0.5 percentage points or more relative to its minimum during the previous 12 months, a recession may be forthcoming. The logic, in part, is that declining economic momentum can snowball.
Up to February, the Sahm rule is not triggered at a national-level. But on an unweighted basis, 20 out of 50 states are above it — a level not seen unless before a recession — according to economists at UBS.
It should be noted that a state-by-state application of the Sahm rule is misleading. For instance, local unemployment can be boosted by immigration flows, not a bad local economy. (As Sahm pointed out in a recent op-ed ). The chart looks ominous nonetheless.
It raises a broader point that economic resilience is not evenly spread across the US. Indeed, new BLS data finds that in February unemployment rates were higher than a year earlier in 247 of 389 metropolitan areas, lower in 109 areas, and unchanged in 33 areas.
A total of 54 areas had jobless rates of less than 3.0 per cent and 13 areas had rates of at least 8.0 per cent. These localised differences can play on perceptions of households’ local economy.
5) Relatedly, although real wage growth has returned nationally, different states have varied experiences. A collection of swing states have seen price-levels outgrow wages between January 2021 and the start of this year.
None of this should take away from America’s stellar headline job numbers. But to understand why it has not coincided with higher consumer sentiment — and appraisal for Biden — there are some clues if you look beneath the surface .