Mid April/Early May Economic Outlook
In early May, the U.S. Consumer Price Index and Producer Price Index for April 2022 were released. On the surface, neither report was great news relative to America’s battle with inflation, yet both, in our opinion, showed progress in the fight. The Consumer Price Index was up 8.3% on a year-to-year basis in April while down from an 8.5% increase on a year-to-year basis in March. Monthly Consumer inflation increased 0.3% in April, down substantially from 1.2% in March. The Producer Price Index, which shows the rate of increase in wholesale or costs for producers of goods and services, was up a surprising 11% year-over-year in April, yet less than 11.2% in March. Monthly Producer inflation increased 0.5% in April, down from 1.4% in March.
We regret to note that the silver lining on inflation may well be short-lived as less than two weeks into May, U.S. gasoline has set a new all-time national average price of $4.42/gallon while West Texas Intermediate Crude closed the day at roughly $107/barrel. Declining oil and gasoline prices in the second half of April were the major drivers of lower prices in key petroleum-related consumer products.
Key April / Early May Data
Positive and Negative Signs
President Biden has been speaking across the country on how well the US economy is doing. Judging by economic data and recent polls, ranging from Politico and NBC to FOX News and Monmouth University, the president needs to check his sources relative to recent claims regarding the prowess of the current U.S. economy. In a Monmouth University poll conducted May 5-9, fully 79% of Americans said the U.S. is heading in the wrong direction, with only 18% affirming the direction in which the U.S. is headed. In the same poll, when asked to rate President Biden’s job performance, 57% disapproved while only 38% approved. When one digs deeper into the Monmouth poll, fully 58% of Americans said they were finding it difficult or somewhat difficult to purchase gasoline for their automobiles or purchase groceries for their household. We understand why Americans are responding to polls like the one conducted by Monmouth University, with gasoline at an average price of $4.42/gallon on May 12, according to AAA, while it was only $4.09/gallon one month ago and $3/gallon one year ago. The average cost of food per household, according to the Bureau of Labor Statistics, was up roughly 10% in April from a year ago. As an example, over the same period, meat was up 13.9%, eggs up 22.6%, fish up 11.9%, milk up 14.7%, fruits and vegetables up 7.4% and coffee up 13.5%.
In addition to higher gasoline and food prices, real wages were down 2.8% in April, while airline fares were up 18.6% for the month. In fact, the April Consumer and Producer Price Indices had good news and bad news associated with their releases, in our opinion. On the one hand, the air travel, hotel and car rental businesses have improved dramatically since the pandemic of 2020 and millions of Americans have been or will be taking much-needed vacations in the months ahead. The bad news is April year-over-year airfares are up 33.3%; gasoline is up 43%; hotels are up 22.6%; and rental car rates are up 10.4%.
We firmly believe the U.S. economy is the strongest, most dynamic, vibrant and resilient economy in the world. However, we believe the U.S. economy is facing great economic headwinds and to deny this makes zero political and economic sense. In late April, the Bureau of Economic Analysis (BEA) surprised most economists when in its advanced report it disclosed not only was Q1 2022 U.S. GDP negative, but it had contracted by 1.4%. To think we took some criticism last month when we suggested that Q1 GDP might be below 1% to start the year. In addition to Q1 GDP, the following give us and most of America great pause for concern.
1. More than 150 million Americans own stock; U.S. stock markets have collapsed in 2022 and are not much higher than they were when President Biden took office on Jan. 20, 2021 (Jan. 20, 2021 close: DJIA = 30,930.52, NASDAQ = 13,197.18, S&P500 = 3,798.91).
2. When President Biden took office in January 2021, the inflation rate was 1.4%. Almost 16 months later, the year-over-year US inflation rate is 8.3%, gasoline is at an all-time record high and home mortgage interest rates on a 30-year fixed mortgage have gone from less than 2.8% to over 5.3%. To make matters worse, the Federal Reserve Balance Sheet has gone from $7.4 trillion to $9 trillion today. Inflation is not under control and President Biden is certainly not without some guilt.
3. Americans are very concerned about U.S. border security, especially on our southwest border. We are a country of immigrants, but also a country of rules and laws. We must protect our borders, especially against illegal immigration of human beings and the unlawful importation of harmful substances.
4. Americans are very worried about the future of the U.S. economy, especially our growing dependency on other countries for no apparent logical reason. We have the potential to be the world’s cleanest and largest producer of natural gas, oil, clean coal and many other minerals and a net exporter of most. Let’s unleash the American competitive free enterprise system, deregulate the U.S. economy and reduce the global carbon footprint simultaneously.
5. In a recent Wall Street Journal article by Tyler Goodspeed and Kevin Hassett, “the 2017 tax reform delivered as promised,” the authors provide conclusive evidence the Trump tax cuts, still in place today, produced a dramatic increase in federal tax revenue while the budget deficits we have faced in the last two years were due largely to excessive government spending. We would be served well in our opinion to make current tax policy permanent.
The problems outlined above are the result of too much government involvement in the economy. We must bring government spending under control; adopt a logical pro-growth regulatory and tax policy; and create an economy where millions of consumers and entrepreneurs drive most of the economic decisions — not local, state or federal governments.
Comments or questions should be directed to Dr. Timothy G. Nash at: email@example.com. The NU Outlook is a monthly publication of The McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University. This month’s publication was co-authored by McNair student scholar, Brad Getchel.