AFTER THE FALLS – At the height of the COVID pandemic, citizens received stimulus checks, rent and student loan payments were postponed, unemployment benefits were increased and government spending increased.
“All of this amounted to a massive expansion in household purchasing power,” Idaho Department of Labor economist Sam Wolkenhauer said Tuesday at a meeting of the Post Falls Chamber of Commerce. “The great irony is that the second quarter of 2020 was when we were all locked down and everything stopped. All this uncertainty and people weren’t spending money.
America has hit an all-time high for household wealth, Wolkenhauer said. However, the unemployment rate “crossed the 15% mark”. Generally, when unemployment is high, purchasing power is low.
“All of this is about $5 trillion more liquidity in the US economy than there was pre-COVID,” Wolkenhauer said. “Normally it could be good. But in this case, it’s bad. And that’s why we have inflation.
Since this month, the economic outlook has been difficult.
“We have a lot of different storylines going on right now. We have inflation, interest rate hikes, commodity shortages, labor shortages, demographic collapse,” he said. “I don’t know which rider we are on but it’s very, very interesting.”
Americans are now experiencing the highest rate of inflation since the 1970s, Wolkenhauer said. Nationally, average prices are up 8.5%. Interest rate hikes are announced by the Federal Reserve, and we’re likely to see several more, Wolkenhauer said. Supply and demand issues underlie all aspects of inflation.
On the supply side of the equation, there are huge problems getting raw materials in place: aluminum, gas, oil, chemicals, timber, and “almost anything you can think of in an industrial context. said Wolkenhauer.
Supply chain issues are compounded by the war in Ukraine because the global manufacturing system isn’t really that diverse, Wolkenhauer said. For example, there is a worldwide shortage of semiconductors.
Semiconductors require a silicon wafer etched with an industrial laser. Industrial lasers are produced with processed neon gas. Seventy percent of the neon gas processed worldwide comes from Odessa, Ukraine.
Neon gas can be produced anywhere, but only if one has the manpower to do so.
“America has the technology to make neon gas, but where do we find the manpower to bring a new neon factory online?” said Wolkenhauer. “This (lack of employees) limits our ability to solve all our other problems.”
Transportation difficulties also plague the global economy. US ports are seriously behind schedule.
“There are boats moored offshore. Long wait times to unload and long wait time to reload because there aren’t enough truckers to do the loops with the cargo containers,” Wolkenhauer said.
Globally, major ports are also closed, such as Shanghai, China.
“Since the start of COVID, we have entered this unsettling new environment where nodes in the global shipping system are going to abruptly disconnect,” he said.
Americans have money to spend, but because producing and delivering the products people want to buy cannot happen at a simultaneous pace, supply chains are strained.
“It’s the kind of hidden system that makes the whole economy work properly, and it’s badly disrupted right now,” Wolkenhauer said. “That’s why we have inflation.”
Shipping container freight rates increased from $1,446 in March 2020 to $8,152 in March 2022. Aluminum increased from $1,611 to $3,348 per metric ton and crude oil increased from $32 to $117 a barrel.
Commodity inflation is approaching 25%, Wolkenhauer said.
During the pandemic, national spending has fallen to a very low rate, Wolkenhauer said. Post-COVID, many are going out again. Discretionary retail spending in the United States grew by around $600 billion a month.
“This is a huge demand pressure on the economy,” Wolkenhauer said.
COVID has caused a sharp drop in employment rates, but Idaho’s post-COVID recovery has been exemplary. Idaho has done better than any other state to recover lost jobs and is now the first state to create new jobs. Many states are still trying to dig the hole left in the wake of COVID.
“Idaho was the top performing state before COVID and we are the top performing state post COVID,” Wolkenhauer said.
Now, Idaho’s job creation rates have slowed. There are not enough job seekers to fill all the vacancies.
“We have three times as many jobs as job seekers,” Wolkenhauer said.
We have exhausted all of our available manpower and several factors are influencing its shortage. These include mismatching skill levels, low population growth, high retirements, desperation handicaps, availability of child care and difficult job seekers.
The mismatch in skill levels is a diplomatic way of saying that when the economy hits 2 or 3 percent unemployment, those left behind are too hard to employ, Wolkenhauer said. It can refer to those who suffer from mental health issues, for example.
“You’re left with this leftover layer that’s very difficult to employ profitably,” Wolkenhauer said.
According to the United States Bureau of Labor Statistics, Coeur d’Alene hovered between 3.3% and 4.5% unemployment between October 2021 and February 2022.
And that’s not the only problem we face locally.
America’s population growth is “anaemic” despite the booming population growth seen in Kootenai County.
“Our natural growth is negative. The birth rate is below the replacement rate,” Wolkenhauer said. “The only reason the population has increased in the last two decades is foreign immigration.”
This fact links up with the high retirement rate. The retirement of baby boomers is weighing on the available labor supply. Typically, when people retire, their rate of economic consumption declines, but current retirees aren’t following that trend, Wolkenhauer said. They continue to spend and consume services, although their place in the labor market has not been replaced. COVID has also prompted many to retire early.
“Disabilities of despair” refers to statistical data regarding drug addiction, alcohol abuse or suicide, Wolkenhauer said.
“These three things are collectively the leading cause of death for men under 65,” he said. “Collectively, they prevent hundreds of thousands of people nationwide from leading productive lives and participating in the labor force.
Another of the “notoriously” difficult issues in the economy is the availability of childcare.
There are inflexible ratios between the number of children a caregiver can be responsible for. Early childhood education is not an industry where “production can be ramped up,” Wolkenhauer said. Often those who choose to work with children prefer to work for a school system. Income and other valuable benefits are higher.
“All of these things individually do not constitute the labor crisis,” Wolkenhauer said. “But when you put them all together, it’s not hard to see why we’re having such a hard time finding labour.”
Wokenhauer offers three key takeaways and continued inflation will continue, labor shortages are “chronic,” and we “live in an economy with physical limitations.”
“There’s no getting around it because you’re dealing with physical issues, ports, trucking and raw materials,” he said. “We are dealing with a demographic reality that we do not have the ability to manipulate.”