You know the saying, When all you have is a hammer, every problem looks like a nail?
How about this data world version, When you don’t track the data, you can’t see the problem?
I was drawn to paraphrase the classic hammer/nail adage by the release of the Federal Reserve’s most recent economic projections, the Dot Plot, on Wednesday, March 20 when I thought about the economic data the Fed didn’t include in its projections.
Stocks rallied on Thursday as investors and traders concluded, accurately I think, that the Fed is projecting the much wished for soft landing for the economy. GDP will grow by a real (that is after subtracting the effects of inflation) 2.1% in 2024 and 2.0% in both 2025 and 2026. All-items inflation, meanwhile, will drop to 2.4% by the end of 2024, and then to 2.2% in 2025 and finally to the Fed’s 2.0% target in 2026.
What’s not for investors to cheer about in those numbers?
But we all know that GDP growth has a limited connection to the real world experience of most people. It tracks economic activity so a storm, for example, that destroyed a small beach town, and put, say. 100 families out of work and left them without shelter would count as a plus for GDP if the value of economic activity generated by rebuilding the town exceeded the economic activity lost when those 100 families stopped working and buying. I haven’t been able to find any numbers on this but I bet there will be an increase in GDP from some parts and stages of the disruption caused by global climate change. No matter how that disruption feels on the ground.
And that aside, what about the numbers that aren’t in the Federal Reserve’s economic projections?
Yes, the Fed includes the U-3 unemployment rate, that’s the official unemployment rate, but the Dot Plot doesn’t look at the U-6 unemployment rate. That’s the rate that includes discouraged workers who have given up looking for work and workers in part-time jobs who would like to find full-time work. The official U-3 unemployment rate was 3.9% in February. The U-6 unemployment rate was 7.3%.
And the projected trend in the U-6 unemployment rate from 2024-2026? Won’t find it in the Dot Plot. Even though, I would argue, in the current economy with the increasing amount of work that is part-time gig work, the U-6 unemployment rate is increasingly important.
And what about these unemployment rates? The unemployment rate for black workers was 5.6% in February. Or for teenage workers where the unemployment rate was 12.5% in February. Just as a reminder, the official unemployment rate for all workers was 3.9% that month. Think these sub-indexes aren’t important? Tell that to the government in Beijing that is desperately trying to provide jobs for younger workers (less than 25 years old) whose unemployment rate is near 25%. Discontent in that population segment is spreading through the entire consumer economy.
Or how about projected wage growth rates? Important, you’d think if only because the Fed has been watching the growth rate in wages for indications of when it can begin cutting interest rates. The annualized rate of growth in wages was 4.3% in February. I’d note that this rate is nominal and not corrected for inflation. With inflation running at an annual rate of 3.2% in February, real wage growth is just slightly above 1% on an annual basis.
I’d sure like to see the Federal Reserve elevate the rate of wage growth to equality with the other data measures in its Dot Plot economic projections.
Wage growth and more particularly wage growth for specific groups of workers is going to be one of the biggest economic challenges to come as a result of the boom in AI technology. My guess is that wages for workers who write AI apps will do just fine in the years ahead. But wages for workers who compete with AI automation and robots are likely to be under extreme pressure. Working for Amazon in a shipping center isn’t the most lucrative job now. Think the pay for those workers is going up when that company–and lots of others–put AI automation at work?
If we’re going to have any hope of addressing the challenges of AI to workers (and to the economy and things like trends in consumer spending that investors directly care about) we’ve got to start collecting the data. And elevating the discussion of that data to equality with our talk about GDP growth.
The Fed’s Dot Plot projections wouldn’t be a bad place to start.
