What's Happening With the U.S. Economy? (with Cardiff Garcia)

A podcast and chart collection for anyone trying to get up to speed on how things are going, from GDP to jobs to wages to inflation to savings to entrepreneurship

Last week I had the chance to collaborate with longtime friend and former colleague Cardiff Garcia by appearing as the guest on The New Bazaar podcast. I encourage you to listen to the whole thing using your preferred platform.

We had a lot of fun and we covered a ton of ground. (We also recorded the podcast on November 4, which means that we didn’t have the October jobs or inflation data yet.) But while we kept our conversation as grounded as possible, there were a lot of numbers getting thrown around. So we both thought that it would be helpful to provide a set of charts to help listeners follow along with our conversation.

There won’t be much text in this piece, but there will be lots of useful visualizations for anyone trying to understand what’s happening right now in the U.S. economy. The charts are presented in the order in which we covered each subject.

Are We Producing More than Before the Pandemic?

Yes! About 1.5% more in July-September 2021 than in October-December 2019, on a seasonally-adjusted basis. That’s pretty remarkable considering the death, devastation, and disruption that’s occurred since the end of 2019.

But these aggregate measures of production mask big differences across sectors. Businesses involved in cloud storage, asset management, retail brokerage, and warehousing have done phenomenally well, offsetting the continued depression in sectors such as leisure, hospitality, and passenger transportation.

Other industries that have done well include farms, electronics manufacturing, and grocery stores. On the other side, the hardest-hit sectors include mining, aircraft manufacturing, ground passenger transportation, law firms, schools, daycares, and nursing homes.

It’s also worth noting that current levels of production are still about 2.5% below where we otherwise would have been if the economy had kept growing in line with the 2018-2019 trend.

But even acknowledging that there is substantial room for improvement, it’s important to realize that the economic consequences of the pandemic have been much more mild than what we endured after the housing bust.

How is the Job Market Doing?

This is a tough one. We still have a lot fewer people working than before the pandemic, but for people who are working, the situation is pretty good, with rapid wage growth and employers faced with less bargaining power than in the past.

First, here’s the picture in terms of underemployment. There are still around 5 million fewer people with jobs compared to February 2020,1 but that’s a lot better than in April 2020, when the shortfall was higher than 36 million.

The employment shortfall is broad-based. While the job losses are most acute in the obvious sectors—hotels, bars, restaurants, casinos, live entertainment, personal services, schools, film production, and passenger transportation—almost every part of the economy is operating with fewer workers than before the pandemic. The only meaningful exceptions are software and internet businesses and warehouses and delivery services.

The interesting wrinkle here is that employers seem to be desperate to hire. The government tracks the number of posted job openings each month and those numbers have been through the roof.

The surge in openings—up 54% from February 2020—has coincided with a surge in the number of Americans quitting their job. The data don’t tell us whether those workers are moving to competitors or switching industries entirely. Either way, the increase in churn has been most proncounced in manufacturing, with job openings more than doubling since February 2020 and quits up 62%.

How is GDP higher than before the pandemic with employment down?

We talk about this at length in the podcast, but the short answer is that it’s due to a combination of genuine efficiency gains as well as quirks of how the government measures GDP.

For an example of efficiency gains, consider that the real value of goods that Americans consume each month has soared relative to the number of Americans working in the “goods distribution” industries of retail, wholesale, warehousing, trucking, and delivery. By this measure, productivity per worker has jumped 16% since February 2020. That’s a big difference from the longer-run trend.

Unsurprisingly, the share of retail sales that takes place online popped in the early months of the pandemic and remains elevated.

The skewed nature of the income distribution also plays a role in how the statistics are collected. Americans in the bottom 40% of the income distribution earned just 11% of all worker pay in 2018, the latest year for which we have comprehensive data. So if the people who lost their jobs are disproportionately from this cohort, total worker pay won’t fall very much and the average worker is going to appear much more valuable by virtue of making more money.

Are workers earning more money?

Yes—a ton more. The government publishes data each month on the total amount that employers spend on worker pay, and it turns out that the combined wage and salary bill is up almost 7% between February 2020 and September 2021 even though employment is lower. The average worker is therefore earning about 10% more than before the pandemic. Obviously the experience of many individual workers looks a lot different, but the point still stands.

The Employment Cost Index tracks average pay for each individual job over time, which means that it isn’t affected by any composition effects due to a few highly-paid workers doing exceptionally well thanks to stock grants. As of 2021Q3, the ECI was rising at the fastest rate in decades, with the typical worker getting a yearly raise of nearly 5%.

What about inflation?

While some prices are up a lot—used cars and car rental are both about 50% more expensive than before the pandemic—most prices haven’t really done anything unusual. Here’s a month-by-month breakdown, with the blue categories representing sectors affected by the pandemic (about 30% of the total Consumer Price Index basket) and the red ones reflecting underlying inflationary pressures:

Less than 38% of the total increase in the CPI so far in 2021 has come from categories that represent 70% of the total basket. Contrary to what you might read elsewhere, the price surge of 2021 hasn’t been “broad-based” at all but instead reflects a few idiosyncratic categores adversely affected by the pandemic.

Household Wealth and Savings

One of the weird paradoxes of the pandemic is that we’re generally a lot richer than we were before. U.S. household net worth is up by $25 trillion since the end of 2019. And while the bulk of those gains have gone to the people who had the most to start with, people lower down the income distribution are also a lot better off than they were before.

A lot of these gains reflect the rise in asset prices. But Americans have also saved a lot more, too.

Finally, a subject close to my heart: self-employment and entrepreneurship

One of the biggest and most pleasant surprises of the pandemic has been the surge in new business formation. The Census adds up applications to the IRS for Employer Identification Numbers each week and organizes them based on type of business and the characteristics of the applicant. In the first weeks of the pandemic, business applications plunged. That was consistent with what happened in 2008 and would have been a discouraging omen for future growth.

But then something remarkable happened: business applications surged—and remain high. As of now, applications for businesses with planned wages are running more than 30% above the pre-pandemic average.

The boom in entrepreneurship is probably the single biggest reason (among several) to be bullish about the post-pandemic trajectory of the U.S. economy.

Anyhow, I hope you found this helpful, and I also hope you listen to the full conversation I had with Cardiff!


Whether it’s 4.7 million or 5.3 million depends on how you count the abnormally high number of people counted as “employed with an unpaid absence”.