Meanwhile, the labor market has whipsawed millions of Americans through layoffs and then rehirings, with millions caught in between. Wages are up, and people are switching jobs at a record rate. And while growth for the year is still projected to approach 6 percent, White House and Federal Reserve officials underestimated the economic disruption that would persist through the pandemic’s second year. Now it appears certain that many of these strains, both economic and viral, will continue well into 2022, and perhaps beyond.
“There’s just no road map to opening a global economy in a pandemic, and people keep forgetting we’re still in a pandemic,” said Diane Swonk, chief economist at Grant Thornton. Now the recovery not only has to fix what was lost, but also the “scars and wounds have to heal” after hard-hit workers and industries reevaluated their futures, Swonk said.
Swonk pointed to actor William Shatner, who blasted into space several days ago, and drew a comparison to what’s unfolding in the economy: “We’re seeing some friction upon reentry.”
Here’s a breakdown of what’s happening in the economy, in 5 charts.
Wage growth spikes for some
As many companies tried to reopen rapidly, they complained that it was difficult to find workers who were willing to accept the same pay and conditions that had been offered pre-pandemic. So a number of companies hiked wages to try to lure workers away from other jobs. This pushed up income, especially for workers who are willing to jump ship for a new employer.
Workers who switch jobs almost always earn larger raises than those who stick at the same employer, but that gap has opened to the widest point in more than two decades. Job switchers got a typical hourly raise of about 5.4 percent from a year earlier, according to the Federal Reserve Bank of Atlanta’s wage tracker, which analyzes Bureau of Labor Statistics data.
Rising wages can be a good thing, giving workers more money to spend to help the economy grow. But economists worry about the ripple effects of rising wages at the same time that companies are struggling to fill more than 10 million empty jobs. If employers hike wages to attract workers, they may in turn have to pass those higher labor costs on to consumers in the form of higher prices. That could send inflation even higher.
Will price growth persist?
For months, officials at the Fed and White House have argued that inflation is a “transitory,” or temporary, feature of the economic recovery, like an old car lurching into gear. The expectation from many top Washington economic officials is that once supply chains have time to clear their backlogs, inflation will settle down closer to the Fed’s 2 percent annual target, sometime next year.
But that message is becoming increasingly hard to defend. “Temporary” has lasted for months, and it will last for months more. The September consumer price index shows annual price growth came in at or above 5 percent for the fifth consecutive month. Plus, last month’s rising food and shelter costs together contributed to more than half of the monthly increase of all items, when seasonally adjusted, making it harder for people to afford everyday expenses. Wages are rising, but that increase is getting eaten up by higher costs.
Throughout the pandemic, new and used cars have been a litmus test for the country’s supply chain issues and related price hikes. The market relies heavily on trade-ins and auto parts, which are in low supply amid a global microchip shortage. Used cars and trucks have driven a surge in inflation this year and are up a whopping 52 percent since September 2019.
But the Fed and the White House don’t only have to control inflation. They also have to control the way they talk about it. Consumers may be watching the signals Washington’s leaders send about whether higher prices are sticking around. One Fed official is ditching the word “transitory” altogether, saying it gives the public a false expectation that high prices will cool in a short time frame.
“It’s not just the time, it’s whether this is becoming a little more embedded in the underlying inflation trends. That’s what we were thinking in terms of ‘transitory,’” said Tim Duy, an economist and Fed expert at the University of Oregon. “And increasingly, I would say it looks like it appears that the price pressures are more widespread, and as a result, more likely to result in elevated underlying inflation going forward.”
The virus complicates a restaurant recovery
Restaurants’ bottom lines have recovered with surprising speed in recent months. Data released by the Census Bureau on Friday shows restaurant sales topped $72 billion in August — about in line with the level that would have been expected had the pandemic never happened. But employment in the sector in September remained about a million jobs below its prerecession levels, even as employers posted a near-record number of job openings — 1.5 million in August alone. And the recovery has been uneven. Some restaurants are doing much better than others.
The disconnect is likely related to the pandemic, as high levels of covid-19 cases appear to be related to falling restaurant employment. In Detroit, Nya Marshall remembers when the delta variant came “knocking at everyone’s door” over the summer.
Going into the fall, Marshall is running her restaurant, Ivy Kitchen, with reduced hours and shifts. She said that workers did not rush back on the payrolls when unemployment benefits expired and that many are leaving the industry altogether, especially while child care is a pressing concern. Business is still down 52 percent compared with pre-covid levels. And Marshall knows she’s not alone.
“Delta is here, and there is a misconception that the restaurants have recovered, that we’re back to where we were,” Marshall said. “People are not comfortable coming out. And if they do, we’re fortunate the patio is still open. But patio season is ending soon.”
Supply chains are slammed
Why all that inflation? Prices for used cars and other import-reliant items have risen rapidly as covid-19 wreaked havoc on global supply chains that were already stretched thin by Americans’ prolonged pandemic-era goods-buying binge. Many of the goods that are successfully offloaded from ships end up stranded in U.S. ports as trucking companies struggle to hire and rail yards suffer their own backlogs.
Before the pandemic, container ships would usually sail directly from China to a berth at the ports of Los Angeles and Long Beach. But since the first pandemic winter, more and more container ships have needed to wait in San Pedro Bay for a chance to dock and unload their cargo, peaking at 40 ships in February. Coronavirus cases dropped in the spring, and the backlog of ships started to go down. As the delta variant emerged in the United States, though, the number of waiting ships spiked alongside coronavirus cases. More than 70 ships waited offshore on Sept. 19.
Meanwhile, cargo languishes on container ships. Delays in getting cargo off container ships are passed on through the supply chain. Federal Reserve Chair Jerome H. Powell told lawmakers last month that the supply-side constraints on the economy have, “in some cases, gotten worse,” adding that “we need those supply blockages to alleviate, to abate before inflation can come down.”
The Biden administration several days ago announced a 24/7 operation at a key U.S. port and is working with major importers to clear a path for cargo ahead of the holiday season. Companies like Walmart, FedEx and UPS have also committed to using the extended hours at the Port of Los Angeles to offload shipping containers contributing to the freight backlog.
Pulling off a round-the-clock effort will depend on cooperation with foreign-owned shipping companies and operators across the transportation sphere, said Frank Ponce De Leon, the International Longshore and Warehouse Union’s Coast Committeeman for the Coast Longshore Division.
“This problem is not going to disappear in one day, in one month. It’s going to be a continued problem for a while now,” Ponce De Leon said. “There are things that can change … not only on the docks, but for the trucking industry, for the warehousing industry, the railroad industry. We can’t move cargo without those three parts of the puzzles.”
Laura Reiley and David J. Lynch contributed to this report.