MainStreet Macro: We’re all Economists

It’s a new year on the calendar and the one-year anniversary of MainStreet Macro.

We launched this blog with a proclamation that Main Street, not Wall Street, drives the economy. Main Street also determines the strength and duration of job recoveries and losses.

A year in, how’s it going?

The recovery taking shape has been as unpredictable as the events that brought us here. But we’re more certain than ever that each of us – workers, consumers, employers – plays a leading role in our own economic future.

As an economist, I study the interplay of resources and production, buying and selling, goods and services. But while I’m paid to look at the big picture, all of us practice economics at some level.

So, to kick off the new year, let’s look at three ways we’re all economists.

Milk, anyone?

Milk may not be first topic that springs to mind when it comes to economic thinking. The reality is, though, that consumer awareness of prices for milk and other staples shows how connected we are to broader economic forces.

A generation ago, the internet made life easier for consumers. It allowed us to comparison shop and gave us at least some power to drive down prices.

That’s one reason our current bout of inflation has been so jarring. Between automation, globalization, and digitization, we’d gotten used to deep discounts and slow price increases.

Now, though, consumers are being forced to adapt to more rapid inflation and, in some cases, more frequent price swings.

Which brings us back to milk. It’s one of those consumer staples that people are likely to buy even when the cost goes up.

How did it start for milk? In February 2020, before the pandemic, the average price for a gallon of whole milk was $3.20.

How’s it going? That same gallon now costs $3.67, up 7% from a year ago and 14% since the pandemic began.

I recently paid $4.20 for a gallon of whole milk at my neighborhood grocery. Even economists are subject to local market forces.

Source: St. Louis Federal Reserve Economic Data

Show Me the Money!

If you’ve ever looked at a pay stub and tried to estimate how much money you’ll have left after expenses – newsflash! – you’re acting like an economist.

Maybe you’re not forecasting the trajectory of gross domestic product. But you are running a household or business and managing a scarce resource – money. Your financial decisions have a direct impact on the country’s overall economic health.

As we know, the pandemic hit businesses and workers hard. Some companies shut their doors and jobs vanished.

Now, 22 months into the recovery, employers are in a rush to hire. Job openings are near record highs and wages are on the rise.

Take a look at the wage index that last month transformed the Fed from an inflation apologist to a hardened inflation slayer. The Employment Cost Index from the Bureau of Labor Statistics measures what companies spend to keep workers on the job, including the value of wages and benefits. Let’s focus on wages.

How did it start for wages? Going into the pandemic, compensation (excluding benefits) for workers had grown by about 3% on average every year for the past decade.

How’s it going? As of the third quarter of 2021, wages are up 4.6%. Some workers, at least, are reaping some benefits of inflation.

Source: St. Louis Federal Reserve Economic Data

Spill the Tea!

No, we’re not talking gossip, though even economists enjoy a bit of chitchat now and then. This is more a throwback to the Boston Tea Party.

Most of us pay taxes of some sort – payroll tax, property tax, sales tax. In fact, right after the 2020 recession began, the federal government used tax relief to help Main Street get back on its feet.

The nearly $6 trillion economic stimulus package passed by Congress included tax credits for businesses and families.

Congress so far hasn’t found a way to pay for all that spending, so federal debt has shifted dramatically.

How did it start for debt? Before the pandemic, U.S. debt was a high but mostly tolerable 107% of gross domestic product.

How’s it going? The federal debt is down from its peak 135.9% of GDP but still at nosebleed levels: 122.5% of GDP.

Source: St. Louis Federal Reserve Economic Data

My Take

My youngest son, Jaden, celebrates his birthday this week, so for me, early January is always a time of double reflection.

Now I’m triple-reflective after writing this blog during an historic year for the economy, during which we witnessed Main Street’s resilience.

Consumers led the charge, spending through the economic downturn and carrying the torch for one of the speediest economic recoveries on record. 

Small employers were not to be outdone. They were the first to increase headcount after companies shed workers en masse in the spring of 2020. 

Last but certainly not least, workers became the new game changers. They’ve emerged from the labor downturn with more negotiating power.

Last year we saw unequivocally that while all eyes are trained on Wall Street or Capitol Hill, real economic power is in the hands of Main Street.

As individuals, we don’t always comprehend the influence we have on the economy. That’s part of the reason we started this blog a year ago.

Whether you’re buying milk, earning a wage, or paying taxes, you play a critical role in our economic path forward, in 2022 and beyond.

What’s next? What changes are you making – or have you been forced to make – at your business or place of work? What’s the next big challenge? Whether you’re an employee or run your own business, we’re interested in your stories. Send them to [email protected].